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2016 | KEY | KEY
#Right now we're right in that 2% to 3% kind of asset sensitive range, right around 2.5%.
The swap increase reflects the increase in our LIBOR-based loans and also the fact that we issued some CDs this quarter so we had an increase in some of the fixed rate liabilities as well.
So it was more of just an overall balance sheet management and making sure that we maintain in that general range.
And still believe that we'll probably continue to maintain somewhere in that 2% to 3% type of asset sensitive range for the rest of the year.
Thank you.
All right.
Thank you, operator.
And again, we thank all of you for taking time from your schedule to participate in our call today.
If you have any follow-up questions, you can direct them to our Investor Relations team at 216-689-4221.
That concludes our remarks.
And again, thank you for your participation today.
| 2016_KEY |
2015 | IRM | IRM
#No, I think we're happy with the capital structure that we have at the moment, having paid off the very high interest notes that we had.
Effectively what we are looking to do is hold what we have, see what happens through the Recall deal, which, as I say, we anticipate trying to close in early Q1, which we're still working through the regulatory process there.
It gives us some capital to assist with that closure, if you like.
But we're going to hold what we've got and see how we get on with Recall.
I appreciate the question.
I think, as you can imagine, the regulators like these discussions to be kept confidential as we go through them.
But just to give you guidance, I think it's pretty much what we said at investor day.
We are engaged with the four regulatory authorities that have shown interest in the transaction, which is US, Canada, the UK, as you mentioned, and Australia.
We feel that we are well engaged with those authorities so on track for a Q1 close.
And discussions are ongoing.
Where we sit today we feel good that it's in line with our expectations when we set out on the course.
Nothing has changed.
Generally, these things take 6 to 12 months when you go through a regulatory process in the United States, for instance.
But we continue to guide at the lower end of that range because we feel good where we stand.
You're right.
You've watched this for a long time.
There are ebbs and flows.
I am not sure you can always do the cause and effect between term outs and destructions, and customer withdrawals.
But I think there is ebb and flow between the two.
And the other thing I should point out is the new sales growth is part art and part science because some of that new sales growth comes from existing customers.
And it's in that split between new sales growth and what comes from, quote, existing customers is as much to do in terms of the way the compensate our sales force.
In other words, if they get some growth out of an existing customer but we deemed it as a new area or new location or new department, then we call that a new sale.
So, I think there is some ebb and flow between the two.
And, as you know, if we look at the heavily regulated industries, which is a big part of our business, a lot of that is affected by different litigation that's going on around the world.
So I think there is some cause and effect but I wouldn't overplay it.
There's a certain amount of randomness to it.
I will let <UNK> answer that.
I think just on a high level, there's a couple of things.
One is, if you even look over time, we're pretty good at driving productivity out of the business because when you start off, what I was saying earlier, is that we get currently in this low inflation environment we get somewhere between 0.5% to 1% increase in price.
Obviously our labor cost in certain markets goes up faster than that.
So, we continually drive productivity through the business, and that's what really drives our OIBDA growth.
And then I think you can expect, also, when some of the transformation gets fully realized, now that we are through most of the restructuring costs in this quarter, you can expect that will even pick up a little bit more.
But, <UNK>, you may comment further.
Yes, maybe just to build on what you're saying.
You're obviously right in terms of the point that was made.
If you look at our guidance, take the C dollar guidance that we updated at investor day, in effect what we're saying is that from a revenue point of view we see our sales at the middle of the range.
On contribution we see our sales more towards the higher point of the range and obviously therefore the OIBDA margin goes up.
Really what's behind that is the work that we've been doing on efficiencies around service margin and also around the transformation efforts that we have referenced.
Some of that has come through in 2015 faster than we originally anticipated when we set the guidance back in January.
And really that's was behind the improvement we are seeing.
I think on the emerging markets we are seeing it pretty much across the board but it depends on the size of the base.
For instance, I just came back from Eastern Europe and took a couple of members of the Board along with me so that they could see up close what we are doing out there and also see some of the talent we've got.
Eastern Europe continues to grow extremely well.
So, does Latin America.
The challenge in Latin American, Brazil, which is our largest operation, for instance, in terms of growth, if you measure it in Brazilian real, it is strongly double digit and continues to do well.
The issue, of course, in places like Brazil is the translation of that because the real has been under pressure.
And then Asia, which is a smaller portion of our portfolio, but again has very strong growth rates, whether you look at India or you look at places like Hong Kong, Singapore and China.
The one thing I would point out, though, is that in markets ---+ even markets like Brazil where we've been under pressure from a real standpoint, when you translate that in US dollars the growth may be muted slightly ---+ is we've also been able in some of these cases, like Brazil, been able to borrow locally in real, which has helped hedge some of that translation.
I would say pretty much across the board we haven't seen any slowdown in the emerging markets.
And all the countries typically run in that low double digit of internal growth before acquisitions.
Obviously we deal in quite a number of currencies in terms of what's impacting our numbers.
And I think in terms of the short-term impact, where we've seen the hit has been Canadian dollar, Russian ruble, Aussie dollar, the Brazilian reais, and Colombian peso.
They have been hitting us during Q3.
If you take a longer-term view, so more looking year on year, then there's wider effects coming in from sterling, in particular, where obviously we have quite a significant business.
The only thing I'd like to add to that, <UNK>, is that, whilst you are seeing the FX headwinds in revenue, you'll notice that it gets muted pretty quickly as we start going through the OIBDA in the EPS line.
And where we are at a stage is, in some sense, the timing is not bad for us because we are using strong US dollars to invest and build out this portfolio, which is still relatively small portion in terms of the countries where the currency is mostly impacted, which is in the emerging markets.
I'm not saying that the other markets aren't a factor.
If you say 40% of our sales are in foreign currency, but the currencies that are impacted typically are in that little less than 15% emerging market area.
And those are areas where our OIBDA margins at this point are lower because we're building scale in those markets.
So, we're taking strong US dollars to build out these markets right now.
And their impact, even with the negative FX impact, the impact on OIBDA in the earnings is muted.
It's obviously fully affected at the revenue line, but when you see what happens to earnings it is muted.
I agree, you need to model it out, but the earnings is not as sensitive as you might think to the FX; whereas, you do see the full sensitivity on the revenue line.
That's why we felt comfortable about already starting to increase our dividend because we feel that we've got enough momentum in the business that we can continue and start back on our growth trend in terms of dividends.
No, nothing particularly unusual in Q3, obviously other than the fact, we actually booked the $9 million restructuring charge, which actually lowered the margin slightly.
I think as we look to Q4, again sitting here today, I am not seeing anything particularly unusual that should come through.
Obviously we won't have a repeat of the $9 million charge and there will be some benefit from that actually hitting us in Q4 as a result of the slightly lower cost base.
But other than that, I think it's pretty much steady as she goes.
Sure, <UNK>.
Let me start off and then <UNK> can add any color that he thinks that I missed out.
I think first let's look at the revenue growth.
If you go back, say, to Q4 2013 and just look at the number of quarters, you will see that North American storage rental revenue growth has gone negative 0.4%, negative 0.3%, plus 0.3%, plus 0.4%, plus 0.9%, plus 0.5%.
And then the last two quarters a negative 0.1% and negative 0.3%.
So, you will see, first of all, which I was referring to earlier, you'll see that moving around.
You can back into that through the supplemental.
On the revenue side, because, as you can appreciate, when we renegotiate large enterprise deals, that in any given quarter you can get a significant impact in terms of the revenue associated per cube.
So there's a disconnect between that volume growth.
Over a long period of time, though, if you look at the trend over a long period of time, we still see, if you take the revenue growth and if you look on an annualized basis, we are getting between 0.5% and 1% in terms of price per cube growth.
Then you get those two bits combined and that will give you a good guide in terms of what the internal storage revenue growth is for a particular market.
You're right to point out that we continue to drive significant, I'd say on a percentage basis, relatively small percentage growth in North America.
But in terms of volume, because of the size of the North American business, the large numbers, we continue to deliver a significant amount of organic cube volume growth in North America.
And over a 12-month period you should think about 0.5% to 1% price growth on top of that cube growth.
But any given quarter, depending on where we are in renewal cycles, especially for the large contracts, if you go back over the last 8, 9, 10 quarters, you will see that movement around where we'll have one or two quarters where it will be negative, two or three quarters will be positive, and it just moves around.
I think is what I think <UNK> asked earlier in terms of the to's and fro's customer cycles.
There is a bit of that.
I think also it's fair to say on a percentage basis it is coming down slightly, partly driven by customer activity, but a big part of it is just the large numbers.
So, if you look at the volume of cubes coming in, we're still seeing very consistently across the board 30 million cubes coming in on a gross level and, let's say, 40 million net coming in.
One of the things where you will see us try to even tap into another market which we think is quite large is what we're doing in the mid market.
I think if you look at where we are on the mid market side, I think actually I misquoted, is we're in low double-digit growth if we look at year-on-year bookings for new sales across the board.
But in the mid markets year to date we're up over 60% in terms of bookings in the mid market where we only have 10% market share.
So, I think there are some things where we can tap into, quote, another large market, but I think it is fair to say that if you look at our normal hunting ground, if you will, it's the law of large numbers and there is a limit in terms of how much more we can get from those customers.
It was actually predominantly to do with our data center business where we had some costs that were in the service line that when we really analyzed we thought they should be in the storage line.
So, that artificially enhanced the service margin in Q3.
We didn't want to give the impression that the true underlying run rate was 28.5% which is what we recorded.
it is more like 26.8%.
It was just a reallocation of costs following a more detailed review.
In that case it has a very minor impact.
So it doesn't affect our assets or anything in any meaningful way.
No.
Obviously we are subject to FX volatility, which during Q3 moved against us.
Actually if you looked during the first few weeks of October it's moved slightly back in our favor.
So, that can swing the numbers around.
But in terms the fundamentals of the business, it's relatively stable.
Okay, thank you, operator.
Thank you everyone for joining us.
I know it's a busy time for everyone.
But just to sum up, we are very pleased the way the quarter came out.
We thought it was a very good quarter driven by the continued strong operating performance.
And that's delivered profit that's at the upper end of our expectations.
So, we feel really good about the quarter and, hence, the recommencing of our dividend increases that we declared this morning.
Thank you, everyone, and have a good day.
| 2015_IRM |
2016 | PTEN | PTEN
#No, it's still included.
We don't see large pressure pumping companies increasing pricing.
Sure.
You know, to describe it best, I need to roll back the clock to when we were busy back in 2014 and we were operating almost 1 million horsepower back then.
We were moving sand from multiple mines across the US to the work that we were doing.
We were moving typical white sands.
We were moving regional brown sands.
We were doing this with railcars that we have under long-term lease, which we still have available today.
In 2014 we also increased the number of sand-hauling trucks that we own.
We do own a number of our own sand-hauling trucks.
And so we have infrastructure in place including rail spur leases, storage facilities.
We have the capacity to manage the sand for 1 million horsepower.
So no challenge there in terms of our logistics.
I think, you know, there's always opportunities to improve logistics and we're certainly going to look at that as the market has increased the sand concentrations, you know, over the last year and a half.
But we're still confident that we can manage and move the amount of sand and materials that's required.
In 2014, we didn't miss any work during that very busy period of Q3 for not having sand at the well site to pump the job.
And so, you know, we'll still use the same team that was managing it then will continue to manage it, and we've actually added to that team since then as well.
So we think we're in good position to do that.
And we've already started discussions with some of the sand suppliers just to make sure that we have access to the sand that we need.
I don't have that number for you.
It's a mix.
If we buy some sand directly from the mines right there.
And then some of it, we might work with a sand supplier for some of the logistics as well.
So it really just depends on type of sand, where the sand is going, et cetera but we do both.
So specifically in the Northeast ---+ I'll start there.
You know, we said back in the springtime, you know, one of the conferences that you might have been at, that, you know, we counted around 400 ducks up in the northeast.
And we have a good footprint and we certainly know every customer up there.
And so we don't think that number is too far off.
Sometimes I think the definition of what makes up, you know, the duck within the stats might be different on how people count them.
We're looking specifically at the wells that were just parked on the side in inventory, and not between, you know, the drilling rigs and the frac groups.
And so we see that we're working off some of that inventory now.
And that's, you know, driving a good portion of our business right now in the northeast.
So, yes, I would say we are working off duct in the northeast.
In Texas it's harder for us to know and get a full view of it.
And then of course we hear about ducts in other regions of the US that we don't participate in pressure pumping.
But we think that, you know, the ducts are a big part of our business right now in the northeast.
And that will shift to more of the work behind the drilling rigs as drilling activity improves in the northeast.
I think it's hard for us to say right now.
Thanks.
You know, that's getting out there a little farther than we normally communicate, so, you know, ---+
So in the $170 million on the drilling side, it's maintenance and it's equipment for upgrades.
But that doesn't include any inventory or any parts for building new rigs.
It's just going to be demand-dependent.
It depends on what WTI does, of course, and how fast the rig count moves up and how fast we work through this 250 rigs roughly that we count out there that have all these full specifications that customers are asking for now, and then the available upgrades.
And we like to think that we can be opportunistic if that opportunity comes up.
No, I don't have that number.
Thank you.
Thank you, Howard.
We would just like to thank everybody for participating in our second quarter 2016 earnings conference call and look forward to speaking with you again when we report third quarter.
Thanks, everybody.
| 2016_PTEN |
2016 | HSII | HSII
#<UNK>, there is no specific number that I can give you on this.
I would say this.
You've got a firm right now that's 90% Search and 10% the Consulting practices really dominated by Culture Shaping.
We would like to see that balance over time in the ---+ we are going to do it in stages, but we are going to do it incrementally at ---+ get to 80/20, get to 70/30.
I think when you start to get into the 60/40 range, we're going to hit the mix that we think makes sense.
You have to remember that Heidrick continues to be a very strong search firm and that gives us the right to have the conversation with client, the right to have the access to the top.
And we want that to continue to be a very, very important part of what we do.
When I give you those numbers, I am giving you that over a very healthy period of time.
We are not going to see that for a healthy period of time.
And if we can get into that 80/20 mix as the first place to stop, we'll be happy with that.
We are seeing right now, as you know, the investment in Culture Shaping and the impact that's had on margins as we invest this year.
We have flagged in this, in our conversation today, what kind of margin we think we can get back to with respect to Culture as those investments concluded and we move forward.
And we have indicated in my comments that the best way to think about Leadership Consulting is that that margin over time, when we get to the right scale, we believe those margins will be no less than Search.
We would look for those to be more than Search.
But I'm saying what I think we think is a relatively balanced way to describe it, which is to knit your two questions together, get to a 80% Search/20% Consulting business where the margins on the Consulting side are at least as good as Search.
And we believe when we get to scale have the right to be better.
Yes, the organic growth ---+ the growth was relatively flat on an organic basis in the quarter.
The inclusion of the acquisitions made up the majority of the growth on the revenue side, <UNK>.
I think as we go forward into the fourth quarter that will reverse a little bit in that we'll have contributions from both.
I think as we noted in the comments, I think we would have expected the America segment to be a little bit stronger in the quarter.
And I think because the momentum came at the last half of the quarter, last part of the quarter and October looks relatively good that I think we should see some organic growth in the business.
So it should account for a portion of the growth implied by the guidance.
That's also including some of the new people that aren't acquisition-related as well.
I'm not ---+ from a standpoint of just confirmations, there's a number of things that drive the revenue.
Our confirmation trend has been a reasonable trend over time.
It hasn't been ---+ it certainly has bounced up and down a little bit.
So it certainly would show that ---+ I think if we have strength it'll come from Europe and Americas more than it will Asia Pac.
It has been consistently a little bit off of this year compared to last year for some of the reasons mentioned.
I think from a standpoint of that.
But the other things that really drive some of our growth right now, candidly, and we've talked about this before, is that we get ---+ it's the contribution of upticks, and as we have seen the assignments bill and complete, and in some cases fee revenue come in at the end, they have become an increasingly a larger part of our quarterly revenue.
And so that's across all three regions.
Yes.
Spendable cash is relatively small right now from the standpoint that if you know our accruals through year to date on the balance sheet are down year over year.
I would say our variable compensation accruals, I noted in my remarks, are lower.
So accrued expenses are $128 million at September.
And so that's down year over year.
The cash, we have spent a lot of the free cash on the acquisitions.
I've chosen not to draw on the revolver at this time.
We are ---+ still have plenty of cash because of the accrued bonuses.
As we finish, whether or not and how much we withdraw on the revolver at bonus time will depend upon how we finish the fourth quarter.
<UNK>, I would just add one more comment to your opening question about percentage, which is the most important governor that we are going to look at on that is frankly what's driving it from the client side.
And so I think the right way to think about this is, our first stop is to get to 80/20 between Search and the non-search Consulting businesses.
And it's going to be highly determinative from there about what kind of demand do we build from the client.
We are obviously building this accelerating performance platform out of LC because we do think it does have scalability.
But we are going to pay really close attention to what our clients are telling us about the demand.
And that will have a big impact on how much it changes from there.
Yes.
No, that's a great question, <UNK>.
There's some potential that we will see some squeeze on the margin as we build bonus accrual.
There are a lot of moving parts.
This year because of the large increase in consultant hiring that we did, our fixed compensation is higher year over -year.
And as a result some of that will actually flip maybe in the fourth quarter, depending upon how we finish the year.
So it's really hard to predict how much.
And so I'm hopeful that if our earnings are more towards the high end of the guidance that that will give us a lot more cover to mitigate that margin pressure as the accruals flip.
But right now that's the big variable.
I'm not sure we would point to any one geography.
I think the kind of experienced all across all of ours, at least in our case.
We've pulled this a lot because we can't really point to one thing.
Because as we saw, July and August kind of soft, we really did worry a little bit about was it a sign of some kind of a cyclical trend or a movement.
September bounced back pretty well.
And so ---+ and as we talked to our folks and see what's out there and see how October is progressing, there's nothing we can really point to that says that there's one driving factor.
So whether or not it could have been client decisions caused by things like Brexit, (inaudible) is certainly one of the factors that would've fallen into play.
But there isn't any one thing that we can point to.
And I don't know if you want to elaborate.
I would just add, as we described, September was a strong month.
October is a darn good month.
It's hard to understand why it evolved the way it did, to your question, <UNK>, other than vertical.
I will just say this.
The dialogue with clients across that four months has remained strong.
So why clients decided to pull back in July and August, we don't have as much precision around that as we would like, let alone to answer your question.
The one thing I pointed to even in my G&A commentary is that we were surprised a little bit by the level of business development expense that we incurred at the end of the quarter.
So that will match up against some of what we saw in September and October coming through because, as <UNK> noted, the level of activity hasn't slowed down at all.
Certainly there seems to be some intensity in conversations around clients.
So we take that as a good sign.
Certainly, the lack of capital markets activity relatively speaking to previous time periods in Asia has impacted financial services activity in that region of the world.
Here there is, certainly as we see on a weekly basis, the regulatory overlay with respect to financial services, which creates an impact on overall demand for talent.
I don't want to overly accentuate those themes beyond what we are seeing right now.
I would just note them as two dimensions that flow through, and certainly impacting those numbers right now.
Thank you, <UNK>.
First of all, <UNK>, I would say that some of this hiring, if you go back to where we were a couple years ago, as I entered the business here at Heidrick, one of the big themes we had was really to stabilize and rebuild as part of that stabilization.
And so, some of this that you see is where we see pockets of opportunity to build a footprint consistent with the overall Heidrick brand.
A great example of that is, obviously, JCA in London where we have a solid business in London, a good business in London, but we saw an opportunity there really to jumpstart in one move the access to the top which we had lacked.
And we could've done that one by one, but we decided it was advantageous to do it with a full team.
And for reasons that we are comfortable with JCA and ourselves, we decided to come together in that acquisition.
So that's probably an example where we advanced that count of consultants probably faster than you would normally see.
And other places where we are adding talent is really adding talent both at the senior basis, but also adding it at the principal basis where we can get leverage into our model.
That is additional to what we've seen in the past where we have principles supporting clients, supporting client teams that we think allow us to position ourselves even more strongly with the client.
All those numbers add up into the count.
So that gives you an overall perspective.
I would say on the capital allocation, look, we continue to look at probably the most difficult equation that any business has, whether it be ours or anyone in the world right now, which is balancing short term and long term.
We know that there is a mathematical pop that can come from buying back stock.
And we certainly look at that and we use that as one metric to measure against the acquisitions that we are making.
But we are not looking to do acquisitions just to do them.
We're looking to do them to align with a client strategy.
And where we see an acquisition that can accelerate what we believe is the right client strategy, we will do them.
Clearly when we do these acquisitions, we're making investments that, at least in our case to date, are going to take longer to show that return versus the quick mathematical pop that can come from buying back shares.
But we think is the more enduring return over time and complementary to our business that really, again, starts with search and starts with the access and the permission that search has in the board room and in the C-Suite.
I'll stop there and see if that addresses your thoughts.
Tough question for us to ask.
I would just say this.
As challenging as it is to have two slow months like July and August, we had a whole lot ---+ before I prefer having this conversation with you with September and October with positive momentum and July and August strong and September and October weak.
Where that continues, we've given ---+ the best we can tell you is the forecast that <UNK> described with regard to revenues.
Beyond that into 2017, we are right in the middle of our planning process right now as it relates to 2017 for the balance of this year.
It's obviously something we are very, very focused on.
Overall economic headlines are not the most positive and robust.
That said, what you see happening in the capital markets is generally asymmetric with that.
And so we are like everyone else, trying to figure out how to balance those big macro headlines with the conversations that we are having with our companies, where we see them investing, how they are investing.
You only have to look at what's happening in the market in the last month or so, whether you look this week to AT&T/<UNK>e Warner, whether you look to Bayer and Monsanto.
There is a lot of interest out there in trying to figure out how to grow businesses.
And if they decide that doing it organically is going to take too long, there's some robustness in that merger marker right now which is quite interesting.
And that obviously speaks to confidence.
There's a couple of things.
We've got a couple of initiatives going on inside the Company, number one, where we needed some temporary help, which is we are implementing new HR information system across the business, which was badly needed.
The system that we had is outdated and couldn't even be upgraded anymore.
And we are a people company.
And so we are going to a cloud-based system.
We needed some outside expertise with people with specific skills that needed to come in and help us with that implementation.
That expense hit this quarter and may hit another quarter or two, just as we finish that implementation.
That hit us both in the professional services line as well as in the temporary help line.
In addition we have some hiring fees of just people that we've been adding to the mix in specialty areas, especially that are outside the core of our normal search business, where we actually have to use recruiters, et cetera, to fill out the specialties, as well.
So these were small items individually.
In the aggregate I'm talking about probably close to somewhere around $400,000 to $500,000.
Again, small numbers move our needle a lot.
Those are pretax.
Sure.
I'd say <UNK>, we are a big step up from where we were two years ago, number one.
Two is, in the spirit of the questions that have been asked, we ---+ just about overall economic environment, we don't want to get ahead of ourselves with regard to that and we want to balance that with where we see opportunities to hire talent that are attracted to what Heidrick is building right now.
There are definitely pockets in each industry where we can selectively hire.
But I wouldn't say that we are ---+ we are nowhere near where we were two-plus years ago where we had huge gaps.
I would say right now we are approaching where we can be opportunistic, we're going to do that as opposed to where we absolutely have to go higher.
<UNK>, there's one thing I would add to that conversation is, it's more quality than quantity.
But if you think about the just general needs of the business, and we've said this many times.
In an environment in Executive Search, it's one of the reasons why we believe the portfolio mix has to continues to evolve as well.
Growth in Search is hard to come by.
And so it does ---+ and one of the big drivers of that is the number of people you have in the market who are good.
And so we always are looking for the right talents and places to add the talent that makes sense for the business and are of the caliber and the right culture fit with our people because search is the engine of the business.
<UNK>, I'll just add one other part, which is we are also very committed and have been to promoting from within.
So there is a whole group of people who are moving up the experience curve.
We will be looking at another year where we will make promotions to partner, where we will make promotions to principles.
It's too soon to get into anything other than just stating that in concept.
But we continue to be very focused on that internal promotion path as a way for our people to advance, but also as a way to fill those opportunities in the marketplace.
In a perfect world we would get to a place where we can promote more from within than what we have to do on the outside and keep outside just very opportunistic.
Yes.
<UNK>, I'm going to jump in on this just because a little more detailed maybe then <UNK> would have at his fingertips.
But it's a great question.
It's something that we'll probably be getting even more clarity to as we get to year end and in the next year, because the mix ---+ and I think you said it embedded in your question.
The mix of our business is changing.
And some of the nature of the G&A we are experiencing is changing.
I'll give you an example.
Most of our G&A, which is non-people in our vocabulary right now and we may give further clarity on this in future income statement presentations.
But most of our G&A ---+ all of our G& A is the non-people related expenses.
Most of ours falls really in four lines right now that are really material to the business.
Number One is our occupancy expense across our business, which is just basically the existence of our offices.
That's been almost a flat expense for a long period of time.
The second one is our professional services where we engage the help of people outside the Company to either assist us or do critical things that we need done.
One example on the corporate side, obviously, is things like audit fees and tax work, et cetera, and throughout our various geographies.
Internally we use professional services fee for things like I talked about, technology implementation, marketing support and expense.
We've got some tremendous marketing initiatives going on right now with our leadership consulting business that are extremely going to be well done, well received, client impacting where we are using the help of some outside people to help get that done.
The third major line is the outside contractor expense.
I think really that is really much more of a cost of sales type of expense that really probably doesn't belong in G&A.
And we are looking at that for longer term presentation, because that's really temporary help to fulfill consulting engagements, just because we haven't been able to leverage up the team fast enough.
And so it's hurting our margin in two ways.
Number one, it's making G&A look bigger.
And number two, it's a higher cost than if we had our own people.
As <UNK> mentioned, over time as we scale that business more appropriately, the cost of that leveraged support will go down.
And it will not be a G&A expense, it will really be a cost of services expense.
And then the final thing is the travel and entertainment and business development expense.
This is one of the fine lines we always walk, because we encourage our people to be in touch with clients.
We want them out there market-facing, talking the business, getting knowledgeable about all three lines of business, and having deeper conversation with clients.
That's part of the strategy.
And that actually ---+ and we saw a little blip in that, again, not huge dollars.
It happens to be large dollars in our income statement presentation because the numbers are kind of small.
But we're talking about like an increase of about $0.5 million Companywide for the quarter.
And so it's those types of things that are what's driving the G&A increase.
The other thing I would say is that relative to the folding in of the acquisitions, a lot of the acquisition G&A cost was those outside contractors, and that will have clarity over time.
The balance of that, things like earn-out and intangible amortization, that will wane off over time because of the timing of the acquisitions and we must accrue for the earn-outs.
And so as we become an acquirer, if we continue to acquire, you'll still see that be.
If we don't do that many acquisitions, that expense will wane over time and it will not be a sustainable expense.
And then the third thing is regular G&A.
We are all four acquisitions combined, we probably have an aggregate of about just over $1.2 million ---+ just about $1.2 million of combined expense for the four businesses in the quarter.
Some of that will go away.
There are some of the smaller companies we are in the process of integrating them now onto our platform, and their back office will go away.
These are not big back offices, so there's not millions and millions of dollars of operating synergies.
For the most part it's relatively small.
But we are going to make anything that we can go away as quickly as possible.
And a lot of that could trail off by the end of the year.
<UNK>, the reason I highlighted it is when you are a Company of our size, you obviously have to watch scale.
Small dollars can be big percentages.
So when we see that, it's my way of flagging to you and to the broader investment community that when we see a number move with those kind of percentages, we focus on it.
We don't just look at the hard dollar and dismiss it to scale.
We focus, okay, how can we make this better.
That's why I raised it, because we want you to know that we are focused on it and ideally we want to bring that number down.
It's going to be part of the income statement whether or not it's in G&A or some other line of presentation.
That's what I don't know yet, <UNK>.
But it certainly going to be there because I don't think we can hire fast enough.
And I'm not sure we want to hire that fast.
I'd rather have the leverage support trail the growth of the business development people a little bit.
We have an excellent network of professionals who are very flexible.
And as we build this business it's almost in our best interest to be flexible on that instead of building hard costs into the business.
We're trying to balance that with the work that we have.
And as that business grows, we are going to continue to monitor it.
In this particular case it's more related to a couple of situations that, one, is certainly oil price decline.
The other is more from an M&A point of view, and what the client is really allowed to do from a regulatory point of view.
More broadly, the energy space, whether it be in our industrial area or whether it be in Cultural Shaping, is one that we are keeping a close eye on because of what's happening to overall energy prices and how that's moving the needle.
We are seeing it both ways.
We are seeing a drop-off in activity on one hand.
On the other hand, we see where there is greater concentrated focus on, do we have the right leadership at the top.
Do we have the right leadership around the board room.
And, therefore, there's an opportunity for a conversation with Heidrick that may not have happened, except for the fact that energy prices dropped and how are they positioning for the future.
It's a balance.
Particularly on Culture Shaping it got hit because of a couple situations.
I would not conclude that's an overall trend for them.
More specific to these situations.
Let me start and I'll all turn to <UNK>.
The most important way to think about Culture Shaping in 2016 is this is a year of investment in talent that is guiding us through the continuing transition from the legacy team and legacy leadership that Senn Delaney has in place with where that business is going.
So there's five new people, as we described, in the beginning of the year that's come into the business.
So there's a certain ramp-up time that each of those five have in terms of making their impact in the marketplace, as well as the impact that comes from the enhanced metric and training they are getting from the legacy partners who otherwise would be in the market full-time.
And so it's the confluence of both of those that's hitting the margins this year.
What you see us saying with respect to margins going forward is more of a return to normal as that new talent becomes productive, as ---+ and as we believe the overall narrative around Culture Shaping continues to be strong in the broader world out there.
And just pause and see if <UNK> would add to that.
Look, I think that's well said.
I think from the standpoint of how the margins improve going forward, there's a couple things, because the construct behind some of the investments we made were not only investing in some new people, which are now in our run rate, but also in making sure that some of the legacy people were in a mentoring role rather than a pure business development role to make sure that the transaction happened as smoothly as possible and as effectively as possible.
Some of those investments, a lot of them trimmed down significantly after this year, and then a couple tail into next year.
And so we do have history with this Company.
You saw the legacy types of returns that could return on its EBITDA during the first three years of the business.
We expect it to get back to close to those type of margins in the future, but at the same time, giving up maybe a little bit of that margin to fuel more revenue growth than just status quo.
That's the balance we are talking about, <UNK>.
No problem.
Thank you.
They are doing it in, and my answer, <UNK>, is really is anecdotal, right, from what we see in the marketplace as opposed to anything that's happening on the inside.
We certainly see, with the conversation around executive search, is looking to be expanded with regard to, once you are in what other advice can be given to clients.
We're doing it the way we have described.
We see others participating in different ways.
Exactly how much that is, is at the same speed, is a greater speed, is it a lesser speed, how are they doing it.
Don't know.
I think the one you touched on, which is what we are hearing from clients, and when I say what we are hearing, what we are hearing as we are out there engaging with them on the content that we are developing.
And some of the most important content, which I reference is this theme of accelerating performance, which is really working with clients to answer the question not only who is the right person, if you will, the talent and leadership selection business search, but why are they the best and how can we make them better.
In the context of accelerating performance, we are looking at the client, both at the individual leader level, at the team around that leader, and then in selecting this around the entire organization.
That is the essence of what accelerating performance is about at the individual talent and organization level.
And we've developed a series of tools, and we've developed a methodology, which is embedding in that accelerating performances.
There's a white paper that's out there.
You will see a book very shortly with respect to this as well.
So we have invested in it.
And we are engaging with clients in it.
This why I made the reference that where we are seeing that dialogue with the client, either independent of Search or coupled with Search or coupled with Senn Delaney, we are experiencing some very high quality conversations and some very high quality assignments.
And our task now is to work through how do we scale that globally in a smart way with respect to what do our clients need and how do we think about that trade-off of speed and capital.
I just want to thank everyone.
I'll just close by saying that as you can see from our remarks, 2016 is a big investment year for Heidrick across all three of our businesses, Executive Search, Leadership Consulting, and Culture Shaping.
And what you see in this quarter, but also what you see over the past nine months, is how that investment has been made, but also how the returns in the business have kept pace at the same time.
So thank you for your questions, as always.
We'll leave it there and we'll look forward to speaking with you again shortly.
Thanks.
| 2016_HSII |
2017 | NSA | NSA
#Yes, <UNK>, pretty much the high end of the SP guidance corresponds with the high end of the rest of the guidance.
So if we hit the high end of our NOI growth and we hit the high end of our acquisitions growth, that would also tie in with the high end of our SP guidance.
And likewise the low end; if we hit the low end of our NOI growth, the low end of our acquisitions growth, that's going to tie in with the low end of the SP guidance, as well.
The SP guidance in total dollars is up a fair amount from 2016, primarily obviously because of the large number of acquisitions that we did in 2016 and especially a lot of those coming in later in the year.
And so the SP equity cash flow related to those was only effective for last year for a very small part of the year.
So by having those all through the entire year, that's the main reason why the absolute dollar amount goes up quite a bit.
But where we are within the guidance range is totally dependent on how we perform on those other metrics.
Well, if you take a look at our map, sort of our map of the United States, we've always said that our goal is to be in as many of the top 100 MSAs as we can be in an accretive way for our investors.
So we're not going to go into an MSA just because we want to be there if it is going to hurt our investors.
But you look at the white space on our map, and we say, well, we'd like to be in those white space areas, or the lighter blues on our map ---+ we have different colors and the lighter blue means we're not as dense there.
So we'd like to strengthen the lighter blue and add into the white spaces.
But only to the extent that number one, there's a really good operator or PRO in that area and number two, that we can do it in a way that's accretive for our investors.
Within that, that's kind of how we're having discussions about the ten or so different PROs that we're talking to.
Hey <UNK>, this is <UNK>.
Definitely the iSource portfolio is looking to grow in 2017 and beyond.
We're have capital commitments both from NSA and from our partner.
So we're actively out there bidding on properties and underwriting.
And some of that is built into our guidance.
It's just really a minor portion at our 25% share of the JV.
So we will continue to grow that portfolio.
And I would add to that, <UNK>, that the $200 million commitment that we have made for acquisitions with our partner is intended to occur as good accretive acquisitions come up.
So I think in our overall thought process we thought that that might take four years, but if we could find $100 million of acquisitions this year in those iStorage territories, we would certainly do $100 million rather than $50 million.
But we've forecasted it to be at a fairly slow pace.
<UNK> <UNK>, our same-store pool this year represents about 70% of our total square footage.
So there's a little over 30% that's in the non same-store pool, and that's of the wholly owned, so that does not include the joint venture.
And historically, our non same-store performance has been better than our same-store performance.
As we have implemented the programs with the platform tools, et cetera, the NOI growth in our non-same-store has typically been better by anywhere from 1% to 2% higher NOI growth, up to as much as double same-store NOI growth, depending on how well the store was doing before we bought it.
So we definitely would say that the non same-store pool will do better, than the ---+ but the amount better depends quite a bit on how well it did before we bought it.
Yes what we do is we use our underwritten budget for the forecast for our guidance.
And if you recall, we have talked about how our budget and underwriting has actual performance versus underwriting.
And so far historically our actual performance has exceeded our underwriting in a pretty meaningful way.
But we use our underwritten estimates for our guidance.
That's right.
So that's a little bit of a different scenario because we had already gone in to acquire some recent properties in the Orlando market, but we did not after PRO there, and we've had ongoing discussions with Marc Smith there for quite a number of months.
And so it made a lot of sense, and he was agreeable to join NSA and he'll take over management of four of those recent acquisitions immediately, and they will be bringing in another acquisition in the short term here.
And then additional future acquisitions that might come through the Personal Mini will depend both on what Marc can generate in terms of third-party acquisitions in his market, because he's very well-known in the Orlando area, and also the ability of potential properties from within his portfolio to be contributed.
We have not forecast really any of those additional contribution properties for this year.
We would hope that we might be able to start seeing some of those next year and beyond based upon both being comfortable with how all of the NSA programs work and also debt maturities, et cetera.
But I do expect we will have some third-party acquisitions in the Orlando area this year, but we have not forecast very much in our guidance.
That's certainly one element of it, timing of debt maturity.
And a second part of it relates to the issue of the control of the properties and looking at ---+ because they manage about 36 additional properties on top of the ones that he will be managing for NSA.
And obviously in any discussion where there's another party that's involved in the decision making on contribution of properties being managed, those have to be discussed with those decision makers.
So it's a combination of debt timing plus discussions with decisions makers to make it make sense for them and the timing of would they're trying to do.
Yes.
Obviously it is a range, but we are seeing ---+ generally cap rates have at least stopped declining.
And so we are seeing deals we're underwriting right now and looking at basically right around the 6% cap rate.
There's a few of them that are a little below 6%, a few of them that are a little above 6%, but I would say if you're trying to think about an average, somewhere around a 6% is going to be pretty accurate.
That would be on a forward basis.
Thank you.
Yes, <UNK>, we essentially see that with every large really good operator PRO that we talk with, that they all have lots of options.
And really when a PRO gets into and understands the details of the benefits that they get through the NSA, which is a combination of the platform tools and the participation in the best practices operations, plus the access to capital for growth and the ability to really drive accretive growth for their portfolio.
And then the analysis of how that translates into value for the PROs, if they want to stay in the business for a relatively long period, and by that I mean at least five years, and they want to continue to operate for at least five years, we are absolutely certain that the NSA PRO program is the best option for an operator to go under.
Now if they want to cash out and get the money and run and get out quickly, there's lots of other options for them, and then NSA is not the best.
But for PROs who rally like the business, want to grow the business, want to keep in the business for at least five more years, I'm confident that the NSA program is the best option.
So for the initial portfolio, where they're managing these properties that we already owned, they've co invested several million dollars for the SP co-investment related to that.
And then as any properties that they would contribute in the future come in, then part of their equity would come in in terms of SP equity, and part of their equity would come in in terms of OP equity.
Just like we've done year after year with all of our existing PROs.
Thank you, <UNK>.
Thank you.
This is <UNK>.
We're very focused on raising rates for in place customers.
We gauge the risk of customer flight based on market and market conditions.
So every store and every market is a little bit different, and we use the revenue management algorithms to guide us in that decision make process.
In some markets we're pretty aggressive, and we will send through an increase as early as six months after a customer moves in, and then hit them every nine months thereafter.
And others places we're a little bit less aggressive.
We might wait up to a year before we send out that first letter and we might have interim increases after that spaced at about nine months to a year.
So it's market dependent.
It's been very successful for us.
We've found at least in 2016 that we were able to raise rates at the high single digits type of range, and no customer is safe.
We consider them all with they're ready.
There are some that we go for and some that we don't.
So it's not a monolithic approach across the entire portfolio.
It's more market dependent than PRO dependent, but every PRO has their own style and approach.
But it really gets to the strength of the market or the strength of the store.
Our approach is to provide a common set of tools and techniques to our PROs so that they can leverage the scale that we have as a grander portfolio But our PROs are the operators, they're the boots on the ground as <UNK> said earlier.
And we trust them with their price decisions more than we trust any system.
So we provide the system, we provide the techniques, we provide best practices, and we want to guide us all to the right decisions.
But it's a PRO-level decision when it comes to pricing and price increases.
Yes so one thing to add to that, <UNK> <UNK>, is that the system and the guidance is common.
Everyone is on the same system.
And then it gives guidance to the PRO, but the PRO makes the final decision.
The guidance that they get, it gives them both a conservative approach, a middle approach, and an aggressive approach to pricing.
And they make the call on what they do with that pricing.
But the guidance on the system is common across all our PROs.
It was probably around two-thirds of our customers received a promotion of some sort in 2016 Q4, which was marginally up from 2015.
We are actively using discounts, promotions to help drive or preserve occupancy, and we recognize that we've got to be competitive.
So it's once again store dependent and market dependent.
All in all, we think our discounting growth is well under control.
What we're seeing in Q1 right now is basically flat with what we did in Q4 of last year from a same-store perspective.
So we think it's under control but it's probably elevated relative to last year.
Thanks <UNK> <UNK>.
Thank you, operator and thanks again everyone for joining us for today's year-end earnings call.
2016 was an exceptional year for NSA, and we appear a appreciate your continued support of National Storage Affiliates trust as we move forward into 2017 and look forward to another great year ahead.
Thank you.
| 2017_NSA |
2016 | PFG | PFG
#<UNK>, this is <UNK>.
Just a couple of comments.
The TRS, the total retirement suite, still is a very, very powerful tool for the Principal that can differentiate value from pure 401(k) players.
And so that, again, is a differentiator, frozen defined benefits, deferred compensation.
ESOP had a nice quarter here, so that is a nice differentiator.
The other point I'd make is, because it was this generalization of large case pricing, there are so many components that go into the pricing of a large plan.
How many payroll centers, what is the current penetration rate, relative to participant involvement, what's the customized communications package.
All of those variables go into it.
So when we lose a plan or win a plan, it's because we've done the homework behind the scenes to understand exactly what kind of resources are going to have to be deployed against that plan.
So that's why, at any given time, you could lose a plan or win a plan.
But again, we like the model that we have.
We think it resonates in the marketplace, and our retention rates would imply that those large plans appreciate it.
Hopefully that helps.
I think, as you pointed out very appropriately ---+ and frankly, it's not limited to just this industry.
It's all industries where there's constant pressure.
It's one of the advantages for being a leader in an industry, having critical mass and scale and capability, and having great partners out there.
I would not anticipate there to be any pressure coming off fee structures because of DOL.
Could it cause some additional discussion.
It should, because it's really around transparency, and making sure that people understand what they're paying and what they're getting for their money.
So again, I think on a marginal basis, I think we'll continue to have a lot of dialogue around cost and pricing.
And <UNK> wanted to make one more comment here.
Thanks, <UNK>.
Good question.
So good morning again, <UNK>, to you.
I think what it's going to cause is, at the inflection point of a job changer or retiree, they're going to call into a call center, like they always have, because that's the typical process.
And they're going to be having a conversation with a person providing education and guidance.
And they're going to disclose what the pricing is in the current plan structure, in a qualified retirement plan, and it could be a larger plan.
And there's going to be a certain price.
And there also is a ---+ always have, in the past, disclosed to them that there are other options for them to consider.
They could move that money to a rollover IRA with the Principal, or they could roll over that money to a third party.
And the names are common; you would know all of those.
And the burden that now falls on the advisor is that the participant has a very clear understanding that they're moving from one product to another.
And they have to look at it on a couple of different dimensions.
One dimension, of course, is the investment lineup.
Is it the same or is it different.
Another dimension is, what's the underlying performance of those investment options.
The third dimension is on the price.
What am I paying, and what am I getting in exchange for that.
And it doesn't have to be the same price, but there has to be a thorough understanding and an explanation on why there is a difference for the price being paid.
That action, unto itself, is going to take a longer conversation for fully vetting that opportunity.
It ties back to my earlier statements that small account balance holders could find that there are fewer advisors willing to invest the time and the energy to vet every one of those situations.
So I think there is a likelihood that 401(k) service providers could end up, almost by default, retaining maybe more of those smaller account balances after they've had that discussion with that phone counselor.
I think on the larger account balances, there are advisors that are going to be spending the time to help vet the opportunity.
And the last comment I would make is, remember that we are a significant player in the rollover business for defined contribution investment only.
Where <UNK> <UNK>'s PGI investment products not only find themselves on the platform of many 401(k) chassis, but also they find themselves on rollover IRA chassis.
And again, with strong performance and investment options that solve needs for long-term savers, I think that's a net plus.
So hopefully, that's not too long-winded of an answer, <UNK>.
Do you have a follow-up.
Yes, again ---+ and I'll have <UNK> clean this up.
We're benefited because we operate not only in Latin America, but we also operate in Asia.
And we're leveraging much of what Tim ---+ or <UNK> brings, relative to institutional asset management, to those PI countries.
I'm also encouraged by some of the recovery that's happening in some of the countries, like Brazil, where you see their equity markets in the first quarter recovering by almost 12% ---+ or up 15%, and the currency has recovered by approximately 12%.
So I think there's some signs that these emerging countries are going through the process.
They're ---+ although they still show negative GDP in some cases, there is some sign that there's new capital being infused in those countries, and things are bouncing back.
But to your specific question on net cash flows, I'll defer to <UNK> to answer that.
<UNK>, one thing that gives me a little bit of comfort about the net cash flows in emerging markets is, they are still that.
In US, some of this negative cash flow pressure comes from paying out benefits.
It's why we're in the business.
And if you look at Latin America and Asia, they just don't have the same level of payouts occurring, as it relates to generating a retirement income.
So we've got a lot of emerging markets, with a lot of upside for middle class growth, in the accumulation phase here in the next decade or so.
With that, we'll take the next question.
Thank you, <UNK>.
Yes, that's a great question.
And frankly, Mike, we're really enthusiastic about China.
You heard our earlier comments around reaching an agreement with the memorandum of understanding with China Construction Bank for now 11 years.
It's just been a terrific partner for Principal.
We were over there recently, and celebrated our 10 year anniversary.
It's important to recognize those sorts of milestones.
And as you point out, the flows and the earnings are now starting to be generated after a long incubation period.
But with that, I'll ask <UNK> to make some additional comments.
Is that helpful, Mike.
Okay.
Thank you for the call.
Thank you.
I'd just like to say thank you to everyone for joining the call today.
Our growth opportunities remain strong, and our strategies firmly in place.
We'll continue to focus on managing our capital.
We'll focus on the DOL implementation.
We'll focus on running the businesses for the benefit of our customers and our shareholders, and certainly appreciate your commitment to continue to have confidence in the Principal Financial Group ---+ or I should say the Principal.
So again, thank you for joining the call.
We'll see you on the road.
| 2016_PFG |
2017 | RUTH | RUTH
#Thank you, Mike.
For the first quarter ended <UNK>h 26, 2017, we reported net income of $11 million or $0.35 per diluted share compared to net income of $10.8 million or $0.33 per diluted share in the prior period, the first quarter of 2016.
Net income in the first quarter of 2017 included a $247,000 benefit related to certain discrete income tax items.
Excluding this benefit, the loss from discontinued operations and restaurant closure costs in 2016, net income was $10.8 million or $0.35 per diluted share in the first quarter of 2017 compared to $11 million or $0.33 per diluted share in the prior period.
Total company-owned restaurant sales for the first quarter were $99.5 million, an increase of 3.7%, from $95.9 million last year, primarily driven by the contribution from our new restaurants as well as by the 0.7% increase in comparable restaurant sales.
As we mentioned on our last call, the calendar shift of Easter from the first quarter of 2016 into the second quarter of 2017 negatively impacted first quarter comparable restaurant sales by approximately 70 basis points.
Additionally, the quarter was negatively impacted by approximately 50 basis points over the course of the Valentine's week.
This was due to the shift of the holiday to a less desirable Tuesday this year from a more desirable Sunday last year.
Please note, the timing of Easter has positively impacted our second quarter trends to date.
To this point, in the quarter, our sales are currently running up low single digits, led by improving traffic trends.
Average weekly sales for company-owned restaurants were $111,000 in the first quarter, flat with the $111,000 in the first quarter of last year.
Total operating weeks for company-owned restaurants were 895 in the first quarter, up 3.5% year-over-year from 865 in the first quarter of 2016.
Franchise income in the first quarter of 2017 was $4.4 million compared to $4.5 million in the prior period.
This decrease was driven by the timing of development fees recorded during the first quarter of 2016.
Total franchise comparable sales were up 3.6% year-over-year in the first quarter of 2017.
While comparable sales in our domestic franchise restaurants were up 3.9% during the quarter, comparable sales in our international franchise restaurants were up 2.1%.
During the quarter, the franchise system experienced similar trends as our company restaurants, but were augmented by the impact of the relocation and remodel of a few restaurants.
Now turning to our costs.
Food and beverage costs, as a percentage of restaurant sales, improved by 90 basis points year-over-year to 28.7%, driven by a 2.4% increase in average check, combined with a 1.4% decrease in year-over-year beef costs.
As we expected, after having benefited from material beef cost deflation throughout 2016, we've begun to see that benefit moderate.
We continue to expect roughly flattish beef costs for the full year 2017 as deflation on filet cuts being offset by modest inflationary pressure on prime cuts.
For the quarter, our restaurant operating expenses, as a percentage of restaurant sales, decreased 10 basis points year-over-year to 45.7%.
This decrease was driven primarily by lower year-over-year health care claims.
Our G&A expenses, as a percentage of total revenues, increased 20 basis points year-over-year to 7.7%, primarily driven by an increase in performance-based compensation.
<UNK>eting and advertising costs, as a percentage of total revenue, increased 40 basis points to 2.3%.
This increase was driven by a shift in marketing spend across the quarters.
While our marketing mix remains dynamic, we expect higher year-over-year marketing spend during the second quarter and our marketing expense to be fairly evenly distributed across the remaining quarters.
Preopening costs were $1.2 million compared to $400,000 in the first quarter of 2016, driven by the 3 new restaurants opened during the quarter of this year versus no new company openings in the prior period.
In addition to returning capital through our quarterly dividend, we repaid $11 million in debt under our senior credit facility during the quarter.
We ended with $14 million outstanding at the end of the first quarter of 2017.
During the quarter, we did not repurchase any shares under our current share repurchase program.
At the end of the first quarter, we had just under $27 million outstanding under our previously announced $60 million share repurchase authorization.
Finally, I'd like to reaffirm our outlook for the full year of 2017 for all the key metrics presented last quarter.
The details of this guidance can be found in our earnings release issued earlier this morning.
With that, I'd now like to turn the call back over to Mike.
Would you be able to share a little bit more on what you're seeing across the competitive landscape.
Are there any pockets of regional strength or weakness.
And Mike, would you be willing to share a little bit more on what you're seeing between your segments, between business and just because.
Yes.
And regional performances, anything on the competitive landscape you're seeing.
I wanted to start on the comps.
And Arne, you mentioned the quarter-to-date being up low single digits.
I just wanted to confirm, that does include the benefit of the Easter shift.
And if it does, is that benefit sort of in that 150 basis point range on the quarter-to-date.
Yes, <UNK>, it does include the benefit of Easter.
And I think even stepping aside from Easter, if you kind of smooth it all out, the year is running kind of at a very consistent pace.
There's pluses and minuses on Valentine's Day, pluses and minuses on the timing of Easter.
But it feels like a very consistent pace for the whole year-to-date as you look at it today.
I think the thing that we're probably most encouraged by is what's happening on traffic.
We've had traffic flat to down a little bit for now like 2 years.
That seems to be slowing a little bit.
It's still slightly negative, but it seems to be moving in the right direction.
And I think when you add the backdrop of what Mike said about people sharing more entr\xe9es, a 16-ounce strip steak with no bone in it, that's a big piece of meat.
I think you feel pretty good about the direction that traffic is heading as well.
Okay, great.
That's helpful.
And on the company comps specifically, can you comment on how the Ruth's 2.0 remodel units are performing relative to the rest of the system.
Are they having a significant impact on the reported comps.
And were there any 2.0 remodels completed in Q1.
<UNK>, this is Cheryl.
Yes, so we actually completed 2 restaurants, Fort Lauderdale and Coral Gables, in our Florida market in the quarter.
And we are anticipating approximately 7 to 9 more in the year, so we look forward to that.
I would say there's different types of remodels.
I think we bucket them somewhat in expansion.
So certainly, we see, when we expand our capacity, we see the needed sales lift to accompany that investment.
And then on the brand side, we like what we're seeing so far.
It's early.
We started this program probably about 1.5 years ago.
It takes some time to get these projects done.
But I would say early signs are positive that consumers are reacting to the larger bars we can create and the new atmosphere we can create in these remodels.
<UNK>, I'll tell you, it is ---+ as Cheryl said, it is contributing, I think, as we expected.
The best, as Cheryl said, comes from the capacity.
But I think we're pleased with it.
We continue to invest in it.
We think this is the right thing for our brand in terms of the use of capital.
All right, very helpful.
And then just last one from me, one quick one on the margin side.
The other OpEx line continue to see some very good cost trends there.
I know you mentioned the lower health care claims.
Was that versus an unusually high level of claims last year or sort of an unusually low level this year.
And then can you also comment on what your year-on-year wage inflation was in the quarter.
Sure, <UNK>.
In terms of the health care cost, it was maybe slightly elevated last year.
I mean, there's always some cyclicality there in that.
But I don't feel like we're unusually high last year or unusually low.
So I think we're pleased.
<UNK> <UNK> and his teams have spent a lot of time on education and making sure people understand their options around health care.
And we want our people to be healthy.
In terms of the ---+ I think we've quantified the minimum wage effect.
It's a little bit over $1 million a year in terms of wage inflation.
Overall, depending on the market, you're probably running somewhere from probably 3% to 5% in terms of rate inflation.
Okay.
And just looking at it on sort of a per operating week basis, that other OpEx line is sort of flattish by my math, it would seem, year-on-year with the wage inflation you talked about.
Are there any productivity initiatives and anything quantifiable that you're doing in the restaurants to sort of drive incremental savings that are noteworthy.
There's no, like, formal program other than the things that Mike talked about with Kevin and Rik and Susan.
And I think everybody recognizes the whole industry is facing a labor headwind.
And they work tirelessly to manage their business and their margins and understand their P&Ls and their costs.
So I would tip my hat to the operations team on the great job that they do in terms of managing their expense.
But this is not like we have this one-time program that we're doing to offset our business.
Thanks, Andy.
In the (inaudible) you can say that (inaudible).
Sure, Andy.
I think why don't I start with some of the math, and then Cheryl can kind of talk more to the program design.
But overall, the 2.0 menu was designed in partnership both with culinary operations and from the financial side, that it would be balanced.
So in terms of the margins as a blended group, there's a mixture.
But overall, I would say they're fairly consistent with what we took off the menu.
Some of them, like some of the Tomahawk steak, for example, has a kind of a lower gross margin but a higher ---+ much higher contribution around it in terms of dollar contribution.
So overall, it's ---+ I would tell you they're broadly flat, but Cheryl can to talk to you a little bit more about the individual components.
Yes.
Andy, I think as we look at our menu offerings and innovating and offering consumers different opportunities to dine with us, the intent really around price point and margins was how do I have different types of occasions.
So to your point, in the bar, we have Sizzle, Swizzle & Swirl.
We're in the middle of refresh of that.
It's been very successful for us.
And our guests really like it and have a great affinity for it.
And then to the Ruth's 2.0, which offers some guests an opportunity when they wanted to go a little bigger, bigger on check, bigger on the experience, so really the intent of the programs is to have an offering the kind of comes across that spectrum for the guests, and says there are different opportunities here.
Andy, I would tell you, I think Cheryl and the marketing and culinary team in operations have done a great job of kind of providing a broad menu.
And it's been kind of been our approach.
We don't do a lot of consumer-facing discounting, but there's value on the menu, there's opportunities to celebrate.
And we work very hard at making sure we have what we believe are the right offerings for customers who want value, for customers who want to celebrate, or if they're there for a business dinner.
And so I think we feel pretty good, and it feels like a good balanced offering right now.
| 2017_RUTH |
2016 | EOG | EOG
#Good morning.
Yes, <UNK>, this is <UNK>.
As far as the Austin Chalk goes, like we mentioned last quarter, we're still delineating that play as, you know, we're still intending to drill nine wells throughout our whole acreage position there, and currently we don't have any Austin Chalk within our premium count.
But that's, you know, clearly a potential for some upside there.
It's like <UNK> had mentioned, one of the ways that we're going to add premium in the future is through exploration.
So, the wells that we've brought on and we talked about last quarter, are clearly premium.
So, we're still excited about that play, but we need a little more data on it.
Hey, <UNK>.
Yes, <UNK>.
This is <UNK> <UNK>.
T The recovery rates, we've gotten away from quoting what we think the overall recovery rate is by zone.
But needless to say, it's improving.
I think a large part of that, a very significant part of that is what <UNK> talked about earlier, is understanding the rock, our shift to better define what targeting is, and then deploying our high-density completion process.
It's really made a huge difference on the recovery rates.
We really don't focus on what that recovery rate percentage is.
It really doesn't help us understand our go-forward models on how these wells will perform.
So, this really hadn't been a focus for us.
But that's the color I would give to you is that they're definitely improving with time.
<UNK>, this is <UNK>.
The targeting, you know, as we started, I believe in the latter part of 2014, and it's really in different stages and different basins.
In the Eagle Ford it's more mature there.
You know, we're probably still in the sixth inning.
I've been saying this for years, but we're still probably in the sixth inning there of understanding what is the best target, and working it into our W patterns and our spacing patterns.
So, as we get more data, even in a very mature area like the Eagle Ford, we get more data, we continue to find out more about the rock in the section and we're able to discriminate and pick better rock all the time.
So, it's an ongoing process, even there.
In the Delaware Basin, we're probably in the second or third inning there.
There's so much potential pay there, and we're still learning and we've got a lot of data together.
As we drill the Delaware wells, we're focused on the Wolfcamp for two reasons ---+ fantastic wells, but number two, you get to see all of the Bone Springs, sands and all the pays above you, and so you're gathering data as you drill these wells and that helps with delineating targets and working the stratigraphy out and mapping.
So, each one of the plays has had a different stamp, a different position on improvements.
But we think there's really a long way to go.
We're not anywhere close to the end of being able to make additional improvements in that side of the business or on the cost side, too.
So, it's an ongoing process and it's a very sustainable process.
Yes, <UNK>, this is <UNK>.
In the Wolfcamp, really, what we've targeted mostly there, we've got several targets in the upper Wolfcamp, so there's quite a few premium targets, and like <UNK> mentioned earlier, we're still early in the Wolfcamp, so we still see quite a bit of upside there, but clearly from, you know, the data that we show, you know, like on the Chart 7 in our Investor book, we've made some big progress there, and these are clearly premium wells.
As we go forward, we're going to have the ability to grow more and more of them with longer laterals.
There's a lot of industry data out there: legacy, log data and everything that's helped us with that, but, really what's going to drive it more than anything is as we drill the wells and complete them and gather the data over time, you'll begin to see some improvement there.
Just like you've seen.
We never stop learning.
We continue to test the limits.
And so I still think there's plenty of upside on the Wolfcamp.
It's really ---+ <UNK>, it's just the combination of better rock and better completions, and now we're [phoning at] longer laterals to that, too.
So, the well results, the productivity of the well increase is just a very, very large and incredible.
I think once there's enough of this data out in the big databases, where people can analyze it and compare EOG wells versus the industry, or really any other operator drilling horizontal oil wells now, they're going to be very, very surprised and very, very impressed.
We do have one chart in the slide deck that compares our Wolfcamp results to other operators.
I believe it's slide number 9, 8, slide number 8.
So, you might want to look at that.
But the wells are just fantastic wells.
Well, it is ---+ it's a process that really is done in our division offices, so our decentralized culture that's focused on the details right there in evaluating the rock, driving the costs down at the same time and executing on the wells.
They know their properties the best, and they are constantly working, and they are so focused on improving returns and improving productivity and driving down costs.
So, they're really driving this whole thing, and it is an amazing performance that's going on.
Absolutely, yes.
The well count are absolute sticks on a map.
They all have a well name, so they're not ---+ they're not like a spread sheet.
Yes, <UNK>.
This is <UNK> <UNK>.
So, on the Eagle Ford for, first of all, both the Eagle Ford and the Delaware Basin, when we drill a longer lateral, we definitely want to make sure that we're maximizing the recovery, we're not losing efficiencies as we just drill longer laterals.
So, we spent a lot of time, our operational groups have spent a tremendous amount of time trying to understand how to accomplish that.
And the results we've seen so far have shown they've been very successful at maintaining that productivity per foot, especially when it results in ---+ we're talking about EUR per foot mainly.
Certainly the initial production can somewhat be endured a little bit just due to longer laterals and flowing larger volumes up; restrictions on chokes and surface things, surface facilities.
But the EUR per foot has been maintaining a pretty steady pace.
So, that's really encouraging.
Now, I won't get into exactly how we're doing that.
We do feel like that is an advancement we've made internally and we want to keep that a little bit proprietary at this time.
But on the Eagle Ford and the Delaware Basin, both of those are benefiting from that and will continue to benefit from that.
Yes.
Yes.
Probably more so on the western, but certainly the east side also has opportunities for that, but the east side also has a little bit more geological complexity that hampers that a little bit.
But certainly there are opportunities, and we'll find that where we can.
I think we've got time for one more question.
<UNK>, at $40 we would adjust our capital appropriately, and we would be able to generate what we believe would be the best rates of return in the industry.
That's certainly a big separator for EOG.
But we would adjust our spending to cash flow and stay balanced and stay disciplined, and hunker down and continue to improve.
We are optimistic and we have hope and we're not there yet, but at one day we would be able to get our capital efficiency to a point where we could actually grow oil at $40 and we're working towards that goal.
We're not there quite at the moment, but we're going to continue to focus on that.
But our focus, of course, first has always been on returns and capital discipline and keeping the Company healthy in that regard.
Yes.
I did talk about that a little bit earlier, but we did put the benchmark of 30% rate of return on the direct side, which is the well cost only.
We set that at that mark so that we would have room that when we put in full cost that would be ---+ that would be slant and seismic and infrastructure, and our capital rate of return, not ROCE or ROE, but our capital investment rates of return would be about 15%.
Now, that walks down ---+ this is a long process, but that walks down to ROE and ROCE.
But the ROE and ROCE are trailing metrics, and it takes years to get your base production to the point where it reflects the returns that you're currently drilling.
So, it's a long process.
It takes several years to get there.
Yes.
I'm going to ask <UNK> <UNK> to add some remarks on our progress on cost reduction and where we see that headed.
I'd like to end this conference by saying thank you to all of the EOG team.
EOG employees are focused on returns and they're performing at an extremely high level, and we could not be more proud of each one of them.
So, we look forward to the days ahead.
So, thank you for listening and thank you for your support.
| 2016_EOG |
2016 | MDCO | MDCO
#Thanks, <UNK>.
These are both good results.
I'm going to see if <UNK> wants to talk about the Carbavance additional studies in just a moment.
He's very close to that business.
Let me just deal with the PCSK9 issue.
If you want to prove that this drug lowers LDL, we already have the data.
It does.
And it lowers it competitively, as mentioned.
The real value of a Phase 3 trial in these patients is essentially safety.
So you are going to want to see patients on study for 4 to 6 injections, something like that, for two years to give you a real sense.
And as I mentioned earlier, we would anticipate having about 1,000 patients with two years of data and about 2,000 patients with one year, which would imply 2 or 3 injections there.
I think that would cover it on the safety side.
As for the primary LDL endpoint, given that the antibodies were proved on 12-week endpoints, as you point out it's odd because injections aren't even given every 12 weeks.
So we'll have to probably have a thought about that.
But we will be able to show, as you saw in the Phase 1 data, that at 12-week LDL is robustly down.
And I can show you, based on our press release, that's also true in the Phase 2 study as well.
So the exact timing of the input, whether it be 12 weeks or 24 weeks, is a bit academic because we're going to follow the patients for up to two years anyway.
Thank you, <UNK>, thank you.
Yes.
As you know, Joe, early stopping rules using things like the O'BrienFleming boundaries and so on tend to be very high hurdles.
So that was the case for the first look at the data that [they] did and we did.
Didn't achieve that hurdle.
So the study continued.
In actual fact, a large number of the patients had already been enrolled so we wouldn't have stopped enrollment under any circumstances anyway, likely.
It didn't meet the hurdle.
So it couldn't stop.
We will have 126 patients that were enrolled.
Not quite sure how many of them have been fully treated with drug.
So don't know the actual end number that will be presented.
I think that final analysis will give us the right direction.
And that's what we're looking forward to.
Does that ---+ I'm not sure I've really covered your question.
But that's the best I can do right now.
Probably when the study is published, the statistical section would have those sorts of things.
It's obviously thinking about what the threshold for 40 patients was might be less important than what the results for 126 patients are, which would be interesting to see.
Sure.
Those methodologies are not usually not trade secrets.
You're welcome.
Thanks, <UNK>.
Great questions.
Yes, you're right.
Picking the right dose for 216 isn't just a question of plasma concentrations and the level and the amount of PD or efflux demonstrated.
It also is a question of, as you say, how frequently, how long a duration of treatment.
That's why the MILANO second dose ranging study may be needed.
And that's what <UNK> was talking about earlier.
This pilot is a pilot.
It's an attempt to nail the right dose with an efficient study.
But it won't answer the whole story of dosing, I agree.
Let's see what the data show, and then we'll take the next steps accordingly.
As to strategy, I can ask <UNK> to comment in just a moment.
We're not unfamiliar with the cardiovascular worldwide market.
We're certainly not unfamiliar with running very large cardiovascular clinical trials, substantially with efficiency, I think.
And our track record is that we have had eight major cardiovascular trials published in journals like the New England Journal of Medicine, and JAMA, and The Lancet.
We can do them.
They've all been the foundations for drug approvals for our acute care drugs with one-year follow-up.
We haven't done chronic dosing studies such as would be required for at least PCSK9 synthesis inhibitor.
But we're not phased by that.
We have people on the team who've done a great deal of clinical development and commercial preparation work in the space of dyslipidemia.
However, as you say, these are large trials.
They're global trials.
And there would be no reason at all not to consider partnering at the right moment, because ultimately these are also global markets.
And The Medicines Company is not in a position to operate ex-US with any great strength.
So clearly I'll hand this to <UNK> now.
We're going to look at all of our options as we see the data and see the reactions.
<UNK>.
Yes.
<UNK>, is that okay.
Any other follow-ups.
I guess <UNK> got a follow-up.
So you can have one.
We had a good time there.
We not only had several posters in ASA and also in the International Society of Anesthetic Pharmacology which precedes on Friday.
But we also had a very substantial advisory board meeting for six hours where we went through the entire experience to date.
We have accumulated experience in about 350 subjects now.
And how to crank up the Phase 2 program, which has already started.
I think the encouraging news is that our viewpoint that respiratory depression is a big deal for anesthesiologists was very much validated.
Our viewpoint that a fast on/fast off product could be very helpful was very much reinforced.
I think the cardiovascular stability of this particular drug relative to ---+ associated with this drug relative to perhaps [propofol] was also highly appreciated.
There are dosing issues.
We have to continue to work on in Phase 2.
There are issues related to involuntary muscle movements that we have to work through.
But we were very encouraged and looking forward to seeing a lot more data.
I did ---+ I want to be very clear.
I did indicate in the script here that our results for the Phase 2 induction study will be coming out in the first half of next year.
We had originally thought they may be available this year.
We made some protocol amendments based upon expert input and the requirements for institutional review board changes during the summer in Europe meant that we delayed enrollment.
So that's running a little bit behind where we had originally hoped for, but still very much scientifically on track.
Yes.
Thanks, <UNK>.
Thank you very much.
I think it was a bit of volume [down, wasn't it a little] bit.
Because we continued to see ---+ I'm looking at <UNK> <UNK> who is here, who might want to say some words.
But it's a dog-eat-dog generic world out there.
And there's no question, this is a very, very attractive generic product.
The generitization of this product has obviously destroyed our business.
And people are taking pieces of it.
So <UNK>, volume, price, a bit of both.
Yes.
Look, there's two big players in the market, I think, [fighting] over volume.
I think prices remained relatively stable throughout the back half of the year.
But fighting over volume.
Very important to state.
And I don't mean this in any kind of nod and wink kind of way.
I really mean it seriously.
We have no control whatsoever over Sandoz' pricing strategies, or indeed volume placement strategies.
The market is playing out in a competitive way.
And the result is what you're seeing.
Again, I'll hand that over to <UNK>.
Thanks, <UNK>.
Thank you.
Yes.
Thank you, <UNK>.
Indeed, I think we're very fortunate in a way to be able to witness and think about outcomes trials, (inaudible) outcomes trials, on the strength of Amgen's experience, and Sanofi Regeneron's, and possibly also Pfizer program which is called Spire 2 ---+ Spire 1 and 2.
So yes, we would like very much to know how those guys get on with their programs.
We're very optimistic about the likelihood of them bringing home good outcomes results.
And obviously we'll look at the data to see which patient groups make the most sense for an outcomes trial that we one day would expect to do.
So yes, we're looking forward very much to seeing their data, and very optimistic about their data, frankly.
With regard to ORION-2, that would be in homozygous familial hypercholesterolemia patients.
We've had some good dialogue with the FDA.
And they would like to see us do some patients compared to current standard of care, meaning not antibodies.
We've indicated to them we'd like to actually do some (technical difficulties) trials with antibodies.
As the program rolls out, and we will begin with [the pilot dose] finding, of course, in a half a dozen patients or so, we'll then make a comparative design with current therapy and also try to make some kind of comparison to the antibodies as we report.
That's the basis of (technical difficulties) project.
As you know, with homozygous FA, we're not likely to have a study population much more than 30 to 50 patients in total.
No.
We recently, as you may know, the familial hypercholesterolemia group meeting was held successfully.
We attended that.
And used that as something of a platform for making sure that the main players are onboard with that program.
And we expect to start enrolling patients before the end of the year.
In fact, we've already identified [a] size for the protocol written.
And it's a matter of days, weeks at most before we start treating patients.
Thanks, <UNK>.
Thanks, <UNK>.
We would like to thank everybody for joining us this morning, of course, and look forward to seeing you, as many as possible, at AHA.
And we're very excited to see those data presentations being made.
And in the meantime, get in touch with <UNK> if you have any additional questions.
Thanks so much, everybody.
| 2016_MDCO |
2016 | HOLX | HOLX
#Go ahead.
Sure.
We are not quite sure on market share, but we feel very good.
We are obviously a very strong leading bank probably in the three quarters of the market share range.
So up in that 70%-plus, certainly in the US.
We think we are much lower outside, and I think part of where we are really encouraged and where I think we have made great progress internationally over the last year, year and a half, is starting to get the belief and the conviction of what we need to do to grow the cytology business outside.
And you remember we said, hey, one of the first things we could do to return this company to growth would stop the sharp declines on the ThinPrep business, and I think we feel pretty good about what we are doing there.
I actually feel great.
No specifics.
I think you would flow those in.
Obviously, we were pleasantly surprised to the upside on the surgical business and in the US.
I think our US business is doing a little better than what we anticipated in our international business, a little more choppy and so forth.
So outside of that, we are not going to give specific guidance to the individual components, other than to say that any softness that we may be seeing in the near term or the short term internationally, is going to be offset, we expect, by the strength in the US business.
Sure, <UNK>.
I think this is more an internal execution issue of us dealing with our dealers versus the market, per se.
Having said that, we were hopeful to get some bigger orders in some of the emerging markets this year, and we are probably just backing off that.
We're making some progress in Brazil and places like that that we are probably being a little more cautious about as we go in.
But it is much more our own execution and, frankly, again, it is a small part of our business that we know has great potential and we will realize it.
But it is more that, I think, than anything external or macro that we would really point to.
It could be macro, but we are not going to look to say it is that.
I think the opportunity is still there.
Yes, <UNK>, I think it has been the hidden piece and back to a focus on execution where we have clearly been a little more focused in the US.
But our team has been continuing to place Panthers, continuing to speak to the benefits that our products bring.
And, obviously, you know us well enough to know we are not one of these out there trumpeting, gee, we are number one.
We beat this person.
We got this competitive win.
But, quietly, we are really proud of what we have done on the HPV franchise in the US.
And combined with psychology, combined with the co-testing message, combined with Panther placements, they are all ---+ no one thing is magic, but when you systematically pile them up, it provides a very nice outlook and has us feel pretty good.
This strength is going to continue.
It wasn't low.
It was extremely high, and we are going from an extremely high level to actually an even extremely higher level.
It was well into the 80s%, and we are doing even better than that.
Yes.
Sure.
I think it is less bundling internationally than it still ---+ the stage of development internationally.
We have not done nearly as good a job of selling the benefits of 3D.
Just from a government affairs standpoint, from a marketing standpoint, a lot of what we have going in the US, we are doing a great job of.
Internationally, because we are through dealers, we have not worked with them closely enough to really segment the market.
We were starting ---+ obviously, there was a lot of opportunities for 2D.
We need to do that.
But we have had so much focus on 3D, and I don't think we have just done as good a job of fully marketing it through.
So that is a part of the whole issue of consolidating the international business under Eric.
We have kind of ---+ I set it up when I first got here to have Eric really focus on the US, Claus focus internationally.
It probably led to two silos, more than sharing the learning across the geographies.
And, frankly, I feel like it has done a great job overall, but we have probably left a little bit on the table as it is related to our international development.
So now, Eric is on the case.
Here we go.
We are looking at it everywhere as to what is really the best model, and that will be something, I think, you can expect us to report back on over time.
I would tell you, there is a lot more complexity to it all in that, candidly, in a number of geographies, we had given the marketing authorizations to the dealers.
So the dealers actually own the marketing authorizations, which is not something you would typically expect of a company this size.
But it is one of these, as you go into the onion and peel it back a little more, there is more work to be done, which is why we just think it is going to take us a little bit longer.
I kind of view it as it will be a great thing to have in the out years when things slow down in the US.
We probably are not getting there as fast as I would like to, but we will probably end up getting there at a time that will be ultimately actually pretty well timed for the total Company.
All right, <UNK>.
Higher and higher.
Yes, we are not going to give you ---+
You asked for one word answers, <UNK>.
As a reminder, we are only going to give the placement numbers on an annual basis rather than getting into quarterly pieces, but we were very pleased with the additional placements of, certainly, the Genius systems and, frankly, Panthers as well, looking at our diagnostics business.
And then, gross margin, I think we are basically guiding to ---+ we think there is 100 basis points of improvement year over year and feeling very encouraged by that opportunity.
| 2016_HOLX |
2015 | MRCY | MRCY
#So it feels like things are beginning to loosen up a little bit.
We are seeing some potentially interesting opportunities.
Obviously I won't go into what they are other than to say that they are in line with what we stated from a strategy perspective, which is looking to scale both our processing as well as our RF and microwave business.
It could be related to the fact that if you look at the GFY-16 Presidential budget submission, it looks like maybe that fiscal 2015 or government fiscal 2015 could represent the floor in terms of defense spending.
So we'll see.
I mean, there are things that are starting to appear that could be somewhat attractive to us.
I think it's---+what I would say is it's going to follow a similar step progression, and frankly it followed a similar progression in 2014 as well.
There were two halves of the year.
2015 was two halves of the year.
And we think 2016 is going to represent the same kind of step function.
We won't comment yet because we're not really through our planning process on what the relative proportions are, but again, we think it's going to---+if you just looked at it on a chart it's going to look---+follow that same kind of pattern.
Thanks.
So plan at 39%.
Yes.
Sure.
So if you look at the F35, right, the work that we're currently doing on that program, we've seen huge growth to date.
So our bookings are up---+actually up 300%, or up more than $36 million year-over-year.
And in fact, F35 is actually our largest single bookings program and second largest revenue program through the third quarter of fiscal '15.
What you're describing is---+and those bookings will continue to translate into revenue for us well into fiscal '16.
We---+the opportunities that you're describing are both in the RF and microwave domain where the programs are beginning to ramp, moving from LRIP into full rate production.
We're seeing opportunities to pick up more work given the new AMC in Hudson to provide some of that capability.
The processing one is slightly longer term, and that's where I think they're going to look to provide new capabilities on the F35.
But if you look at the investments that we've made in our processing capabilities and the relationships that we've established with the companies that we believe are probably the best positioned, I think we've got a great opportunity to transition our existing business, which is more of a licensing intellectual property into the sale of product, meaning that the size of that opportunity could go up materially over time.
So hard to comment specifically in terms of just the timing of when these things are going to happen in terms of the new stuff.
But we believe that the opportunities are substantial and we're pursuing them aggressively.
Hi, <UNK>.
How are you.
Sure.
Well, we haven't really talked about the capacity utilization, other than to say that we believe that we've got substantial opportunity to push more business through that facility.
The interest remains very high to date.
Since we've opened it, we've had 60 customer visits.
We see the potential of picking up more RF and microwave work largely in the EW domain, given that's where we think the money is flowing.
And that part of our business is going to continue to grow.
We're still running one shift.
I think as I mentioned in my prepared remarks and as <UNK> alluded to in his, we continue to work on making both our engineering and manufacturing processes more efficient.
And hence the small restructuring charge that we took this quarter that will continue to play out in terms of improved profitability in fiscal '16.
Sure.
So let me step back a little bit, because Patriot is clearly an important program.
Our bookings rebounded extremely strongly in fiscal '14 after a pretty disappointing fiscal '13.
We booked close to 46 million last year alone on Patriot and actually received our largest single program bookings ever in the fourth quarter at 39 million.
Most of those awards were related to either upgrades for the U.S. Army or for FMS related sales for countries such as Kuwait, Qatar, and Saudi.
And we've seen the substantial benefit of those bookings translate into revenue for us during fiscal '15.
Through the first three quarters, Patriot is actually our top revenue program with $32 million of revenue---+sorry, up---+approximately $32 million of revenue and it's up $27 million year-to-date.
The---+if you look at say Q3, we received $7 million of new orders this quarter.
And when you look at just some of the recent announcements by Raytheon, we do anticipate additional follow on bookings probably in Q4 related to additional business for the U.S. Army, and then other countries as well.
Clearly, the---+Raytheon was selected by Poland, which could translate into business for us during fiscal '16.
And they're in competition right now for Germany, which again, could be fiscal '16 also.
So net-net, it's a really important program.
And I think not only Raytheon continuing to win more opportunities, but we actually see the opportunity of expanding our content on the Patriot system, both in terms of on the processing side, as well as in the RF dimension longer term.
So it's a great program.
It's going really well for us right now.
Yes.
So we actually had a brand new design win this quarter where we displaced an IBM blade center for a naval application that I can't go into in too much detail.
But we see it happening.
We've received our first order.
We've delivered the first capability and we're pretty excited about the potential long term.
Thank you.
Hey, Mike.
How are you.
Sure.
It's not a risk.
It's an opportunity, Mike.
I think in the short term, as Tom Kennedy mentioned on the call, we are going to look to introduce a 360 degree Acer radar using their gallium nitrate capabilities.
And so, that's going to likely require great processing capabilities, as well as we potentially see the opportunity longer term of providing some RF and microwave capability as part of that solution.
So we actually view the enhancement opportunities or the introduced---+introduction of new technology on the Patriot program as actually an opportunity, not a threat.
I think as you've probably seen historically, Mike, right, probably the one of the parts of the P&L that move around a lot is gross margin, right.
And it's very much driven by program mix.
So I wouldn't read too much into that in the short term.
It literally depends on what products and capabilities tie to what programs we're delivering.
Yes, I think that's certainly a part of it.
I mean, if you look at the preliminary outlook to fiscal '16, 5% revenue growth just given the margin profile and expenses growing more slowly than the topline will result in adjusted EBITDA growing at twice the rate.
So we think that's pretty healthy in this environment.
Thanks, Mike.
Okay.
Okay.
Well, thank you very much for taking the opportunity of listening to our third quarter results.
We look forward to speaking to you again next quarter.
Take care.
| 2015_MRCY |
2016 | EBIX | EBIX
#Thank you.
Welcome everyone to Ebix, Inc.
2015 annual results earnings conference call.
Joining me to discuss the year and Q4 2015 is Ebix's Chairman, President and CEO <UNK> <UNK> and Ebix's EVP and CFO <UNK> <UNK>.
Following our remarks we will open up the call for your questions.
Now let me quickly cover the Safe Harbor.
Some of the statements that we make today are forward-looking including among others statements regarding Ebix's future investments, our long-term growth and innovation, the expected performance of our businesses and our use of cash.
These statements involve a number of risks and uncertainties that might cause actual results to differ materially from those projected in the forward-looking statements.
Please note that these forward-looking statements reflect our opinions only as of the date of this presentation and we undertake the obligation to revise or publicly release the results of any revisions of these forward-looking statements in light of new information or future events.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements made today is contained in our SEC filings which list a more detailed description of the risk factors that may affect our results.
Our press release announcing the Q4 2015 and full-year 2015 results was issued earlier this morning.
The audio of this investor call is also being webcast live on the web on www.Ebix.com/webcast.
You can look at Ebix's financials beyond what has been provided in their release on our website www.Ebix.com.
The audio and the text transcript of this call will be available also on the investor homepage of the Ebix website after 4 p.
m.
Eastern Standard Time today.
As is customary Bob and I will talk about the Company from a financial perspective while <UNK> will delve into the qualitative aspects of the quarter, the year and the future ahead of us.
Let me start by reviewing the results announced today.
On a constant currency basis, Ebix Q4 2015 revenue was 20% higher at $72.9 million as compared to $60.6 million in Q4 of 2014.
Full-year 2015 revenues were 29% higher at $276.2 million on a constant currency basis as compared to $214.3 million in 2014.
Q4 2015 GAAP revenue was 16% higher at $70.2 million as compared to Q4 2014 revenue of $60.6 million.
On a sequential basis Q4 2015 GAAP revenue was 5% higher over Q3 2015 revenue of $66.8 million.
For the full-year 2015 GAAP revenue was $265.5 million, an increase of 24% as compared to 2014 revenue of $214.3 million.
The year-over-year revenues would be $10.7 million higher in 2015 and $2.7 million higher in Q4 2015 when measured on a constant currency basis across the exchange and broker system channels due to the continued strengthening of the US dollar as compared to the Australian dollar and the Brazilian real.
In Q4 our exchange revenue continued to be the largest channel for Ebix accounting for 73% of the Company's revenues.
The year-over-year revenues increased as a result of revenue growth from life, annuity, underwriting, health content and RCS services in addition to revenue growth generated from the Company's 2014 and 2015 acquisitions, partially offset by the drop in revenue from the international locations as a result of the strengthening of the US dollar.
Ebix's presence in the life annuity sector grew by a combined 8% year over year in Q4 of 2015 with an annualized rate of approximately $116.9 million.
Our presence in the life sector in Q4 2015 grew by 6% year over year while annuity sector revenues grew by 17%.
The Company's life underwriting revenues grew 36% year over year in Q4 2015.
Health content revenues in Q4 2015 were up 45% aided by the acquisition of Oakstone's continuing education business.
RCS revenues were 29% because of the acquisition of PB Systems.
The professional services revenue in Q4 of 2015 continued to be impacted negatively in the life sciences division where revenues were lowered by 66% year over year due to the already announced decision of the Company to deemphasize certain operations which we don't think can give us the same margin profile and market position that fits in with our present strategy and growth plans.
We expect that we'll be able to improve revenues and margins in this area as our offshore operations set up to take this business ramp up fully in terms of knowledge and number of people.
The P&C broker business was down 16% year over year, primarily due to the strengthening of the US dollar.
I will now turn the call over to Bob.
Thank you, <UNK>, for the details provided on Ebix's revenue results.
Thanks to all on the call for your interest in Ebix.
We are very pleased to deliver strong fourth-quarter results.
Now I will discuss more detailed financial results and related information.
Q4 2015 diluted earnings per share increased 44% to $0.65 as compared to $0.45 in the fourth quarter of 2014.
For purposes of the Q4 2015 EPS calculation, there are on average of 33.9 million diluted shares outstanding during the quarter as compared to 36.8 million diluted shares outstanding in Q4 2014.
For the full-year 2015, diluted earnings per share increased 36% year over year to $2.28 from $1.67 in 2014.
For purposes of that EPS calculation there was an average of approximately 35.9 million diluted shares outstanding during the year 2015 as compared to an average of 38 million diluted shares outstanding in 2014.
As of today, the Company expects the diluted share count for Q1 2016 to be approximately 33.3 million shares.
Cash flow provided by operations for Q4 2015 was $23 million, up $7.5 million or 48% from Q3 and up almost $3 million or 14% from Q4 a year earlier in 2014.
Our operating cash flow for 2014 was $58.5 million.
The operating cash flow for the full-year 2015 was [10.7 million] higher at 59.2 before taking consideration of the one-time cash payment of $20.5 million in January of this past year 2015 stemming from the resolution of the previously disclosed internal revenue services audits of Ebix income tax returns for the taxable years 2008 through 2012.
The actual reported cash flows for 2015 after the IRS payment totaled $48.7 million.
The Company had a strong operating margin of 37% for Q4 2014, up from 32% for Q3 2013 and 35% from Q4 2014 a year earlier.
For the full-year 2015 operating margins were at 32% as compared to 37% for 2014.
Operating income for 2015 was up 11% to $88.7 million as compared to $79.7 million for operating income last year in 2014.
Operating income for the fourth quarter of 2015 was up 22% to $25.8 million as compared to $21.1 million of operating income last year in the fourth quarter.
We are pleased with the growth in operating margins as it is in line with what we expected and our cost control initiatives.
Cash, cash equivalents and short-term cash deposit investments in the aggregate were $58.7 million at year-end 2015, up by $24.5 million as compared to the previous quarter just three months back in September of 2015 and up $6.1 million from a year ago in 2014.
Cash balances this quarter are up due to the increase in cash generated from our operating activities during the quarter.
The Company's overall debt balances increased $85 million in 2015 due to draws off of our syndicated revolving credit facility with Regions.
At year-end 2015 the outstanding balance on that credit facility was $206.5 million leaving $33.5 million of remaining borrowing capacity.
During 2015 the Company repurchased almost 3 million shares of its outstanding common stock for an aggregate cash consideration of $82.5 million.
Amongst other initiatives targeted at maximizing shareholder value, Ebix utilized $16.4 million of cash during the fourth quarter of 2015 on repurchasing another 411,000 shares of Ebix's common stock for $13.7 million and paying $2.5 million for our quarterly cash dividend to our common stockholders.
Subsequent to the year-end December 31 and through today February 29, the Company has repurchased an additional 467,000 shares of common stock for aggregate cash consideration of $14 million.
In 2015 the Company also made a number of other key investments and this grew out the Company's capital expenditures were $14 million during the year primarily due to the expenditures in the buildout of our new Johns Creek headquarters campus facility and the purchase of new buildings in India to support our expanding world-class product development facilities.
The Company also incurred $3.5 million in capitalized software development costs associated with the Company's continuing medical education service offerings and the recent development of its new global range insurance framework.
The Company also spent $18.5 million in the form of acquisition-related and joint venture investments being the acquisition of Via Media Health, P.
B.
Systems and the formation of the Ebix Health Solutions, LLC joint venture with IHC.
After all of this spending Ebix still at year-end had approximately $92 million of readily available cash resources from our financing facility and combined with our cash on hand to adequately support continued organic and acquisitive growth and to expand existing operations of the Company.
Furthermore, as to key balance sheet metrics, our balance sheet is and remains healthy with $65.6 million of working capital, a current ratio of 2.29, a DSO accounts receivable of 61 days and a debt-to-equity ratio of only 0.51.
The Company will pay its next quarterly dividend of $0.075 per common shareholder payable on March 15, 2016 to shareholders of record today on February 29, 2016.
Finally, Ebix's annual report on Form 10-K will be filed later this afternoon.
Thank you all.
And I will pass the call on to <UNK>.
Thanks, Bob.
Good morning.
<UNK> and Bob have already covered the quarter and the full year in the medical terms.
I'll try to focus my comments on a number of topics: my summary comment from the quarter, questions that I've then asked by institutions over the last few months and where we head from here.
Let me first present my perspective on the quarter.
A few things stand out for me numerically in the quarter: one EBITDA plus stock-based compensation of $29 million that if annualized translates to $116 million; two, it was a great quarter from the perspective of revenue growth whether we look at year-over-year growth or sequential growth; three, operating cash flow of $23 million; and finally, EPS of $0.65 and headed in the right direction.
I'm especially pleased that this performance has come at a time when the strengthening of the US dollar has played havoc with the results of many global companies.
Our results present the year-over-year constant currency comparison.
At the same time the impact of the US dollar strengthening has been going on for a few years now and has really dented the results of Ebix and other global companies.
To give you a spectrum of the change over the years and exchange rates, let me give you some numbers.
A few years back AUD10 million translated to $11 million a quarter in revenues.
In Q4 of 2015 it translated to $7.3 million approximately, a decline of $3.7 million a quarter.
A few years back a performance of BRL2 million translated to $1.4 million.
In Q4 of 2015 to deliver the same $1.4 million number our Brazilian operation would have had to deliver more than 2.5 times that performance in local currency as the Brazilian real has fallen almost catastrophically as compared to the US dollar.
Add to the mix our readiness to take revenues from an acquisition down by giving up on low margins or transitory revenue streams and our focus on high-margin revenue streams and then these results for Q4 2015 and full-year 2015 hold even more meaning considering the operating margin growth in Q4.
From a full-year perspective a few things stood out for me besides the numerical growth in revenues, EPS, etc.
2015 was a year of setting the basics right for a growth-oriented Company.
We invested in infrastructure that will position us for growth for many years by building our expansive global headquarters campus in Atlanta and expanding our capacities in India that could staff another 1,000 new employees.
Our legal slate got a lot cleaner than in previous years with the Company not being in the midst of any customer suits in spite of having 16,000-plus clients.
Our tax returns in the US are now fully audited till 2013 with IRS accepting our 2013 returns after an audit of our 2013 federal tax returns.
The Company evolved from just targeting the current exchange contracts to a Company that was now also targeting material value enterprise turnkey contracts.
I believe that 2015 was a year of setting up the foundation for the next few years of growth for the Company in terms of both top line bottom line.
<UNK> talked about our growth areas.
We feel that we have momentum on our side, driven out of the versatility of our products and the straight through end-to-end processing that our enterprise platform provides.
This is best exemplified in the area of life exchanges where we are winning almost every enterprise deal that we are bidding on at present with respect to our competition.
In recent times we have won many key engagements that involved some top life distributors moving from our competition to us besides winning many large enterprise deals involving large insurance carriers.
Our strength is that our products not only offer expensive turnkey solutions but also have a strong aggregation of happy clients on them.
As regards the future, we continue to pursue many material organic growth opportunities in the short and long term.
This can have a great impact on our future top line and bottom line.
We believe that we are well-positioned for a great 2016 on that front.
We are very excited with the opportunities in the education, e-health and e-governance areas.
These opportunities tend to be large and can have a material impact on our top line.
We believe that we have the solution set and the financial acumen to service such large deals.
We are working on many such opportunities at present and hope to make our presence felt in these areas soon.
We're also pursuing a number of opportunistic acquisition opportunities that can contribute well to our 2016 growth plans.
We are highly disciplined in our approach when we pursue any of these opportunities.
Our goal is to buy a business that we can evolve into an accretive business in the short term besides the usual requirements in terms of business fit, cutting-edge technology, customer stickiness, recurring revenue, etc.
We like to be opportunistic in our purchases and tend to like companies that have all these basics but are in some kind of financial distress on account of poor fiscal management as that way we get to pay less and find good bargains.
We like to pay for companies in cash rather than Ebix stock.
If we do not have all the cash required to fund the acquisition then we look to the bank to fund an acquisition.
However, the key requirement for us is to find debt at low interest rate as we are not willing to risk our fiscal successes by taking a high risk debt instrument.
In recent times we pursued the acquisition of a company in London.
That's actually a good example of how we approach ---+ how we operate.
London takeover court prohibited us from talking about the prospective acquisition in any manner directly or indirectly so we could not comment at that time.
We were never looking at giving any Ebix stock for the acquisition and our offer was 100% cash offer driven by straight debt from the bank.
While we were convinced about the fact that the acquisition could possibly double our EPS yet we decided not to bid in the final stages simply because the debt markets in December were extremely volatile and any debt that we were getting had a volatility element in it.
We were just not prepared to take a high risk approach in spite of knowing that the potential upside was extremely high for us.
That real examples sums up our disciplined approach to fiscal management, acquisition strategy and the debt versus stock question that many of you might have.
We believe that we will be better prepared in terms of low debt financing to fund any large prospective acquisition now by having the right instruments in place for them in advance.
We are working in that direction at present and our banking syndicate has been extremely supportive to step up for any such needs.
As Bob indicated, we intend to keep building shareholder value by continuing to use our operating cash flows to fund our stock repurchase plan.
We also intend to continue our dividend as we did in 2015.
As Bob conveyed during his talk we have access to approximately $92 million of financial resources in the form of cash and cash equivalents as of December 31 and including access to a bank credit facility.
This $92 million number does not include the prospective cash flow generated from operations by the Company over the next 12 months.
This amount can go up substantially once we increase our bank line.
Thus we believe that we have the financial resources to carry out all the growth initiatives discussed here with the goal of delivering improved diluted EPS and increased shareholder value.
That brings me to the end of my talk.
I will now hand it over to the operator to open it up for questions.
Thank you.
Yes, so <UNK> the first part of the question is the key exchanges.
I think when you look at the exchanges really the opportunity today resides from our perspective in life, annuities in the health, the insurance and in the reinsurance markets.
Now the opportunity actually resides in P&C, too.
However, we have decided not to be in the P&C exchange markets in the US purely because we feel that the market is a little bit stagnated in the US and in the hands of one strong player.
And we don't think there's a big opportunity for us there.
So coming back to it, when you look at the relative depth of the market, the market is obviously every when you talk to any carrier today or any large distributor across the world, you will not hear anybody contesting exchanges.
You will never hear anybody saying I am against exchanges or I don't want paper out of the process.
Everybody is looking for straight-through processing simply because every carrier, every broker is looking for their 1% extra margin that they can generate.
And this allows them to generate their margin substantially.
Exchanges do.
Now how many of them are really using straight-through processing.
Now that frankly the number is absolutely miniscule, meaning I could talk on my fingertips about the carriers and distributors who have basically deployed straight-through processing.
It's still today the good news is we're the only player who can offer the straight-through processing from one end to another virtually.
The bad news is that this is successful a perspective of the market has been that everybody ---+ anybody who's out there who has gone on the straight-through processing route have gone with us.
At the same time there are not that many players yet.
But that also means there's a huge opportunity ahead of us.
This is the single biggest thing why we are winning businesses.
We are continuing to win.
We go for example I talked about life exchanges.
The moment we land up in an end-to-end straight-through processing deal or an enterprise exchange deal, there's really no choices.
There's only Ebix who can provide an enterprise exchange who can walk in and basically provide front-end, backend, move the data across, provide the backend leading from front-end CRM systems to all the way to the backend systems to a general ledger to a policy admin to all the underwriting and all of the quoting, all the compliance, all of that stuff that we handle in servicing of the policy and so on, claims adjudication, claims settlement.
So that's basically the big advantage we have today.
And that by itself opens up the market a lot for us because that puts us in a very unique position to be able to walk in and to deal and basically be the only player who can provide absolute end-to-end processing.
<UNK>, we'll soon be able to talk about it in quantified terms and also in a little bit more detail.
Unfortunately I can't still talk about it in detail purely because I have an NDA with PPL which allows me that any time I speak I have to now we will do a joint release on this one and we will virtually you'll be able to see it jointly from us and from PPL, the whole thing.
It's going extremely well overall.
Clearly from our perspective you see the platform is 100% ready.
It's been fully tested.
As you know there are a lot of people already using the platform.
And having said that it's been a phenomenal experience to allow and we are very pleased with how the uptake has been and how the overall gambit of the deal has been.
But I think I've said in the past one important point that sometimes people miss that one, this deal it's going to have some guaranteed revenue stream for Ebix.
So it's not that we have to wait for the uptake.
Our revenue streams are going to be locked on a yearly basis.
The quantum of it, what that quantum is, right now I'm not allowed to speak until we have ---+ this is clearly there is when you talk about a market aggregation deal in which there are both sides a large number of carriers, large number of brokers, Lloyds, all the leaders of the market involved I think I have to just keep my mouth shut and do speak at the right time together with them because it would not be right on my part.
I would be breaking my NDA if I just spoke right now.
Most of our revenue streams are pretty constant.
However, there are a few areas where we get a bit of ---+ in Q4 we will sometimes have in certain areas there will be revenue increases and in certain areas that will be revenue decreases.
To give you an example there are two main areas which I will call possibly different from the typical constant recurring revenue sources.
One is in the fourth quarter we get a little bit more of we do a lot better on continuing education on that side of the business simply because it's a tax deductible instrument for doctors and they tend to do a lot of buying towards the end of the year.
So that's a positive uptake we get in the fourth quarter.
Having said that, on the negative side when you look at the consulting markets the revenue goes down substantially simply because we have a much shorter quarter simply because of Christmas holidays.
And what it does is all our billing in the consulting market tends to be time and material and tends to be so when you have a shorter month or a shorter quarter you basically are going to get a lot less billing.
And then you get vacation issues coming in in December where people want to use all their vacation and stuff like that and it results in lower billing.
So it kind of balances itself off.
So I don't really barring these two I don't see anything that was so extreme or anything that I would call very unique about the quarter.
I think it's a constant ---+ I think with the way Ebix looks at it we feel we're going from strength to strength in terms of moving our revenue stream forward.
For example you asked me a question about the London deal as you already heard that we started booking.
We already had $1.5 million of revenue in the fourth quarter from that London deal.
At the same time from Ebix's perspective we have moved on.
This is a deal which is something that we worked for many years but at the same time we want to do similar size and bigger deals all the time and we would like ---+ the Company's nature has changed, the Company's aspirations have changed.
So we are today targeting much larger deals than even this one and we're hoping that we can click a few of those in the short and long term.
Yes, let me talk about operating margins.
I think the operating margins will ---+ you see I can't give you an absolute confirmed guarantee on anything because I don't like to give guidance.
Having said that I don't find anything so transitory or unique in this quarter in terms of operating margin simply because you know our business model, our business model is rather simple.
Our business model is that if we have sold $100 of revenue to an exchange client and now we start doing $120 of revenue, chances are that $20 additional revenue that we got from the same client is going to result in a little bit much higher level of income than the first $100.
So that's the nature of exchanges.
So what is going to happen is that we do feel that we have a lot of room left to grow on our operating margins.
I am not looking at this margin number and saying this is a phenomenal number.
Clearly we are pleased.
At the same time this is not a number we are targeting.
Our targets and operating margins have always been a lot higher and as we deploy some of the larger exchange deals, I think there is room for margin improvement.
Yes, go ahead and respond to that, <UNK>.
Yes, the capitalized software is being capitalized this year because in earlier projects we had not reached the point of technological feasibility justifying cost capitalization nor were any of our other projects nearly the size of the magnitude of PPL reinsurance platform.
It means going forward that when we have other similarly large projects and we have been able to demonstrate that we've reached technological feasibility we have continued development efforts up until the time the product is released to the market we will capitalize such costs.
Yes, so <UNK>, let me give you the simple answer to that.
As a policy as a Company we don't necessarily like capitalizing software.
The policy we have normally not done that in the past.
At the same time as the project as Bob explained once you reach technological feasibility and there's a project of a large enough size which has global value then we have to look at it.
Now right now we don't have anything on the horizon that we are thinking of to give you a very direct answer.
I would be surprised if we find any more items in 2016 that we would like to capitalize or would capitalize.
I think right now it's very difficult to define that position.
At the same time, having said that when you deployed, when you build a solution which has global implications and the capitalization has been from a perspective of a global framework for reinsurance exchange which has international value for us and we have put in a substantial amount of effort into it.
It's going extremely well.
We hopefully will be able to be ---+ we hopefully will be in a position soon to be able to talk about it in a little bit more detail.
Do we expect some big successes there.
I would say yes.
How soon.
I couldn't comment on it right now.
So we will wait and see how we handle it.
We are pursuing very large opportunities there which have a meaningful, can have a meaningful impact on our revenue streams.
Thanks Nicole.
Thanks everybody for joining us on the investor call.
We'll look forward to speaking to you again in the first quarter and announce the first-quarter financial results.
Thank you very much.
And with that I will finish the call.
| 2016_EBIX |
2017 | INT | INT
#Thank you, Colin.
Good evening, everyone, and welcome to the World Fuel Services First Quarter 2017 Earnings Conference Call.
I'm <UNK> <UNK>, World Fuel's Assistant Treasurer, and I'll be doing the introduction on this evening's call alongside our live slide presentation.
This call is also available via webcast.
To access the webcast or feature webcast, 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>, Execute Vice President and Chief Financial Officer.
By now, you should all have 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 includes 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 in 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 $35 million or $0.50 adjusted diluted earnings per share.
Our Aviation segment posted solid results carrying the strong year-end momentum into the beginning of 2017.
Gains in our core resale activities in North America, Europe and Asia with the principal drivers of the year-over-year increase along with government fueling operations.
Also during the first quarter, we completed the last phase of the previously announced acquisition of ExxonMobil fueling operations of more than 80 airports.
As noted in prior communications, this transaction represents a significant strategic expansion of our global Aviation platform, further establishing us in the supply chain at numerous key international markets.
In our Marine segment, results were again impacted by an industry which continues to bounce along the bottom of what remains a very challenging operating environment.
Slightly positive indicators in the container in dry bulk markets including increased trade flow to China, are small signs that the industry could be moving towards improvement.
But we will need to see a sustainable positive trajectory before acknowledging that the industry is coming out of what has been a multiyear stagnation.
Although prices have increased significantly from a year ago, continued lack of material price volatility continues to pressure profit margins and demand for embedded derivative products.
In the meantime, the cost savings initiatives that were recently completed have allowed us to consolidate even streamline operations in order to adapt to the current market dynamics.
In our Land segment, profit rebound ---+ profits rebounded sequentially, but were lower than year-ago period due to a decline in consumption of both natural gas in the U.S. and heating oil in the U.K. due to a warmer winter.
Results were further impacted by poor market dynamics, mostly in oversupplied market around our legacy spot wholesale supply and trading activities on the East Coast.
Our commercial and industrial end user growth strategy is taking hold as the PAPCO, APP and connect businesses are discovering many commercial synergies that we'll begin to realize in the second half of this year.
The multi-service payments platform continues to perform well, yielding double-digit growth and given the abundance of organic growth opportunities that are available in the marketplace, we expect this activity to become a significant contributor to profitability in the future.
Finally, we remain focused 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, our customers and suppliers, and the tremendous engagement of our global teams.
Now I'll turn the call over to <UNK> for financial review of our results.
Thank you, <UNK>, and good evening everyone.
Consolidated revenue for the first quarter was $8.2 billion, up 58% compared to the first quarter of 2016.
The increase was due to the 55% increase in oil prices as well as increased overall volume principally from the APP and PAPCO acquisitions that were not included in the last year's first quarter results.
Our Aviation segment volume was 1.8 billion gallons in the first quarter, up 200 million gallons or 13% year-over-year.
Volume growth in our Aviation segment was derived principally from gains in our core resale operations in North America, Europe and Asia.
Volume in our Marine segment for the first quarter was 6.8 million metric tons, down approximately 800,000 metric tons or 11% year-over-year.
The largest driver of the volume decline came from a reduction in low margin, lower turn activity in Asia.
Our Land segment volume was 1.5 billion gallons during the first quarter, that's up approximately 300 million gallons or 23% from the first quarter of 2016, again principally driven by the acquisitions of PAPCO and APP.
Lastly, total consolidated volume for the first quarter was 5.1 billion gallons, an increase of approximately 300 million gallons or 6% year-over-year.
Consolidated gross profit in the first quarter was $231 million, an increase of $10 million or 5% compared to the first quarter of 2016.
Our Aviation segment contributed $100 million of gross profit in the first quarter, that's an increase of $11 million or 13% compared to the first quarter of last year.
The principal drivers of the gross profit increase came from our core resale business as well as our government-related business activities.
In terms of the ExxonMobil transaction, while the transaction is now effectively complete, the integration process is continuing.
While we expect this transaction to begin making profit contributions during the second quarter, we believe these opportunities will strengthen as we enter 2018, once again a few quarters of running these operations under our belt.
The Marine segment generated gross profit of $34 million, that's down $6 million or 14% year-over-year.
The gross profit decline in Marine was principally driven by reduced volume in margins in our core business, impacted by market conditions and lower profits from the sale of price risk management products to our Marine customers.
In the meantime, the actions that we took over the past few months to streamline operations in our marine model by taking cost out of the business have been effectively completed, which has improved the operation efficiency of Marine business going forward.
Our Land segment delivered gross profit of $98 million in the first quarter, that's an increase of $4 million or 5% year-over-year.
The increase in Land segment gross profit is principally attributed to recent acquisitions offset by a decline in our European Land segment profitability driven by warmer weather, and also a 14% decline in currency rates compared to the prior year, as well as lower profitability related to the supply and trading activities in the United States.
As a follow-up to the last quarter's call, the Colonial pipeline generally returned to normal in the first quarter, reducing the glutted supply in the Midwest, which returned to profitability.
However, conditions in the Northeast didn't improve materially as this market remained oversupplied for much of the quarter.
Nonfuel related gross profit associated with our multi-service payment solutions business was $14.1 million in the first quarter, that's an increase of 13% compared to the first quarter of last year.
We continue to expect gross profit from this business activity to grow 20% year-over-year as we continue to find new opportunities by leveraging our growing payments platform.
As I continue with the remainder of the financial review, please note that the following figures exclude the impact of $4.8 million of pretax nonrecurring expenses in the first quarter as well as nonrecurring items increased 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 in our earnings release in 10-Q, the breakout of the $4.8 million is as follows: $2.7 million impacted the Aviation segment; $600,000 impacted the Land segment; $500,000 impacted the Marine segment; $400,000 impacted unallocated corporate expenses; and $600,000 impacted nonoperating expenses.
Of the $4.2 million, which impacted compensation and G&A, $1.4 million impacted compensation and $2.8 million impacted general and administrative expenses.
The reconciliation of these amounts can be found on our website and in the last slides of the webcast presentation.
Operating expenses in the first quarter, excluding our provision for bad debt and one-time expenses, were $174 million, up $17 million or 11% year-over-year, but a decrease of $7 million or 4% sequentially, reflecting the impact of our continuing cost-cutting initiatives.
The year-over-year increase in operating expenses was principally related to expenses of acquired businesses.
Total operating expenses, excluding bad debt expense and any one-time costs should be in the range of approximately $174 million to $179 million in the second quarter, which is effectively flat with the first quarter adjusted for incremental expenses associated with the recently completed ExxonMobil transactions in Australia, New Zealand, Germany and Italy.
Our bad debt provision for the first quarter was $2.5 million, up $1 million compared to the first quarter of 2016.
Consolidated income from operations for the first quarter was $55 million, down $8 million year-over-year, but an increase of $21 million sequentially.
Nonoperating expenses principally comprised of interest expense in the first quarter was $13.7 million, an increase of $7.4 million compared to the first quarter of 2016, principally related to increased borrowing associated with our increased volume, higher fuel prices, the funding of acquisitions and higher average interest rates compared to last year.
I would assume nonoperating expenses to be approximately $13 million to $16 million in the second quarter.
Our effective tax rate in the first quarter was 16%, compared to 13.2%, which excluded the discrete tax item in the first quarter of last year.
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 $34.6 million this quarter, down $18.3 million year-over-year.
Non-GAAP net income, which excludes one-time expenses and also excludes intangible amortization and stock-based comp, was $44.5 million in the first quarter, a decrease of $18 million in the first quarter of last year.
Adjusted diluted earnings per share was $0.50 in the first quarter, down from $0.76 in the first quarter of 2016.
And non-GAAP diluted earnings per share was $0.64 in the first quarter, down from $0.90 from the first quarter of 2016.
Our total accounts receivable balance was $2.2 billion at quarter end, down $135 million compared to year end 2016.
And net working capital was approximately $940 million, down approximately $90 million compared to December of 2016.
Both down despite an increase in average fuel prices during the first quarter.
After using the modest amount of cash in the fourth quarter, we generated $137 million of cash flow from operations in the first quarter.
That is the 18th out of the last 19 quarters where we generated positive operating cash flow.
Additionally, we repurchased $11 million of shares or common stock in the first quarter, and we expect to repurchase additional shares over the course of the year delivering incremental value to our shareholders.
In closing, we generally performed as expected in the first quarter, rebounding from our refinish to 2016.
And after using cash from our fourth quarter for the first time in 4 years, we not only generated cash again this quarter, we generated a significant cash, all the quarter where we saw fuel prices increasing.
We remain confident in our ability to deliver results for 2017 consistent with the guidance we provided when we started the year.
As previously stated last quarter, such expectations remain dependent on continued strong contributions from our government-related activities, anticipated contributions from our 3 recent acquisitions, historically normal winter weather patterns in the U.K. and U.S. and our ability to fully realize our previously announced cost saving initiatives.
I would now like to turn the call over to Colin, our operator, to begin the Q&A session.
Yes, I will start off and Mike can talk about a bit about the ongoing integration activity.
So first of all, you have to consider that foreign exchange rates have moved significantly since we announced the deal and in the wrong direction in this case.
So that's certainly impacted the shorter-term accretive opportunity from this deal.
And it's also taking a bit longer to begin achieving the efficiencies we initially forecast, for some of the reasons that Mike might get into in terms of having to take this over and really kind of start again from scratch.
But as we enter the second half of the year or even in this quarter that we're in right now, we expect to start generating profitability, and as I said in my prepared remarks for that to accelerate more in 2018.
So I think we originally stated that we would achieve that level of accretion in the first 12 months following the full completion of the deal.
If it wasn't for the FX impact, that would probably still be principally correct, but we're likely going to be bit shy of that because of FX.
So we'll be run rate of somewhere in the low 20s as opposed to low 30s, but we expect that to pick up as we enter 2018 and beyond.
Just a little bit more color, <UNK>.
Listen, it's a source of pride for the company in terms of how the team performed.
It was certainly one of the more complicated acquisitions that we've done just from the standpoint of a number of locations and the requirement of taking immediate ownership, assistance needed to be in day 1.
There was a number of moving parts.
Obviously, the physical logistics and taking that over in 7 countries.
So we are pretty proud of the team, but as <UNK> just commented on as he indicated in his prepared remarks, it's going to pick up later on in the year, but it really is a good strategic move for us to gives us a great foothold in those countries in getting into the fiscal distribution space.
We are seeing more synergies coming across our Land, Marine, Aviation, our connect business and multiservice.
So there's a lot of convergence going on, and being able to get involved in these different countries and getting a deeper into the distribution chain is exactly what our strategy is in terms of that omni-channel approach, to be able to fulfill our customers' requirements in any number of different ways on inventory distribution, third party value-added reselling or using technology.
So there's a lot of convergence going on, and we are pretty proud of our ability to do that.
Thanks for the question, <UNK>.
So ---+ look as we indicated in the past we are always considering how to best allocate our capital between funding organic growth, making acquisitions or buying back shares.
So as we said in the past, we remain committed to buy back enough shares to timely to offset the diluted impact of our employee stock awards.
And we'll always consider additional repurchases, especially when we feel our shares are undervalued.
But again, it's a balance in terms of identifying how much of capital we have available to us.
We're still focused on looking for strategic acquisitions very carefully.
I need to make sure we always have our powder dry for that.
So should we generate significant amount of incremental cash flow that we had in forecast, that gives us some extra capital to allocate order to buybacks or organic opportunities or M&A.
So I think ---+ I think what we are signaling formally is that we expect to make good on that commitment to buy back enough shares in 2017 to at least cover the diluted impact of awards and keep our share count constant.
Whether we do more than that is dependent on a lot of things.
I really can't give you a clear answer on that at this point in time.
Well it's interesting.
You've got a lot of things going on in the world today.
You've got a world in transition, you got industries in transition, we're in transition.
The energy market is a wash.
There is a heck of a lot of oil around, technology has just changed everything.
But without getting long winded.
If you look at ---+ it's really interesting as you see how our different businesses have led in different ways over a period of time.
So our Aviation business is doing extremely well.
You can see that we've got scalability there.
We are growing our top line, and you're getting scalability there.
And that is a diversified business model, that has proven to be successful and that's been built over a long period of time.
If you look at Marine, and now John Rau leading Marine coming out of the Aviation industry, there is a lot of similarities.
They are both moving target so to speak between a ship, a plane, an airport to seaport.
And he is doing I think a tremendous job in terms of really looking at that business with a fresh pair of eyes.
So our traditional value props has a value-added ---+ third party value-added reseller.
A lot of those have been challenged, to be honest with you.
Certainly, the market is kind of shallow now.
There's not a lot of movement, and there's not a lot of price volatility, derivatives activity, I mean just saw something come out with it, take a price may go to $40.
So credit price is low.
So they're not getting challenged that much.
There's cheap money out there.
And there is a lot of oil.
So offshore is not looking so good.
So it's a whole different ballgame, and it's really about becoming a very tight operating company.
I mean ironically, we're probably ---+ if you look at the level of professionalism in our operation, we are healthier than we ever had been.
Okay, doesn't necessarily show that in the numbers.
But just in terms of where our organization is at.
So the Marine industry is challenged, it's critical, 90% of the World's goods transit, it's not going to go away and they're going to continue to use energy.
You've got 20, 20 coming onboard.
And so that's going to change a number of other things.
We are in the LNG of the natural gas space.
We're in the [digital] space by our Land business, which will end up going global.
So I think we are in a good position to deal with this emerging new Marine industry, and it's just going to be different, and it will be getting involved in every part of it.
So regardless where the industry goes, we're going to be a player in it.
It is perhaps going to be different sources of revenue, where it's not going to be frothy in terms of ---+ we got volatility, we made killings.
And I think if you look at our Land business, we acquired Western, there was a significant amount of wholesale spot business.
We rode that.
In Q4 '14 and in Q1 '15, the music stopped because the market dropped and it then dropped again.
OW went bust, but the prices dropped, and it really just changed everything.
So it's really about being a responsible player in the marine space, and being that energy management and procurement company where we are that reliable counterparty in providing a suite of services.
So I know it's a long-winded answer, <UNK>, I'm sorry for that.
But regardless of where the industry goes we want to be a player in it.
We've got I think a phenomenal platform.
And we've got a lot of products and services, and it's really becoming ---+ making it easier for us to do business with the market and the market to do business with us, and providing that multi-sided platform so that energy can be delivered and consumed to the Marine industry.
So it's just going to be different.
And to think that we're going to have the rock 'n roll days.
I'm not sure that that's going to happen.
Technology has just changed everything.
We've got really an environment of post-scarcity anarchy.
There is just a supply of everything, and you look at technology, you've got shale oil that is reducing ---+ everybody is reducing their cost, we are reducing our cost.
I had lunch today and our risk manager was commenting that offshore rigs used to be $800 million, now they are $100 million.
So there is just the supply of everything, and the world is changing, and we're positioning ourselves really to be a technology company that just so happens to know a lot about fuel logistics and that's really where we are going.
So anyway, sorry for long answer.
So container, we've been historically very strong on the container side.
So back in the day this came out of some of our government contracting because some of the government requirements are little bit out there, but it was sort of tested us and they would ask for pricing of that, they had a very little to do with the price of oil in that particular port.
So the index was some place remote.
So we have to do a lot of regression analysis and understand the correlation, and that forced us to understand price movements, and whatever.
Maybe that was the early stage of Big Data, but we're doing that on the 10-Q.
But in any case, that brought us to the container liner business.
We came with general contractor and started to offer contracts that were more competitive than any single supplier was willing to offer because we're working the entire market.
And then we started to embed derivatives contracts there.
So historically, we've been very strong with the container liner market.
It's a mixed network.
We still have a depth there.
Obviously, there ---+ the sizable parts of the market, the dry cargo side, I think is after that tanker has not historically been a strong part of that major oil companies and some of the oil crowd.
So any case and then on the specialty side, if it floats and it uses marine fuel, we know they are customers.
But the container has been the predominant part of our portfolio.
We ---+ look, we are very focused on managing working capital on a day-to-day basis, and we're increasing our focus on that.
Just focusing on our operating activities day-to-day and part of that is managing our collections, managing our inventory to maintain optimal levels of inventory.
And we just did a really good job of that in the first quarter and we remain focused on that as the year goes on.
Our debt level was a bit higher than it would be at the end of the year, and we are looking to try to bring that number down a bit and when we do that is by generating cash.
So we just simply basic of blocking and tackling over the course of the quarter that got us good solid result.
At the end of the day, Greg, should oil prices remain in a fairly tight zip code till the course of prices goes up significantly or down significantly.
It impacts our working capital position, which impacts cash flow.
But assuming oil prices remain in a fairly tight range, we should be generating cash over the course of the year pretty consistent with our EBITDA generation.
So that may not happen ratably quarter after ---+ quarter-by-quarter, but if you look at the results of a whole year that should be the case.
I think in our earnings release, I stated, we generated $1.3 billion of operating cash flow over the last 5 years, that's about $260 million a year.
Our EBITDA level is a bit above that now.
So it seems to be a reasonable expectation for us again borrowing significant changes in the market, which would impact our balance sheet.
No, we still have a long way to go.
I mean, that probably is 1 thing that we may not be most proud at the start, I mean in terms of our ability to integrate effectively and efficiently from a cost standpoint as quickly as we like to.
So we are getting better at that.
We are more focused.
We have a growing team of people that focus on those types of activities day in and day out.
We are doing chunkier deals.
We historically have been doing a lot of small- to medium-sized deals where there weren't necessarily significant efficiencies to be achieved when integrating those businesses, and now that's changing a bit with PAPCO, APP, the Exxon deal is a little different because of the nature of the transaction, which Mike talked about a little bit while ago.
So we still ---+ if you look at our Land business, our land business is really an amalgamation of a lot of acquisitions over the past decade and whether it's a cool thing to say or not, we've got some deals that we did a few years back and still aren't fully integrated on a kind of common platform.
So there are a lot of efficiencies yet to be achieved, especially in Land.
If you look at the cost ratios in land, they are not where they should be and that's one of the principal reasons.
So we're very focused on that.
It's an opportunity for us, which is positive, and over the course of this year, there's a lot of focus on driving that land business to a singular platform, which will allow us to gain efficiencies in that business that we haven't been able to over the last few years.
And I will just add on to that.
And I've been saying this for a while that while we do have these reportable segments and plane is different from a ship and a truck and rail.
They ---+ if you stand back they tend to look a bit similar.
So genericizing some of these, looking at these processes, I think that there is a good amount of value that we can bring to the table.
So we've been focusing on that.
So I'm optimistic that there is more that we could get in terms of efficiencies.
<UNK> listen, I think that we did something that at least I'm not embarrassed to say it.
We've always managed to figure out how to make money and the world did stop in terms of what our traditional value props have been.
They all came under attack and we could only be accused of not moving a little bit more quickly, but there's certainly more efficiencies.
And as I said earlier, we are a better company today than we were 1 year or 2 ago, but we are still working on that.
There are more efficiencies without a question.
So I wouldn't say they're going to be as dramatic, but I guess I could surprise myself.
So ---+ but we're certainly going to be a whole lot more thoughtful about that just like every other company.
I mean every other company is picking up nickels and dimes, right.
We are indirect procurement for everybody practically, and on the same way that we found money ---+ people are finding money on us.
It's just a whole different world.
It is just a more lean environment and it's all about doing more with less.
We get it, then we are on it, but it is something that you got to build up that muscle.
In terms of becoming a very sharp operating company, we traditionally came from price discovery and underwriting and looking at the optimization.
Everyone's carrying a supercomputer in their hand now, so it's just a whole different world.
And I think that we are extremely well placed in terms of global energy management.
We've got the tremendous amount of diversification.
We started out as a third-party value-added reseller.
We have inventory in 22 locations, we have got physical distribution, we have got payment business, payment solutions.
So I'm very encouraged about what the long-term future proposition is for the company, but it's not going to be built in a day.
So I could start with the first part of your question.
We are all done now.
There's a couple of straggler locations, 1 or 2 airports that have some technical issues that involve little more time, basically we are 99% complete on that deal and there's no additional cash outflows of any significance related to that transaction.
So what we have to do, I think, Mike mentioned earlier, we based the, unlike most integrations, day 1 as we closed on each piece of this transaction we had to turn light switch on, on our system for the first time and understand how that all transpired on the day you put the switch.
So we are learning a lot about the supply side of that business, we are learning about the customer contracts that we've inherited, some of them better than others.
So there is just a lot of learning going on and it's one of the cases where you bought a house from someone and they weren't necessarily taking care of it as well as they should have before they sold it because they lost interest, and now we got to kind of bring that house to a level that makes a lot of sense for us going forward.
And that's really what we're going through.
So we are learning.
The good news is we've been able to close locations on every couple of months.
So it didn't all happen at once.
It's given us plenty of time to really get up to speed and so it just a time-consuming process, but we're getting there.
We've got a lot of smart people.
They're focused on all the key aspects of making that transaction as profitable for us as possible.
Well, we announced $15 million to $20 million on our last quarter's call of savings principally outside of Marine.
So we've talked about Marine in 2016, that was effectively complete as we entered the first quarter.
What we talked about last quarter was with a lot of different things, I got into some of the details into the call-in February.
We really have nothing to share beyond that at this point, not that we are not trying to identify more savings, opportunities every moment, every day.
We might have something to talk about next quarter, but for now we are busy executing on the $15 million to $20 million that we made reference to back in February.
And just to reiterate that was a hodgepodge of things including some redundancy, some IT-related cost savings, some savings on the indirect procurement side.
A lot of different things that we've been focusing on to try to gain efficiencies across every line item from compensation through G&A.
So that's all we have for now.
It's not to say that we are not going to find more opportunities, but we're just not prepared formally talk about anything incremental at this point in time.
I think the only thing I will add to that Ben is, you always set a solving for the sweet spot.
And our land business is still relatively young.
So we didn't start Nordic until 2008 with branded wholesale and really with C&I we just started less than a year ago.
So we don't ---+ for what we're trying to do in terms of this diversified energy management and fulfillment business, there are no platforms out there.
There are no industry solutions because nobody is doing what we're doing.
So we're a little bit challenged, I'll be honest with you in terms of putting it all together and getting this highly scalable machinery going.
So that is definitely impacting our cost in an adverse way, but I'm confident with the superior team that we have in place that we will crack the code on that and that will give us more operational efficiency.
So we are on it, but it is going to take a little while.
But it's critically important because it's a very competitive market.
So, we know that we have that in front of us and we certainly have a lot of manpower and a lot of man hours\u2019 debt to it.
We are earnest and wanting to get there.
That will certainly produce better-operating company and a better operating result, but we still have that in front of us.
It's not beneficial at all.
I mean, it's quite extraordinary, right.
So right now, world stocks are something like 300 million barrels above the 5-year average.
So the market is very sloppy.
I don't want to say, we are drowning in oil, but there is a whole lot of oil around, demand is not huge.
The economy is less energy intensive, and it's more diverse, right.
So the diversity is good for us because we are very much into diversity in every way, including sourcing energy.
We handle about 180 different products in our company.
So we are very much in energy supermarket, and it's really about providing what the market needs.
So I have started out long time ago in the marine side.
Obviously, we are fairly sizable in aviation side.
We have 2 truly global businesses where we are going with fulfillment in over 200 countries.
Our land business is now getting density in the United States and certainly has density in the U.K. and in Brazil.
So ---+ but having a significant amount of oil means that there's enormous choice in the marketplace and it's just supply and demand and that typically is going to put pressure on margins.
So it's no different than any other marketplace, and we just really have to focus on being the most efficient provider and being that omni-channel provider and doing it globally and adding more products and services and providing those solutions.
So that's really what we're about.
Marine is certainly a part of it.
I think it has a long-term role within the portfolio.
It's not going to go away.
But we are really diversifying our business to be broad-based in terms of commercial and industrial and adding the payments to it, makes sense.
So we are distributing a tremendous amount of energy products.
It used to be just Marine and Aviation now by virtue of Kinect Energy Group.
There really isn't any consumer of energy, including power and natural gas, that we can't provide some level of service to.
So that I think is the exciting story about the World Fuel.
It's certainly beyond fuel and so some companies started selling books.
So I started selling bunker fuel long time ago, and now it's a bit more than that.
So that's the exciting part.
And having marketplace that is oversupplied, I think we're in a good position because we understand the end consumer.
We understand the demand and that is something that will never go away.
Satisfying that customer is definitely a challenge, but it's what we've been doing our entire life.
So really we're trying to make the company sort of bulletproof from the perspective of pricing or what supply is and just becoming a flow business that is extremely efficient from an operational perspective and has a broad base of products and services.
That's the name of the game.
One of our board members was using the analogy of how you scale a mountain and you sort of regroup at base camp.
So we've certainly done more in recent periods than we've done a little while.
The belly is full to a certain extent and we are extremely focused on driving organic.
At the end of the day it's all about organic.
The minute you buy a company what you have to do, you have to drive organic.
So the retail therapy is good, but it fades pretty quickly and all you're going to do is just be that you'll acquire.
That's fine.
But we'll continue to explore every opportunity that comes across our desk that fits both strategically and financially that will accelerate, extend or complement our long-term strategic journey.
So we are zeroing in pretty much on where we think we need to be.
Right now, it really is about consolidating, getting the operations down, getting the technology working for us, the whole name of the game is technology without question both to improve our internal efficiencies and to provide value to the marketplace in terms of our buyers and sellers, but we continually evaluate.
<UNK> runs our Corporate Development Council, one of our 7 councils, that essentially govern what we do in this company, and that ability to process that is pretty impressive.
So we'll continue to acquire, but we want to make sure that it's the right business at the right price and really fits the strategy.
I just want to thank everybody for the time and the support.
So thanks very much and we'll look forward to talking to you next quarter.
| 2017_INT |
2016 | BKE | BKE
#We did maybe a small part of our pack-aways in a few items in outerwear, and a few in sweaters.
But probably not any greater amount than an average year.
Do you want to comment on any other.
On the margins, I think that's hard for us to answer.
And we don't give forward guidance.
So we just have to see what happens.
Well, as far as ---+ I think the inventory will probably be fairly consistent for the first half of the year, just as what we have planned and how we will manage it.
But I think we've shown over the years that we can keep a good handle on that, and feel good about going forward with that.
Thank you very much.
Part of it was a port issue, and just strong selling last year.
So it was kind of a combination.
And we had some new fits that worked well last year, as I remember, and so we were trying to catch up with that.
You're speaking of last year, <UNK>.
Well, let me think just a second.
Yes, I think it was more in the men's.
There might have been selected areas in the ladies, but we did have some ---+ our day trip price point of shorts and capris last year were delivered late, and also lost some during the spring season.
So having that price point back in the store for this spring will be good.
But otherwise, I think the ladies ---+ as I remember, the inventory was fairly on track.
It's pretty much promoting from within.
Kelli Molczyk is our ---+ also a VP of Ladies Merchandise.
And she was given that position almost 1.5 years ago, and has been with us 19, 20 years.
And we have Stacy that works with denim accessories and categories, been with us over 20 years.
And Melissa has been over 20 years in footwear and other categories.
We feel we have a strong bench, and that Pat helped develop a strong team as she takes her retirement.
Well, we have added some brands that sell in the $60 to $70 price range, as well as expanding some of our private label, and to complement the brands that we continually use going forward.
And the team is doing a little more fashion, some different looks, some higher rise, still a variety of fits, some curvy styles, a variety of finishes.
So our denim couldn't business continues to be pretty good, and we think we will do a good job with it going forward.
Ladies, do you have anything to add.
This is Pat.
To echo what <UNK> was saying, we have some opportunities in price points ---+ fits, finishes ---+ that we just feel good about.
And the addition of some of the curvier fits that we think will address some of the guests in variety of bottom openings and such.
So with ---+ denim is always a solid part of our business all the time.
But when it's trending up and we have some things to work with, and the creativity of the team, it sure is a bonus.
Well, we're always optimistic, but we'll have to just see how it plays out.
Thank you.
Thank you, <UNK>.
My point of view would be that it would be more macro.
There's a lot of different parts of the country that the economy is a little challenging, that the teams are working through.
I think our stores, from the response of our teammates and from what we hear with other vendors, that we look unique and special, and have a good presentation going.
So I think our teams are doing a good job, and our service in our stores is excellent.
I think it's just the challenge of getting the excitement back for guests to come into the stores and feel good about their pocketbooks.
As well as, we are reviewing our promotions for back-to-school, how we can create a little more excitement there from what we've done in the past.
I know that teams are putting in more of a variety of price points, hitting some of the lower price points again for some of the guests.
As well as, our stores are testing out what we call Buckle Select, which is where an in-store stylus will be in touch with guests, and helping them find outfits and getting ready for occasions.
For the guests that are just too busy to get into the store and shop.
As well as, they are still doing quite a bit of appointments with our guests' get-fitted situations.
Yes, thank you.
With no additional questions, again, we would like to thank everyone for joining the call today, and have a great weekend.
This concludes the call.
| 2016_BKE |
2015 | BEN | BEN
#I think what you're referring to ---+ well, let me ask you what you're referring to when you say distribution dynamics.
I don't want to assume.
Right, it is our best guess to that.
I think the caveat that I would like to make on all expense guidance or whatever guidance I have is that the underlying assumption that I use is that we are not assuming any market appreciation or depreciation.
And of course, in those particular lines, that can have a very big effect.
But having said that, and if you look back over last one, two, three, four, five quarters, the net of the sales distribution revenue and sales distribution expense has been relatively consistent and we don't expect that to change.
I wouldn't say we're not interested.
I said we're still looking at it.
We're still ---+ I think what we ---+ our position is that we don't think cloning existing open-end funds in that structure at this stage makes a lot of sense for us, where limitations on how those funds can be run and just demand from the marketplace.
We are going to continue to monitor that.
I think our feeling is that we have a need for a lower cost smart beta option, even internally versus how well we can sell through the advisor channel.
That would be our first step, whether we acquire that, which is something we are actively looking at the marketplace, and also working down the path of building it organically.
That is something we are doing.
I would just add that I think what's driving our thought processes here is where is the demand for these products, and then where can we add value.
I think that is going to be the focus of our product development in this area.
What areas can we add value, given our investment expertise.
There's issues just around derivatives in the ETF versus the other, and I think it's more that if we feel like the marketplace that there is some limitation or some advantage that's enough to bring that fund, then that is something we are going to consider.
I don't think we are ruling it out one way or another.
We just don't think there's demand, but there is an limitations on an ETF versus an open-end fund and how it's run.
Obviously, it's early.
I think we are encouraged that there is a bipartisan effort for some sort form of reform that's tied to the tax bill with the immediate funding of that, whether it's a one-off or combined to a larger tax change, all of those are in the works right now.
There's plenty of people that would say, well, that can't happen at this time in an election cycle, and some that would say that it's just too easy to fund the highway bill in a significant way over time to have ---+ to tie it to that politically, that it can work.
But you do have serious people on both sides of the aisle now working towards making that happen.
And I think that's a big change from where we were say six months ago.
The first question would have to ---+ we would have to see the details of the proposal.
What would be in the best interest of shareholders, we will have to decide that once we see the details of the proposal.
But assuming that it did make sense, we could probably bring back anywhere from $5 billion to $6 billion.
Okay, thank you everybody for participating on the call.
We look forward to speaking next quarter.
Thank you.
Hello, and thank you for joining us today to discuss the third-quarter results.
I'm <UNK> <UNK>, CEO along with <UNK> <UNK>, our CFO.
The current-market environment, with heightened concerns over volatility, currency exposure, fluctuating energy prices and rising rates, presents a number of challenges to investors.
First, I would like to share a few highlights for the quarter.
Delivering strong, investment performance for our clients remains our top priority and we're pleased to see that relative investment performance of our US retail and cross-border fixed income products remain strong.
With the percentage of assets in the top two quartiles increasing since March overall standard periods.
Out-performance of our global-fixed income funds help these redemption pressure on those funds resulting in lower outflows.
The US and cross-border, Franklin K2 Alterative Strategies funds, which together attracted over $600 million in net flows for the quarter, have been our fastest-growing new, fund launch in the history of the company.
The cross-border fund is now available in 23 countries after launching in 14 new countries since March with nine more in progress.
Despite the current headwinds tempering flows, we continued to deliver solid financial results and distribute excess capital to our shareholders.
Operating income was up for the quarter at $770 million, a 2% increase despite flat revenue.
And on the capital-management front we returned $1.4 billion to shareholders over the trailing 12 months through dividends and repurchases.
We also continue to enhance our product offerings and during the quarter launched a new range of retirement payout funds for defined contribution participants.
While retirement planning has historically focused on asset accumulation, products to optimize the distribution of those assets in retirement require further innovation, so we designed these products to support the transition to this draw-down phase.
Turning to investment performance of our US retail and cross-border funds on slide 6, overall relative performance of our equity, excluding hybrid and fixed-income strategies remain solid with the majority of assets ranked in the top half of their peer groups.
Of course there are many ways to look at performance and an asset way to view our peer performance is just one.
In our 10-Q filing this morning, we disclosed performance by investment objective against the benchmark and against peers.
Looking at that view, equity performance strengthened against passive benchmarks for the one-, three-, and five-year periods while having mixed results against peers which was opposite of what we saw for the US taxable and tax-free, fixed-income strategies.
Under-performance of the Franklin income fund, which represents almost 30% of assets in the equity and hybrid category shown on slide 6, weighed on aggregate performance for the one- and three-year periods due to weakness and interest-rate sensitive utilities, consumer discretionary, and energy-sector holdings.
Although the fund had a good start at the beginning of the quarter with strong absolute relative returns, the market pulled back across several equity sectors later in the quarter which led to a decline in relative performance.
As noted other equity-focused strategies have generally had good relative performance.
The Mutual Global Discovery Fund, for example, outperformed its peer group across all periods as of June.
On top of strong performance we have been working hard to promote this fund with new marketing materials highlighting our truly active management-investment strategy and the consistent low-volatility track record.
In general, I believe that as a Firm we are well positioned from an investment capability and strategy perspective, particularly when interest rates began to normalized.
Such an environment has traditionally correlated with the out-performance of value investing.
Additionally, many of our fixed-income strategies have been defensively positioned in terms of duration for some time now.
Assets under management ended the quarter at $867 billion, a decrease of about 1.5% since March.
However, average assets under management increased slightly during the period.
This divergence was due to the market pullback in June.
The mix of assets under management by investment objective and sales region is consistent with what we reported at the end of March as we generally experience only gradual changes in the mix from quarter to quarter.
Net new outflows increased to $11 billion primarily the result of a 19% decline in long-term sales which was felt across all investment objectives.
Flows drove most of the decrease in ending assets as market depreciation, was only about $2 billion this quarter.
From a retail perspective we faced continued headwinds during the quarter as a result of a confluence of market factors that impacted the short-term performance of several US and SICAV flagship funds.
In the past we've seen that it takes time for a fund's flows to recover following periods of short-term under-performance.
Often we see a period of sharp redemptions followed by a period of slower sales which eventually recover and to start driving improved organic growth.
This quarter redemption stabilized, but we did see a pronounced decline in sales, particularly in some of our largest funds.
In the current-market climate, a number of our flagship funds have been impacted at the same time.
We're confident, however, that this is the part of a natural business cycle and believe the demand for these products will recover as investment strategies of our portfolio teams play out.
In the meantime we continue to keep advisors informed about the current positioning of the portfolios and the perspectives behind the portfolio managers' conviction.
We also continue to look for opportunities to cross sell and to enhance our product offerings.
Also contributing to the overall decrease in sales this quarter was a drop in institutional-business volumes as that segment snapped its streak of quarterly sales growth.
While we did book a large funding for a global-equity mandate a handful of large redemptions resulted in net outflows in excess of $3 billion from global-equity accounts while fixed-income strategies generated positive net sales.
Clearly this was a disappointing quarter from a gross-sales perspective but net flows of our institutional business are always impacted by the timing of individual mandates and redemptions as well as client interest which we think remains very strong.
Looking now at flows by investment objective, global-equity flows declined this quarter due mostly to the institutional redemptions I just mentioned but also because of the increased redemptions from the Templeton Asian Growth Fund.
To the positive we continue to see interest in European equity oriented products managed by our mutual-series Team including the Mutual Global Discovery Fund that had almost $300 million in net flows this quarter.
Additionally, global-fixed income outflows improved a bit this quarter.
The Templeton Global Bond and Total Return Funds continued to deliver strong out-performance versus their peers and benchmark.
However, short-term absolute performance and broad market flows out of fixed income, due to fears of rising rates and market volatility, continue to pressure net flows.
This has remained largely a retail channel phenomenon as institutional investors have not redeemed as heavily and net flows remain positive in that segment.
US equity outflows increased a bit this quarter but we continue to see interest in a number of growth strategies, including the strong performance Small Cap growth in DynaTech Funds.
Hybrid flows turned negative this quarter due to outflows of about $1.6 billion from US and cross-border versions of the Franklin Income Fund due to the performance issues I discussed earlier.
As I mentioned previously, our Franklin K2 Alternative Strategies Funds generated over $600 million in net inflows and the cross-border version was among the best-selling funds firm-wide this quarter.
Taxable US fixed income slipped into outflows this quarter due to a large drop-off in institutional sales as well as outflows from some high-yield and government-bond funds.
Tax-free fixed income funds also experienced outflows this quarter, though we did see continued interest in intermediate-term strategies.
I would now like to turn it over to <UNK> to discuss operating results.
Thanks, <UNK>.
Overall, the quarter's financial results were strong.
Stable revenues and disciplined-expense management drove the growth in operating income which increased to $770 million.
However, the impact of non-operating items decreased net income to $504 million and diluted earnings per share to $0.82.
Looking at revenues, investment-management fees remained essentially unchanged at about $1.3 billion this quarter, lower performance fees and a slightly lower, daily-average fee rate were essentially offset by the additional day in the quarter.
Sales and distribution revenue was $567 million this quarter.
Lower average non-US assets and a decline in sales drove the decrease, but this was partially offset by a higher US assets and the impact of a longer quarter.
Shareholder-servicing fees were about $67 million and were relatively unchanged over the prior quarter and other revenue was about $27 million due to the increase interest income from some consolidated products.
Looking now at expenses on slide 18, sales and distribution expense was $694 million this quarter and the majority of this decrease was due to the changes in assets under management that also impacted sales and distribution revenue.
Compensation and benefits expense decreased this quarter to $364 million which was lower than I originally anticipated back in April due mostly to lower variable compensation as well as a foreign-exchange benefit of about $5 million.
Based on where we are now, I continue to anticipate that the full-year compensation expense will only increase by about 1% over 2014.
Information systems and technology expense increased to $58 million this quarter.
Although it is hard to predict the exact timing of these expenses as I mentioned before, this expense tends to be higher in the fourth quarter due to the fact that some of the larger projects, like software renewal and infrastructure development are typically finalized in the second half of our fiscal year.
Investments in our security and communications infrastructure and desktop server and storage updates have driven these costs higher this year.
And we continue to have a healthy pipeline for strategic projects that will enhance our fund administration, performance, risk, and human resource management platforms.
Due to these items I now expect the full-year expense to be in the range of 2.5% to 3% higher than FY14.
Occupancy expense decreased to $31 million this quarter in general, administrative and other expense increased a bit to $85 million.
Looking now at profitability, the operating margin increased to 38% for the FY-to-date period and we remain focused on expense control in the current environment.
The quarterly tax rate increased to 28.9% due to some prior quarter benefits that did not recur which brings the FY-to-date rate to 29.2%.
We continue to expect the FY rate to be within the range of 29% to 30%.
Other income net of non-controlling interest negatively impacted earnings this quarter by $28 million.
By far, the biggest attractor was the impact of a stronger US dollar.
Which resulted in realized and unrealized foreign exchange losses of $30 million.
Interest expense increased to $13.7 million this quarter while the rate of our tenure notes issued in March was actually lower than that of the five-year notes that matured in May.
It was a net increase in debt outstanding and we obviously only realized a partial-quarter benefit from the maturity.
Moving on to equity-capital management.
We repurchased 4.3 million shares during the quarter at a total cost of about $218 million which represents an increase over the prior few quarters and was one the highest quarterly levels in the past several years.
In fact, open market repurchases increased 20% versus the prior quarter despite an 11% decrease in10b-18 buyable trading volumes.
As you can see our slide 23, over the course of the past year we returned over $1.4 billion to shareholders via repurchase in dividends, pushing the nominal payout ratio well above the 50% level which approximates our US cash-flow generation.
Finally, we are pleased to see signs of increased bipartisan support for international corporate-tax reform on the horizon which may include favorable repatriation provisions.
With that, I'd like to conclude our comments, thank you for listening.
| 2015_BEN |
2016 | GEO | GEO
#Sure.
I will touch on some of that and then I think Dave can give some color on what's going on with the Michigan facility with the State of Michigan, but I think as we've addressed before, the primary customer there is the State of Vermont.
We have a contract with the State of Vermont for up to almost 700 beds.
Currently, it's about 300 beds to 350 beds.
It fluctuates in that range that they are utilizing.
As a consequence, as we've said before, the facility is not currently cash flow positive and we continue to look for additional clients to support the facility and as you mentioned the State of Michigan has put forth some legislative effort to explore the possible sale or acquisition or lease of the facility.
I'll let Dave give some color on that as well as CAR 16.
Thanks, <UNK>.
As I indicated in my prepared remarks, there was legislative efforts in Michigan to analyze the purchase and/or lease of a facility in jurisdiction.
The Michigan Department of Corrections along with the state budget agency are currently involved in due diligence associated with that requirement in the General Assembly and anticipate that a recommendation for the North Lake facility will be evaluated over the next several weeks and a report back to the General Assembly in mid-October relative to that potential opportunity.
As it relates to CAR 16, we are optimistic that our projects will be reviewed favorably for continued use.
We have a very good relationship with the Bureau of Prisons and of our seven facilities with the 15,000 beds, operational performances at the appropriate levels and exceeding our expectations and the clients' expectations.
So we have no reason to believe that the client will not view them appropriately on a going-forward basis.
Mike, as Dave just mentioned obviously, in the case of the Michigan facility, there is some interest there around potentially leasing the facility.
Other facilities that we have that are idle has the potential.
We're also working with the state of Alabama to potentially use the Perry facility in Alabama and they're exploring a number of different ways to utilize that facility that could include a possible lease, it could include a short operations, we'll have to see how that works itself out over the next 12 months or so.
Our Hudson, Colorado, facility, which is also idle, as you know, is a leased facility already.
We lease that facility, so our main effort there is to try and reactivate it in the short term before that lease expires.
And then, I think overall, the opportunities for leaseback-type transactions will probably be on existing government assets or new assets that we might construct as Dave mentioned to replace existing assets and then enter into some sort of sale leaseback transaction.
I think they want to make their decisions before the end of the fiscal year.
So that puts some into August-September timelines.
Mike, it varies depending on if you look how you look at the unit, but I think in total, we're clearly the largest and we're 30% of the market approximately.
There are a number of different other players out there in the market and if opportunities present themselves, we might look at them, but you have to realize we think we have the best technology.
So this is a technology business and some of the growth in the contract that we're seeing are takeaways from other service providers and I think it's because of the investments that we've made in the technology and so it's not necessarily the case that we would look to acquire somebody for the technology; it's the potential maybe for the business, but we have to keep in mind that we're making these investments in the technology to grow our market share.
Their timeline was at the end of their government fiscal year.
So we are ahead of their timeline and we're just a bit over 56,000 today.
Thank you.
Well, thank you for joining us on this conference and we look forward to speaking to you on the third quarter conference call as well.
Thank you.
| 2016_GEO |
2017 | ATVI | ATVI
#Thank you, Bobby
We're off to a very strong start this year
We delivered record Q1 revenues of $1.7 billion and record digital revenues of $1.4 billion
We grew year-over-year, over-performed our guidance for the quarter, and are raising our guidance for the full year
Our results continue to be driven by focus and execution against our three strategic pillars
First, expanding our audiences, second deepening engagement, and third providing more opportunities for player investment
Let's start with audience reach, which was 431 million monthly active users this quarter
Blizzard had 41 million MAUs for the quarter, up 58% versus last year and relatively stable versus the prior quarter, despite no new full-game releases
Blizzard's fastest growing new IP ever, Overwatch, continues to grow from an MAU perspective, setting another high water mark this quarter
In less than a year since launch, Overwatch has 30 million registered players and has become Activision's eighth $1 billion franchise
Hearthstone continues to attract new players as well, reaching 70 million registered players life-to-date
MAUs also grew year-over-year and quarter-over-quarter despite no new content in Q1. Activision had 48 million MAUs for the quarter, down year-over-year due to weakness in last holiday's Infinite Warfare release as discussed on our Q4 call
However, Call of Duty continues to have a large and active community of players across Infinite Warfare, Modern Warfare Remastered and Black Ops III
And we expect the community to grow with the next game in the series, Call of Duty: World War II, releasing November 3. When Activision greenlit this game more than 2.5 years ago, the team knew it was time to return the franchise to its roots, and fans are already sharing their excitement for Call of Duty: World War II
Activision revealed the game at a global live stream from London last week, which became the most watched live stream in Call of Duty history, and the reveal trailer has gone on to become the most liked trailer in Call of Duty history, and became the fastest video to reach 10 million views in Call of Duty history, which it did in one day
Additionally, though it's still very early, pre-orders are off to a very strong start
Call of Duty: World War II will deliver the gritty authentic cinematic experience, which Call of Duty is known for
Activision along with its partners at Bungie also recently revealed the much anticipated Destiny 2, which is set for release on September 8. Destiny was the biggest new video game franchise launch of all time when it was released, and early leading indicators including pre-orders for Destiny 2 are very strong as well
The team is taking great care in designing the game to appeal to existing and new fans, including PC players for the first time
Activision is also localizing the game for more markets, which should enable us to reach new audiences
And at launch, we're offering an expansion pass for Destiny 2, containing two future expansions, along with a continuous calendar of other events
Encouragingly, the SKUs that contain the expansion pass have attracted the majority of pre-orders so far
We believe the combination of a great game, the new opportunity to reach PC players, and a robust content plan post-launch highlight the opportunity ahead
We look forward to sharing more about both Destiny 2 and Call of Duty: World War II in the months ahead
Turning to our next strategic pillar, our compelling games, deep gameplay and consistent follow-on content drove not only large communities, but also deep engagement with about 40 billion hours of gameplay over the past 12 months
Blizzard continues to see strong engagement from its players with time spent increasing by a double digit percentage year-over-year to a new Q1 record
Overwatch again had strong engagement this quarter thanks in part to the Lunar New Year event, which like the three seasonal events before it, drove record engagement in the game
Overwatch's latest seasonal event released on April 11. This event named Uprising included a player versus environment game mode, which drew record hours of player engagement, demonstrating that Overwatch can appeal to players beyond player versus player competition
In April, Blizzard also launched Heroes of the Storm 2.0, with a more powerful progression system, reward pack loot chests, and new battleground, and more compelling heroes, all of which brought players back into the game
Blizzard's strategy to release content and feature updates more regularly in World of Warcraft has been paying off with time spent up year-over-year, and with overall performance ahead of the prior expansion
At the end of the quarter, Blizzard released the game's second major patch since Legion came out with more content to come later this year
To round out the terrific performance of Blizzard's games, Hearthstone set a new all-time record in daily active users in April with the release of the new expansion, Journey to Un'goro
King's MAUs were down slightly versus prior quarter, but community engagement trends continue to set new highs with an increase in total playtime versus prior quarter
Time spent by daily active user is now a record 35 minutes
King also had the highest DAU to MAU ratio since 2013, with stability in DAUs versus the prior quarter
This performance shows that King's focus on live ops and new content for core franchises continues to keep our large and loyal audience engaged
And this bodes well for King's biggest growth opportunity, advertising
Esports is an important and growing engagement driver for our community, and there were many highlights this quarter
Activision held Call of Duty World League events in Atlanta, Dallas, London, Paris, and Sydney, and Blizzard kicked off the StarCraft II World Championship Series, Hearthstone Championship Tour, and Heroes of the Storm Global Championship with major international events, along with the third Heroes of the Dorm college tournament in Las Vegas
In addition, the Overwatch APEX League completed its second season in Korea and this year's Overwatch World Cup was announced as part of a busy year of Overwatch esports, as Blizzard gears up for the Overwatch League
And we have more to come down the road, including the recently announced CWL Championship
This is Call of Duty's biggest competitive event of the year, and will be held in August in Orlando with 32 teams from around the world competing for a prize pool of $1.5 million as part of the largest CWL season long prize pool to-date of $4 million
Turning next to the third pillar of our strategy, providing opportunities for more player investment
Blizzard saw an increase in total in-game purchases by almost 30% year-over-year, primarily driven by Overwatch and World of Warcraft, highlighting once again the virtuous cycle of engagement leading to more player investment, all of which starts with great new content
Later this month, Activision's Call of Duty: Black Ops III fans will be getting a new content offering called Zombies Chronicles, a remastered collection of the franchise's most beloved zombies content
This is our most significant new content update yet in the second year following a Call of Duty release as we now have better player engagement opportunities than we've ever had with our catalog games
King not only increased engagement, but also increased player investment this quarter
Bookings per paying user rose for the 7th quarter in a row to a new record
King continues to have two of the top ten grossing games in the U.S
for the 14th quarter in a row, and importantly the Candy Crush franchise showed continued stability with mobile bookings growing versus prior quarter
King has a number of projects in development, including a promising new publishing partnership with PlayStudios in the social casino segment, slated for later this year
This is an attractive mobile gaming genre and will allow us to provide great content for our existing player base, as well as attract new players to the King network
As we discussed last quarter, we also have a number of mobile incubation projects underway across the company, many of which are based on our proven IP
Since King became part of the Activision Blizzard family last year, we've been looking at ways to work together to create even more great gaming experiences for our large player network
Last month, we announced that King and Activision are partnering on the creation of a Call of Duty mobile game, and we're excited about the potential of bringing these two great teams together
In summary, we are off to a terrific start in 2017, with continued success keeping our large audiences engaged across a growing portfolio and on a variety of platforms
We are also pleased with the early momentum we are seeing for Destiny 2 and Call of Duty: World War II and the continued progress on new growth opportunities, like advertising, esports and consumer products
We are excited about our prospects and stay tuned for further updates in the weeks and months ahead
<UNK> will now review the numbers in more detail
| 2017_ATVI |
2018 | DAN | DAN
#Good morning, and thank you for joining us for Dana\
Thank you, Jim.
Slide 9 is an overview of the first quarter financial results for 2018.
Our first quarter results were firmly in line with our revised full year guidance we shared with you at our investor forum in March.
For the quarter, sales of over $2.1 billion were up $437 million versus the first quarter last year, representing growth of 26%, driven once again by strong double-digit organic growth from the conversion of our backlog, along with higher end market demand as well as tailwinds from currency and acquisitions.
Adjusted EBITDA was $248 million for the first quarter, a $43 million increase from the prior year or 11.6% of sales below last year's first quarter margin due to expected higher launch costs.
Net income this quarter was $108 million, a $33 million year-over-year improvement.
The increased earnings were driven by higher adjusted EBITDA, partially offset with increased depreciation expense.
Diluted adjusted EPS, which excludes the impact of nonrecurring items, was $0.75 per share in the first quarter, an improvement of $0.12 per share compared with the first quarter last year, primarily reflecting the higher earnings.
Finally, free cash flow was a use of $93 million, $8 million higher than 2017 as working capital requirements offset the benefit of higher adjusted EBITDA and lower capital spending.
Please turn with me to Slide 10 for further details regarding the first quarter sales and profit growth.
First quarter sales increased by $437 million compared to the same period last year, and adjusted EBITDA was higher by $43 million.
The year-over-year growth is attributable to 3 key factors.
First, organic growth added $293 million in sales as we continued to bring our backlog to market, and demand in all 3 of our key end markets remained strong.
The organic growth delivered an incremental $27 million of profit.
The conversion on organic growth was muted by launch costs principally related to the new Jeep Wrangler, which were comparable to the amount incurred in the prior quarter and are expected to be negligible in the second quarter as we reach our full production run rate.
Second, business acquisitions made in 2017, Brevini and USM, contributed $56 million in sales and $9 million in adjusted EBITDA.
Margin was significantly improved as our synergy plan continued to be realized.
Third, foreign currency was a benefit in the quarter, improving sales by $88 million and adjusted EBITDA by $7 million due to the translation of international results at currency rates that strengthened against the U.S. dollar.
Please turn to Slide 11 for an overview of how the adjusted EBITDA converted to free cash flow.
As is typical for our business, free cash flow was a use in the first quarter and was in line with the first quarter of last year.
Higher earnings, combined with lower onetime cost, net interest and capital spending, were more than offset by higher working capital requirements to deliver the sales growth.
Onetime costs were $16 million lower than prior year primarily due to lower transaction costs related to our acquisitions in the first quarter of last year, Brevini and US<UNK>
It's worth noting, cash outflows related to the GKN transaction were only a few million dollars, and the balance of the outflows that occurred this month were more than offset by the receipt of the break fee.
Interest was $16 million lower than prior year due to the timing of noninterest payments as a result of our refinancing actions last year.
Working capital increased significantly over the prior year as a result of the significant increases in sales, driving higher receivables and inventory levels, net of increased payables, as well as higher cash outflows related to last year's incentive compensation plans, which are typically paid in March.
Capital expenditures were $31 million lower this quarter as our investment has normalized with the completion of our major program refreshes.
And capital expenditures were approximately 3% of sales, which is slightly lower than our expected go-forward run rate of about 4%.
Please turn with me now to Slide 12 for our financial outlook for the full year.
Today, we are reaffirming the 2018 financial guidance that we raised last month.
We expect sales to be approximately $7.9 billion, which represents double-digit growth over last year.
We expect adjusted EBITDA to grow by $145 million to reach $980 million and a 12.4% margin, delivering 17% year-over-year growth, which translates to 80 basis points of margin expansion.
With lower capital expending requirements this year, we expect free cash flow to improve by about 130 basis points from about 2.2% of sales last year to 3.5% this year.
And we expect our diluted adjusted EPS to reach $2.90 per share.
Please turn with me now to Page 13 for a closer look at the drivers of the expected change in our sales and profit versus last year.
Slide 13 remains unchanged from what we shared with you last month when we raised our guidance.
Organic growth remains the primary driver of both our sales and profit growth projections for this year.
Despite the lower conversion in the first quarter, principally due to anticipated launch cost, we remain confident that we will convert this sales growth to profit at approximately 20%.
Inorganic growth is expected to provide a meaningful contribution to our margin expansion as we realize the benefit of the cost synergies associated with the Brevini transaction throughout the remainder of the year.
Finally, we expect that foreign currency translation will provide a tailwind to both our top and bottom lines, largely attributed to the strengthening of the euro against the U.S. dollar.
Those 3 drivers are expected to lead the $7.9 billion of sales and $980 million of adjusted EBITDA for a margin of 12.4%.
Please turn with me to Slide 14 to see how we expect the profit will convert to free cash flow.
Slide 14 is also unchanged from what we shared in March.
We expect free cash flow in 2018 to increase by approximately $115 million compared to 2017, which is about a 130 basis point improvement when expressed as a percentage of sales.
We will benefit from a $145 million increase in adjusted EBITDA and lower onetime cost as our acquisition integration plan is completed.
Cash taxes will be higher in 2018 by approximately $60 million, in part to a timing of tax payments on an entity restructuring outside of the U.S. This restructuring, while generating a onetime tax outflow of about $20 million, will allow for a more efficient structure going forward.
We expect working capital to be a higher use in 2018 to support our sales growth as well as settling incentive compensation payments earned last year.
And finally, capital spending will be subsiding from last year's peak levels as we have completed a large percentage of our investment to support our new business backlog.
These elements combined will allow us to efficiently convert the majority of our profit growth into free cash flow.
Slide 15 provides an overview of the 4 key determinants of our performance.
First, as Jim mentioned in his remarks, we are seeing positive demand trends in all 3 of the major mobility markets we supply.
We believe global light- and medium-duty truck volumes will remain strong, heavy truck volumes in North America will continue to be robust, and the truck market in Brazil is rebounding.
The key off-highway segments we supply, construction and mining, will continue to drive growth.
Second, we expect foreign currencies will drive higher sales for us as we regain some of the ground we lost in the last few years.
Third, we remain very confident in our $300 million of new business backlog coming online this year and the additional $300 million next year.
This secured net new and incremental business, net of any losses, totals $800 million over the next 3 years.
Finally, we expect to offset the majority of commodity headwinds by a combination of contractual, operational and commercial means.
We have a great track record of managing our input cost and navigating complex supply chains.
We're off to a great start this year and are on track to meet our expectations for the remainder of the year.
Our guidance for this year far exceeds the long-term financial targets we originally attributed to our enterprise strategy, a year earlier than expected.
I'd like to thank all of you for listening in this morning, and I'll now turn the call back over to Tanya so that we can take your questions.
Sure.
This is <UNK>.
In CV, a couple things to note.
First, we did have ---+ as we continue to adjust to this higher production level, particularly in North America, we do have some inefficiencies that we are working our way through.
We are confident we've prioritized making sure that we meet deliveries on time with high quality.
But we do have confidence that, through some initiatives that we've been working on, that that's going to improve in the balance of the year.
So lower conversion costs in the balance of the year will drive a better conversion in CV.
It is also worth noting that Brazil is starting to come back, and we are encouraged by what we're seeing there.
Brazil was profitable in the first quarter for us this year.
We are very encouraged by that, and we look forward to it becoming cash flow positive within the next few quarters.
So those are a couple of the highlights on the CV business.
We've indicated that we think light vehicle will convert in the higher teens.
We still believe that to be true throughout the balance of the year.
The launch costs associated with the new Wrangler were the primary driver in the first quarter.
There were a couple of other items.
Steel jumped very significantly in the latter part of the quarter.
We did get caught with just a little bit of a lag issue, which we will recover on the balance of the year.
That certainly affected light vehicle.
And there were some other inefficiencies, not necessarily related to the new Wrangler but in the overlap of the old Wrangler and the new Wrangler were running at a very high run rate in Q1.
So there's some inefficiencies there that we believe we'll improve upon in the balance of the year.
So really, the confluence of those 3 factors are what got us to the conversion in Q1, but we think we'll be high teens in that business going forward.
Sure.
Thanks for the question ---+ or questions, I guess, that are coming.
The ---+ first and foremost, as it relates to the GKN situation, I think everybody's aware of this, but that was the definition of opportunistic, wasn't really even on the radar.
If the team ---+ the Dana team wasn't as capable and talented as they were, they wouldn't ---+ we wouldn't have been able to react as fast as we did once we learned of the profit warnings over in the U.<UNK>, et cetera, et cetera.
So that really was the purpose of that fit.
Our strategy really just stays back to where it was in the first place.
There is essentially no situation where we're in right now ---+ because we're largely truck and SUV, and it's further out in the cycle ---+ that we're not in the position already to be able to answer RFQs, RFIs, so on and so forth, with our organic play.
As most people on this call realize, we've been very strong in electrified products in the off-highway region and segment for over a decade.
Those skill sets have been transformed over into light vehicle, commercial vehicle.
Our products are getting developed.
We're launching the bus axles in China right now.
And you heard about the Mecalac product a little bit earlier today.
So we're just going to continue to do what we're doing.
I mean, the customers ---+ you saw the numbers, 17% growth organic this quarter alone.
We're just going to continue to have the products ready as the RFQs come through the system, and we believe we're going to get our fair share.
<UNK>, this is <UNK>.
Yes, just a couple of comments on Power Tech.
If you look at that business over the last 5 to 6 years on a currency-adjusted basis, it has outperformed the light-vehicle engine market by about a factor of 1.5x.
So we are really encouraged by the growth that we've seen in that business on the top line.
And again, the reminder is, as the internal combustion engine becomes more efficient, there's greater heat, greater pressure within the engine that are managed by our sealing and thermal solutions, and there's opportunity for content increases, which we've absolutely seen there.
Also, during that same period, you'll note that that business has improved its margins by about 20 basis points per annum on average.
We continue to see that as an opportunity for this business, and we think that we'll have attractive margin growth there as well, too.
In the first quarter, we were comping against a very difficult really strong first quarter of last year.
We had a few small items that went our way, few small items that didn't go our way first quarter this year.
That's what's driving the unfavorable conversion within that business.
But on balance, we continue to think that the business will perform well, and we'll beat the market on the top line and expand margins.
Yes.
That's the primary reason that you can't annualize Q1 sales and get to our full year guide.
So we had about $100 million of sales associated with the old Wrangler in the first quarter.
We built some in April, but for the most part, we're done with that program in the second quarter.
So that's about $100 million of a $2.1 billion of sales that we had in Q1 that you won't see through the balance of the year.
Adjusted for that, you're pretty much in line with our guidance range for the full year.
So I'll take the first part of it.
I'll let <UNK> take the second part.
The one thing I hope you and the entire group would take away from the whole GKN situation is that never once ---+ consistent at least since I've been here ---+ never once did we come across just having any deal fever.
We were very clear that we were not willing to overpay.
We were not willing to lever up our balance sheet.
So we made a run at the asset.
It didn't work out.
Ultimately, the GKN shareholders, it wasn't ---+ didn't pick us.
They decided they wanted to sell the entire company.
It's just what it is.
My point in bringing all that back up again is we don't have these like incredibly tight goalposts as to what an asset could be as we went the inorganic approach to it.
We're ---+ but what we do have tight goalposts on is how we would go about it and stay within our very strict guidelines as it relates to that.
So we keep our eyes open in that regard, but we are very much in a position of strength that we do not ---+ we're not in a deep need of having to have an inorganic play.
Again, being in the transmission business, which I know you're aware of, <UNK>, but maybe other people aren't, with that has brought tremendous amount of software and controls management capabilities, which have tied into many of the electrified products we've already developed and continue to develop.
As it relates to the share buyback, <UNK>, I'll let you take the wheel.
Sure.
It's been a couple of years, <UNK>, since we've really bought back stock.
We did announce earlier this year that we had an authorization this year and next to buy back $100 million.
We did also announce that we doubled the size of that program about 1.5 months ago.
And we intend to be active here in the second quarter given where our stock price is trading compared to where it has been.
In our conviction of value, we do intend to reenter under that authorization.
Relative to the size and scale of what you indicated on GKN, that's not our intention to make that any meaningfully larger.
From a buyback perspective, we do think it is really important for us to maintain a strong balance sheet, and we see a really good opportunity this year and next to further strengthen the quality of our balance sheet and our credit profile.
Sure.
On a year-over-year basis, most of the market growth that we expect to see came in the first quarter, just given where production levels were last year compared to the prior year.
We had very strong demand in the balance of the year.
And then we also had that anomaly that I mentioned as well where we have the ---+ both programs of the Wrangler running at that time period.
So we do expect to see modest growth in our end markets in the second through fourth quarter, but a large piece of it did come in Q1, and that unique onetime benefit was a contributor.
It's also worth noting that of the $300 million of backlog, we did see the expected amount or a meaningful amount of that come online in Q1.
We expect that to be a significant driver on a year-over-year basis in the balance of the year largely as the new Wrangler gets up to its production levels and is able to deliver the incremental content that we expect to see on that platform.
Yes.
We are expecting, from a North America perspective, that Commercial Vehicle will be up slightly.
But particularly in the second half of the year, we were already producing at the run rates that we were producing in the first quarter.
So you see a little bit of bump in the second quarter, but we largely expect to be in line by the time you come into the second half of next year for Commercial Vehicle for North America.
We are expecting growth in the large truck and bus market in Brazil in the balance of the year.
So we do expect that to be a contributor to growth as we move through the remainder of 2018.
Yes.
Well, we are expecting that construction and mining will remain strong, with some level of growth probably a little more conservative on the ag market, which has held reasonably well.
But we do expect to see a little bit of a lift in the balance of the year in the off-highway markets, but they have been coming back pretty strong for over a year now.
We do.
Our commercial agreements will take care of most of it.
But as I mentioned, we have other supply arrangements that we work to offset them with as well as operational strategies to be able to address that.
But it was mostly an impact in the quarter just because the prices started going up late in the quarter and the recoveries lagged that.
So on a full year basis, we do not expect commodities to be a meaningful impact to profit.
But within the quarter, we did see a bit of an impact.
Yes.
The bigger issue in the effective tax rate is jurisdictional mix.
It's an issue of where we are earning our profits and the rate at which they are taxed.
So you're seeing our profit projections include profitability at a higher rate in higher tax jurisdictions.
From a longer-term perspective, we would expect, as the U.S. continues to become more profitable, that that would help the overall effective rate.
So yes to both accounts.
Yes.
We would expect a modest improvement over time.
Thanks for the question.
This is Jim.
I will make this commitment to you: we will provide you some of that information down the road relative to the specific numericals on that.
I'm not really prepared to give that to you now.
So I'd rather not do a ---+ just put a flyer out there for you.
What I will give you a visual for is where the cross-selling opportunities are coming from, so you can kind of dimension it before I get you some of that down the line.
But if you think about, for example, area work platforms ---+ an area work platform, you see it at Home Depot or Lowe's or something like that.
Those can often have a full axle across, which would be something that we would have supplied historically.
Now there ---+ now you also can get those in more of a planetary, which is the motor-on-wheel technology.
With the Brevini acquisition, we have that capability for motor on wheels, so we're seeing that.
And then the cross-selling opportunity is where Brevini had many, I would call it, more boutique, small customers, albeit important customers around the world, as well as a very strong distribution network of multi ---+ what we call supply ---+ service and assembly centers spread out across the world.
Those are ---+ those smaller folks are now pulling through Dana for more of our products.
Vice versa is where we did not have the product lineup in Dana because, again, as you know, we were not in track vehicles and planetary, so on and so forth.
We're able to pull those through in with the Brevini acquisition it comes with.
And many people may not be aware of this because we don't spend a lot of time on it.
But with it comes ---+ with it hydraulics, and there's a strong demand for hydraulics out there.
There's quite a bit of a shortage of that type of capacity in market around the world as well as electronics, a smaller piece of the overall package but unbeknownst to many because we don't want to oversell something that we shouldn't oversell, but it comes with that.
So we're getting a lot of opportunities associated with former Dana customers in the electronics, which could be, for example, joystick controls, sensing controls and a bunch of other things that relates to tipping functions on off-highway type of equipment.
So hopefully, that helps frame up the answer to the question, with the commitment to give you some numbers down the road.
Sure.
So we are absolutely encouraged by the increased demand that we've been seeing over the course of the past few quarters.
And certainly, returning to profitability in the first quarter in Brazil was very encouraging to us.
We have indicated we've not given the dollar amount of the profit nor the specific contribution margin.
But we have indicated through a series of actions there that we expect our incremental margins in Brazil to be considerably higher than some of the other aspects of the business, and that's principally due to a couple of factors.
First, we made the SIFCO acquisition in Brazil as a vertical integration play largely on the forging side.
That will create higher incrementals on a go-forward basis.
Second, we worked very hard on the fixed cost structure during the downturn to make sure that we were reducing fixed costs and becoming as efficient as we could to make sure that we can capitalize on the upswing while securing enough capacity to meet demand, which we did.
We're encouraged about that.
And then the third factor is, it was a little bit difficult to see during the downturn because the numbers are so small, but the competitive landscape became much more beneficial for us during the downturn.
We had a number of competitors that ceased to exist during the downturn, which helped us to win some business and have a better competitive position within the local markets.
So we're encouraged by all 3 of those factors.
And we do expect that Brazil will be the difference maker in moving our Commercial Vehicle business from a single-digit EBITDA margin to a double-digit EBITDA margin business.
So we have said, with Brazil returning to a more reasonable historical level of demand for heavy truck and bus, the Commercial Vehicle business will be a better than 12 ---+ or a 10% business or double digit on a go-forward basis.
Yes.
First, thank you for the question, <UNK> ---+ or questions, <UNK>.
Appreciate it.
So first, I think I better touch on a reference point, and I hope I don't do too much of this.
But I really have to give a shout out to our Commercial Vehicle team and supporting functions, purchasing and other, because we haven't seen ---+ the CV market that is, we haven't seen this type of demand consistently in a very, very long time.
And in 2014, as you know, we were on the struggle bus getting through that stressor.
We have not any of that issue in terms of supply whatsoever across all of the geographies around the world because the team is really operating at a very, very high level.
To your specific question in terms of customer approach and how to continue to gain new business wins and more ---+ or more revenue for that matter, it's really a combination of both.
We are ---+ our team is just doing a tremendous job providing our OEM customers with new products and, frankly, services and so on and so forth, that they're having more interest in it.
We've announced a few awards that we've got there.
But at the same time, we have to help them with the fleets.
And I think any of our OE customers would tell you Dana has done a tremendous job making sure that the fleets know the new product offering that we're providing, how we can help them win in the market and making sure more than anything in this market that we're going to be able to satisfy demand.
So hopefully, that answers your question, but it is a ---+ it is definitely a different Commercial Vehicle than it was 3 or 4 years ago, and our customers are repeatedly displaying that through the new business awards and other.
Great question.
A lot of things ---+ in anybody's business, your business, our business, whatever, everything starts at the relationship level.
And fortunately for us, the Power Technologies group is in really 2 main category ---+ product categories with ---+ across our OEMs, that being thermal and that being sealing.
And it's really looking for solutions for battery cooling, electronics cooling, so on and so forth.
We have those relationships.
So we're being pulled under the tent per se with most every one of our major customers out there.
And they're asking us what the solutions of the future are.
I may have ---+ you may recall from the conference back in January where we'd shown some different concepts and products relative to that ---+ relative to battery cooling, electronics cooling, even enclosures for full batteries that is seeming to be getting a lot of traction behind that.
So it starts at the relationship level.
And so when we're in there ---+ and then what's actually interesting now is because you ---+ with electric ---+ let's call it e-axle, so on and so forth, you still have to cool those type of things as well.
And there's ---+ now there's a much tighter ---+ in my view anyway, there's a much tighter bridge between the groups not in ---+ not only within the OEMs but within Dana as well.
So we're giving them more of a comprehensive solution for cooling across those electrified vehicles.
Sure.
So just from a commodity perspective, steel, for example, is the largest impact for us, various types.
There was a sharp rise in the ---+ towards the end of the first quarter.
We have indicated before publicly that the majority of our commodity exposures are covered commercially, and the majority of the part that we cover commercially is contractual.
There's a piece that's negotiated.
So we continue to partner with our customers for opportunities to reduce the cost of the systems that we provide.
But from a commodity exposure perspective, it is not typically something that you hear us talk about from a sales or from a profit perspective because it is largely covered.
The only reason we raised it in the first quarter is because of the steep rise that we saw right at the end of the quarter, which causes a short period of time where there's a lag impact for us between when our customer POs are changed and when the suppliers end up getting higher costs or prices.
Okay.
With that, this is Jim.
I just wanted to close.
Thank you again for joining the call today and allowing us to have the privilege of your time to take you through the Q1 highlights.
I would only close with, obviously, this is a fantastic quarter for us ---+ top line at 26%, 17% of which is organic.
That's a ---+ those are outstanding numbers.
But also, like I said upfront, do not underestimate more of where the go forward is.
Our customers are particularly excited about partnering with us.
We talked about new growth and new business with JLR.
We talked about it with Mecalac.
We talked about it with numerous off-highway customers, numerous Commercial Vehicle customers.
Obviously, we only update the backlog once a year, and that's what we have to do again this year to stay on cadence.
But we are taking care of the customers, and we're going to manage the growth profitably and effectively like we have.
So thank you very much for your time.
| 2018_DAN |
2017 | DIS | DIS
#Thanks, <UNK>ob, and good afternoon, everyone
Earnings per share for the third quarter, excluding certain items affecting comparability, were $1.58, down 2% compared to last year
As I mentioned during last quarter's earnings call, we expected a number of factors to adversely impact our third-quarter results, the largest of which was higher programming expenses at ESPN due to the first year of the new N<UNK>A contract
I'll discuss the impact of these factors in greater detail as I go through the individual segment results
Let's start with Parks and Resorts, where operating income was up 18% in the third quarter, driven by growth in our International operations
Results at our Domestic operations were comparable to Q3 last year
Third-quarter segment results benefited from the timing of the Easter holiday, which fell entirely in Q3 this year, compared to Q2 last year
We estimate the timing of Easter drove an $80 million benefit to operating income, and accounted for about 8 percentage points of the 18% growth in segment operating income
The growth in our International operations was due primarily to the absence of pre-opening expenses at Shanghai Disney Resort and improved results at Disneyland Paris
As <UNK>ob mentioned, we feel very good about how Shanghai Disney Resort has performed during its first full-year of operations, and we expect the resort to be modestly profitable for the fiscal year
At Disneyland Paris; the resort's 25th Anniversary celebration helped drive growth in guest spending and attendance
Late in the third quarter, we increased our ownership in Disneyland Paris to 100%
We are encouraged by the resort's third-quarter results, and, as <UNK>ob mentioned, we are making investments to drive future growth
In our Domestic business, higher guest spending and attendance drove 6% revenue growth
<UNK>ut the increase in revenue was offset by higher expenses to support higher volume and new attractions, including Pandora – The World of Avatar at Animal Kingdom, and Guardians of the Galaxy – Mission: <UNK>REAKOUT!, at Disney California Adventure, as well as costs associated with an 18-day dry-dock of the Disney Fantasy
Attendance at our Domestic parks was up 8% in the quarter, benefiting from the timing of the Easter holiday, which accounted for about 3 percentage points of that growth
Per capita spending in our Domestic parks was up 2%
At our Domestic hotels, per-room spending was up 8%, while occupancy was down 2 percentage points to 88%
If you adjust for rooms not available due to refurbishments, occupancy would be comparable to prior year
So far this quarter, Domestic resort reservations are pacing down 3% versus prior year, driven by reduced room inventory due to conversions and ongoing room refurbishments, while booked rates are up 6%
Segment operating margin was about 24% for the third quarter, up 120 basis points over Q3 last year
We estimate the favorable timing of Easter accounted for approximately 120 basis points of margin expansion in the quarter
At Studio Entertainment, operating income was lower in the quarter as growth in television distribution was more than offset by lower theatrical and home entertainment results
While our studio is having another phenomenal year with over $2.1 billion in operating income year-to-date, I'll remind you, last year, the studio delivered record profitability
The decline in theatrical distribution during the third quarter reflects the performance of key titles in Q3 last year, including Captain America: Civil War, The Jungle <UNK>ook, Finding Dory, and Alice Through the Looking Glass, compared to Guardians of the Galaxy Volume 2, Pirates of the Caribbean: Dead Men Tell No Tales, and Cars 3 in Q3 this year
Home entertainment results also faced a difficult comparison as they reflected the phenomenal sales of Star Wars: The Force Awakens in the quarter last year, compared to very strong sales of Rogue One: A Star Wars Story this year
At Media Networks, our Cable and <UNK>roadcasting businesses generated lower operating income in the third quarter, compared to last year
Cable results were driven by a decrease at ESPN where higher programming expense and lower advertising revenue more than offset growth in affiliate revenue
As we've discussed, ESPN is in the first year of its new N<UNK>A contract and about $400 million of the $600 million year-one cost step-up was incurred in Q3. Total Cable expense growth for the third quarter came in at 14%, about 2 percentage points better than the 16% we discussed on our last call
Ad revenue at ESPN was down 8% in the third quarter as higher rates were more than offset by a decrease in impressions
During the third quarter, ESPN had two fewer N<UNK>A finals games and three fewer conference playoff games compared to last year
We estimate this impact was roughly equivalent to the decline in ad revenue, compared to the prior year
So far this quarter, ESPN cash ad sales are pacing down, compared to prior year
Turning to <UNK>roadcasting, third quarter operating income reflected lower advertising revenue and higher programming costs, partially offset by higher affiliate revenue
Ad revenue at the A<UNK>C network was down 5% for the third quarter, as higher pricing was more than offset by a decrease in impressions
Quarter-to-date, primetime scatter pricing at the A<UNK>C network is running 11% above upfront levels
We continued to see nice growth in <UNK>roadcasting affiliate revenue, driven primarily by higher rates
Total Media Networks affiliate revenue was up 2% in the quarter due to growth at both Cable and <UNK>roadcasting
The increase in affiliate revenue was driven by about 7 points of growth due to higher rates, partially offset by approximately a 3.5 point decline due to a decrease in subscribers
I'll note that year-to-date, the impact of sub losses on the growth in affiliate revenue is less than 3 percentage points
At Consumer Products and Interactive Media, operating income was up 12% in the third quarter due primarily to an increase in our merchandise licensing business, which was driven by lower costs in the quarter, compared to last year
Operating income growth came in a little lower than we had planned, and while we still anticipate OI growth the second half of the fiscal year, we don't expect these results to be sufficient to drive growth at Consumer Products and Interactive Media for the full year
During the third quarter, we repurchased 22.3 million shares for $2.4 billion
Fiscal year-to-date, we've repurchased 64.3 million shares for approximately $6.8 billion, and we are on track to repurchase between $9 billion to $10 billion for the full year
And with that, I'll now turn the call back over to <UNK> for Q&A
That is a net number, <UNK>, and there were additional digital MVPDs this quarter that helped that number
Thanks, <UNK>
If you're talking about dilution as it relates to the acquisition of <UNK>AMTech, what we've said so far is that it will be modest for the next couple of years
We may get more specific on that when we come back at our year-end conference call in November, but, right now, we're just going to leave it as modestly dilutive
You've also asked about the investment that we'll be making in this new offering and how that would impact 2018. I think what you were asking is would it impact 2018 earnings, and the answer is there will be additional investment
We've not yet fully concluded what that is and the sequencing and timing of that spend
There'll also be content, as well as investment spending for technology, so the combination of those is something that we'll be prepared to speak with you more specifically later this year
Okay
I'll take the parks margin question
You are seeing nice margins
There has been consistent improvement on a quarterly basis
What you saw this quarter was the contribution of our International park operations kicking in, both Shanghai as well as Disneyland Paris
So, I think it's fair to assume that the management of the Parks segment is very committed to driving improvement in margin, and when you look at the investments we're making and the cadence with which we have of new attractions opening over the next couple of years, we expect those margins to stay strong and hopefully stay on the trajectory they're on now
| 2017_DIS |
2017 | CCI | CCI
#Thanks, <UNK>, and thank you, everyone, for accommodating our change in schedule and joining us on the call early this morning as we discuss the Lightower acquisition and our second quarter results
As you saw from our press release yesterday afternoon, we have reached an agreement to acquire Lightower, which owns or has rights to approximately 32,000 miles of fiber in top metro markets in the Northeast, including Boston, New York and Philadelphia
Through a series of transactions in recent years and organic investments along the way, we have strategically positioned Crown Castle as the leading shared wireless infrastructure provider in the U.S
across towers, small cells and fiber
Turning to Slide 4. We believe this portfolio of mission-critical infrastructure will play an important role in helping our customers capitalize on the exponential growth in demand for data and connectivity
As has been our view over the past several years, we see the ownership of deep, dense fiber in top metro markets as a competitive advantage in facilitating small cell deployments in a cost-effective and timely manner
With the addition of Lightower's premier metro fiber footprint located in several of the most densely populated markets, we are significantly extending our reach by adding a highly complementary footprint that doubles the miles we will have available for small cell deployment
Further, the acquisition of Lightower aligns with our longstanding focus on allocating capital to increase shareholder value through growing the dividend
Towards this end, we expect the acquisition to be immediately accretive to our AFFO per share, and as a result, we expect to increase our annual dividend rate by approximately $0.15 to $0.20 per share after closing, subject to our Board's approval
Additionally, we expect that the Lightower acquisition will enhance our long-term growth rate, allowing us to increase our annual dividend growth target by 100 basis points to 7% to 8%
The expected near and long-term accretion is a reflection of the small cell opportunities we see in front of us as well as the high-quality business and assets we are acquiring in Lightower
Turning to Slide 5. We have assembled an unparalleled portfolio of shared wireless infrastructure assets that we believe are well positioned to help our customers meet the growing demand for data
Additionally, we have developed industry-leading capabilities to meet the growing small cell demand
Drawing on our experience with towers we are capitalizing on our first mover advantage to assemble a portfolio where we believe there will be long-term franchise value that will drive significant returns over time through future leasing
We believe the combination of our assets with those of Lightower will represent one of the most extensive and unique footprints of deep dense metro fiber assets assembled today, and this is one of the key drivers of our acquisition
Pro forma for the Lightower acquisition, we will own or have rights to approximately 60,000 route miles of fiber, making us one of the largest owners of metro fiber in the U.S
Further, with our combined footprint, we will own or have rights to fiber in all of the top 10 and 23 of the top 25 metro markets
By creating scale in these top markets, we are positioning Crown Castle to meet the needs of our customers looking to us as an infrastructure provider of choice as consumers and businesses in every industry evolve and adapt to a world where mobile is the platform of choice
This ongoing transition to mobile is evident everywhere
Importantly, Crown Castle is positioned to benefit from this long-term trend as our leading portfolio of towers, small cells and fiber will provide the critical infrastructure needed to enable this shift
As you can see on the maps on Slide 6 and 7, the addition of Lightower will expand our fiber presence with complementary dense metro fiber assets throughout the Northeast
The limited overlap between Lightower's fiber footprint and our existing footprint will give us a large incremental opportunity to deploy small cells in these important markets
As I mentioned earlier, on Slide 8, is the trend in mobile data demand, which is expected to quadruple by 2021. We expect our portfolio of towers, small cells and fiber to play an essential role in supporting the network densification that will be needed to meet this demand
As you can see on the slide, our wireless customers are increasingly turning to small cells to augment and further densify their macro network and deploy spectrum closer to their customers to enhance and improve their network quality and capacity
Consistent with what our customers are saying, we are seeing small cell demand accelerate as evidenced by our first quarter announcement of our record 25,000 contracted small cell node pipeline, and we believe the long-term opportunity could match towers in size and return
Our conviction around the size and attractiveness of the small cell opportunity has grown over time based on the trajectory of activity from our wireless carriers and the returns we have generated to-date
To help give you some additional perspective on why we are so enthusiastic about the opportunity, I wanted to take just a minute and walk you through the returns we have generated to-date across our top three small cell markets: New York City, Los Angeles and Philadelphia
Across these three markets, we are generating a recurring yield of approximately 11% on the approximately $1.3 billion of total net invested capital to-date
The $1.3 billion includes an allocation of the purchase price from our prior acquisitions of NextG and Sunesys and represents approximately 30% of our total net invested capital in small cells, excluding the Wilcon acquisition that we closed just a few weeks ago
The incremental growth we have generated to bring these deals up to these levels has been a result of deploying small cells on the fiber we built or acquired in these markets
Given that small cells are in the early stages of adoption, we find the double-digit recurring yields in these markets to be very compelling, and we continue to see significant opportunities to lease these fiber assets up further to also improve our returns over time
What really excites us is that we believe this success will be replicated across our footprint of now 60,000 miles of metro fiber
To-date, we believe our customers' investments in small cells have been driven by meeting 4G use case demand, and we have underwritten our investments, including Lightower, with this view in mind
As seen on Slide 8, our carrier customers are also making these investments in small cells today with an eye to the future as they prepare their networks for 5G
As 5G takes shape over the coming years, we believe we will see increasing demand for small cells that will drive additional returns on our investment as further densification occurs
Turning to Slide 9. In addition to furthering our small cell strategy, Lightower also brings with it high-quality, long-term cash flows and an experienced operating team with a scalable platform that can enhance and supplement our small cell investment
Lightower generates attractive returns on invested capital by providing differentiated fiber solutions that serve high-bandwidth, multi-location customers
As you can see on the slide, Lightower has delivered consistent revenue growth with attractive margins
As a result of its differentiated service offering and operating discipline, Lightower's portfolio of customer contracts has a weighted average remaining current term of approximately four years, including approximately $2.7 billion of remaining contracted revenues from a high-quality mix of customers consisting of large enterprises, government agencies, health-care providers, educational institutions and carriers
With this approach, Lightower has been able to attract a diverse customer base while maintaining an almost equal split of revenues between carrier and enterprise customers
Importantly, this approach has also resulted in the vast majority of Lightower's assets and revenues qualifying for REIT status
We believe the fiber solutions revenues generated by Lightower will allow us to enhance our competitive position in small cells by increasing the opportunities we serve with the underlying fiber assets, thereby improving the already attractive shared economic model we see in our small cell business, both on the fiber we are acquiring and on our existing base of fiber
Moving on to the transaction details on Slide 10. We have agreed to acquire Lightower for $7.1 billion in cash, representing an EBITDA multiple of approximately 13.5 times
We expect the transaction to close by the end of this year and be immediately accretive to AFFO per share at close
In our first full-year of ownership, we expect Lightower will contribute $850 million to $870 million in site rental revenues and $510 million to $530 million in adjusted EBITDA
We expect to finance the transaction with a combination of equity and debt that is consistent with our policy of maintaining investment-grade credit metrics
With the cash flows generated by Lightower and taking into account our anticipated financing, we anticipate increasing our annual common stock dividend rate, subject to approval by our Board, by approximately $0.15 to $0.20 per share at close
Additionally, we expect that the Lightower acquisition will enhance our long-term growth rate, allowing us to increase our annual dividend growth target of 6% to 7% to 7% to 8%
In short, this is a great acquisition that we think will generate significant value for our shareholders and position us to better serve our customers by expanding our portfolio in some of the best markets in the U.S
And with that, I'll turn the call over to Dan to go through our second quarter results
Thanks for the question
So high level, let me start with this
As we look at the assets that Lightower ran, and this is really consistent with all of the acquisitions that you've seen us do so far, whether it's FiberNet or Wilcon or Sunesys, we have looked at very specific characteristics around those assets, on dense fiber, dark fiber in metro markets where we believe there's a lot of opportunities for small cells to be deployed across that fiber
And the key aspect of it, which is reflected in the comments that we're making around the vast majority of the revenues, qualify as good REIT income, and we believe somewhere in the neighborhood of 80% to 85% of the assets in the revenue are good REIT income
The assets are, in essence, passive for us
So we are purely an infrastructure provider providing a pipe and therefore, it's good real estate income
That passive nature as an infrastructure provider of – in essence, owning the tollway if you will, or the railroad for the deployment of wireless networks, these assets that we're acquiring in Lightower have those same characteristics, and it's why they're so attractive to us
We find that over time, as we've looked at assets, the revenues tend to be stickier
They tend to be longer dated
And they tend to be very attractive for the deployment of small cells
With regards to your question around CapEx intensity and churn, et cetera
On the CapEx intensity side, generally, the payback for the deployment of capital, once you start to develop a market, the payback is in the neighborhood of two to three years on the capital that's been deployed
Historically, the business has seen churn in the neighborhood of about 9%, and the payback on the capital obviously, drives the continued investment
So as you think about the impact of churn and the allocation of capital towards those two things, while we would certainly underwrite it and Lightower has done a good job over time of putting that into the model and thinking about the deployment of capital against the overall characteristics, the stickiness of it, and then the provision of future services using that same fiber
From a backlog standpoint of small cells, they had about 2,000 small cells in the pipeline
It has not been a core portion of their business, although they have provided small cells in the past
Most of the carrier revenues that I spoke to, a big portion of that would be related to fiber to the cell
As we've talked about the architecture of the networks, historically, we believe that fiber to the cell becomes very important as hub sites are developed and small cells are developed in conjunction with the existing macro network
So again, another good indication of what we think is going to be upside from small cells
And then lastly, your question around the three markets that I spoke to, which are the three largest markets that we've deployed small cells in thus far: Philadelphia, New York and L
The 11% return that we have on a recurring yield basis against the net capital invested, consider that a big chunk of that capital put in with the NextG acquisition that we acquired in the neighborhood of about a 2% to 3% yield on invested capital, and then the Sunesys acquisition would have been somewhere in the neighborhood of about a 6% to 7% yield on invested capital
So virtually all of the NextG initial yields would have been small cells along with virtually all of the growth to bring that capital up to an average of 11%, in Sunesys' case, it would have started at about 6% to 7%, and virtually all of the change since then would've been small cells
And then the capital that we put in on an organic basis would've been all done on small cells
So the vast majority of the growth and then the blend would've been coming from small cells
My best guess, although, I don't have the numbers sitting right here in front of me, would be in excess of two thirds of that return, total revenues would have been coming from small cells
You bet
Matt, on your first question, there will be some benefit from the acquisition that we did in terms of reducing the amount of capital that we would spend on the notes that we referenced last quarter that were the recently contracted notes during the first quarter of 2017. But I would encourage you more to think about this as increasing the size of the pie
As we look at the data and the systems that we have built, we have found the returns to be incredibly compelling
And as we think about the way for us to create shareholder value over time, there have been three tenets of our story that we have consistently come back to
One is to add additional revenue to the assets that we already own, two has been to lower our overall cost of capital and three has been to allocate capital to things that we think will grow our dividend over time
And as we have learned and studied and watched the investments that we have made, we have seen the investments we have made around fiber and small cells to deliver very compelling returns, and we're in the very early innings of carriers adopting and using small cells
So as we look for opportunities to continue to deploy capital around this, our intention is to grow the size of the pie because we find the returns to be so compelling
So while we will, I guess, at some level get the benefit of reducing the capital costs in these Northeast markets from the nodes that we already have, which would have – some portion of those would have been embedded in that $1.2 billion, the reality is we're talking about expanding the pie and looking to put more capital to work because the returns are so compelling
And over time, we believe that will provide additional value to the shareholders in the form of increasing our dividend and our dividend growth rate
Thanks for the questions
On the enterprise business, as I spoke to, I think what we have seen in the other acquisitions that we've done is focus on using fiber as a – what we often like to refer to as a dumb pipe, where really all that is being provisioned is a pipe between two or multi-locations for customers
These are typically done for large enterprises, hospitals, financial institutions, some educational institutions
We find that business to be as passive as we are in the tower business
So sometimes, it's referred to as virtual dark fiber or dim-lit fiber
That in our view is not a service business
And obviously, as I spoke to earlier around what qualifies for good REIT income, it's really just the provision of a real estate to real estate asset
The smaller acquisitions that we've done over time in other parts of the country have gotten us comfortable with portions of that enterprise business
So as we underwrote the Lightower acquisition, we're obviously assuming that we're going to continue to be in that business, continue to operate the business and grow the business over time
We find there to be very attractive returns on invested capital and believe we can continue to grow the business
As we thought about the underwriting and whether or not it justified the investment that we're making, this really goes to the heart of the shared economic model
So we're buying the asset in the neighborhood of about a 6% to 7% return on invested capital and able to provision it to the wireless carriers for the deployment of small cells, and it's a means by which we can do the same thing that we've done for a very long period of time with towers, and that has provided the lowest-cost alternatives to the carriers as they deploy their wireless network
Our goal is to use our cost of capital and to invest the capital in a way that provisions these assets in a way that minimizes the overall cost as the carriers deploy their network
And I believe that's why we have been so successful in attracting small cells on the fiber that we already own because it is the lowest-cost alternative
If you go back and think about how the tower model has developed over time, in the early days of towers, we acquired towers in the top – as I spoke to around fiber, we acquired towers in the top 10, top 25 markets at an initial yield of about 3% back in 1999 and 2000 and over time have leased those assets up as densification has occurred in the wireless networks
In this case, there is an existing source of revenues and cash flow on this fiber that we believe will continue to be there over a long period of time
And on top of that, we believe we will add additional revenues from the wireless carriers to really maximize the ultimate return on the asset
So the way that we've thought about it and continue to approach it has been through our wireless view
And then as we've gotten smarter about what's the quality of the cash flows there, it's enabled us to be able to invest in assets like Lightower because of what we think it will ultimately mean from a return standpoint
On your second question around small cell regulatory efforts, we have a number of efforts going on at the federal, state and the local level
Like towers, I would tell you, it will forever be hard, we believe, to deploy small cells and fiber
And what we're trying to ensure is that it's a fair deployment and that both we and our carrier customers are treated equal to others who access the right of way
That regulation has been progressing well, and it's helped us in some markets
But as we look at it, we certainly don't expect that it's ever going to be easy
And I think the story that folks have read about in the press, in the municipalities and at the state level, there's going to continue to be challenges as we balance the desire of people and communities to limit the amount of infrastructure in their communities and the need for the carriers to deploy the infrastructure in order for us as consumers to achieve the kind of services that we really want to use
So it's a balancing act, and we're continuing to work hard at it
I will tell you, the benefit of scale is significant in this front
Historically, on the tower side, most of the conversations that happened as we would construct or build a tower add an additional tenant to a tower
That was largely a conversation that happened at a homeowners association in most cases
This is a conversation that happens at a citywide basis that reaches town councils and mayors' offices, et cetera
And so the amount of scale and effort we have to do in order to deploy small cells is a much more robust effort in order to do it
And I believe that scale is helpful to us as we approach and deliver for the carriers because the capabilities to do so are very different than what has historically happened in the tower side where one individual could basically go out and develop a tower in a good location
The regulations and the challenges of deploying small cells really speak to the value of being able to provide it in scale
I think that's reflected in our ability to attract the number of small cell orders that we have so far in calendar year 2017.
<UNK>, I do believe that ultimately our small cell business could be as big as towers
That is driven primarily though by my view that the carriers are going to invest over a long period of time around their macro sites to densify their network
So I think we'll have two businesses growing, both the component of towers, which, as Dan spoke to, we've continued to see terrific demand for and increased demand in calendar year 2017 over what we saw in 2015 and 2016. So I think you'll see the carriers continue to invest in towers and then also make significant investments around small cells
Our appetite for additional investment in fiber, I think I'd say a couple of things on that front
One is, this is a large acquisition that's going to take us some time to digest
So we were out looking for the absolute best asset that we could
This does doubles our fiber footprint
It more than doubles the investment that we have placed to-date in fiber, and it's going to take us a little bit of time to digest the acquisition in terms of both integration and getting it up and running as we put small cells against it
So we may need a little bit of time as we digest
Broadly, though, the returns that we're seeing in this business, as I spoke to in one of my prior comments, is the investments that we're making today, we're making them not because we're trying to grow scale in the business, but because we think it provides value and return to our shareholders over time
And we believe our dividend five years, 10 years from now will be higher as a result of the acquisition that we're making today with Lightower than if we hadn't done it
And to the extent in the future we see opportunities that meet that test around the strategy that we've articulated, we'll absolutely be open to those
But they will come down to a test against whether or not we believe ultimately we'll be able to return that cash to shareholders at a higher rate than we otherwise would have
Sure
<UNK>, I think you're going to continue to see both
The carriers are going to self-perform some portion of their small cells
We believe we'll see other infrastructure providers outperform small cells for the carriers
We're certainly not underwriting this asset or any of the investments that we made, assuming that we're going to capture 100% of all future small cells that are deployed
So I think you'll see the carriers make comments around self-performing
I think those comments really are supportive of what is the opportunity around small cells and the necessity and essential nature of fiber to the deployment of wireless networks
But we also believe that the shared economic model is the lowest cost available to the wireless carriers
And we believe we have done – as well as we have done with small cells in the early innings of the deployment of small cells because it is the lowest cost provider
So the shared economic model in the same way that it's the lowest cost provisioning of infrastructure from a tower standpoint, we believe the same thing is true from fiber and small cell
So we believe that over time, we'll see a significant portion of the deployment of small cells on shared infrastructure in places where we think it will be shared and maybe other places where the carriers decide to self-perform because maybe there isn't a shared opportunity
Yes, so a couple things there
There is – in some of those notes that we had under contract, we will be helped to some degree
But as I mentioned earlier, this was about the pie just got a lot larger this morning
And so you probably won't be able to find the CapEx savings or a reduction in capital somewhere
It will help on some incremental basis, but really what's happening is we've availed ourselves of the opportunity of capturing even more small cells and the growth from revenue and cash flows associated with this fiber plan
You bet
So FirstNet, I believe at this point, five states have opted into FirstNet
FirstNet had a – has a requirement to submit a plan to each of the states by September 30 of this year
States then have the option to opt in or opt out by December 31 at the end of this year, calendar year 2017. And as I mentioned, I don't know if anybody announced this morning, we've been a little focused on our Lightower acquisition and earnings, but I believe that as of yesterday, there were five states that had opted in
If states choose to opt out, they have about six months to decide what their plan would be
So that's the basic lay of the land
From a geographic coverage standpoint, they have 12 – FirstNet has 12 months to demonstrate 20% geographic coverage, then they have to be at about 60% by 24 months and 80% by 36 months out
And then by month 48, I think they have to cover nearly 100% of the geography
So the opportunity here from a tower standpoint, we think is really significant as we go into calendar year 2018 and beyond
And whether the states are opting in or opting out, we think there'll be a meaningful amount of deployment for first responders
I don't want to get into any particular customer relationships or how we price
What I would tell you is if – whether a state was an opt-in or an opt-out state, those state – the deployment of that spectrum would require either an amendment or a new lease, depending on the nature of it on our sites
And we would expect in the first phase of the deployment of this, this will happen largely around macro sites
And depending on what ultimately the state decides to do, that could be a new lease on a site or an amendment to an existing site
But we do believe that in all cases, there will be additional revenue as a result of the deployment of the spectrum to provide the network for first responders
Yes, on the first question, we did not assume any cost synergies in the acquisition or in our underwrite model
We're not going to cut our way to growth
So our intention is to continue to grow the business and we're not assuming there aren't going to be any cost synergies there
We may around the edges, find some savings, but that was not how we underwrote the asset
I think, <UNK>, as we thought about the asset again, we thought about the growth of the asset and the quality of the platform there and the folks who are running that asset
And so our intention is to continue to grow and expand the opportunity
We may find there are some back office synergies maybe around cost of licenses or other things, but that certainly was not the intention
And we'll be smart operators of the business over time
And I think you can look at our tower business and see a business in terms of the number of assets where it's a stable number of assets and we've been very disciplined around the cost structure there, so to the extent that there are opportunities
We'll avail ourselves of those as any good manager would
But it was not our intention nor in our underwrite model around cost synergies
So I wouldn't expect that we'll see steps from – as a result of reduction of cost
On your second question, the reference we're making for the 25,000 is a reference back to what we reconciled everybody through in great detail around our pipeline at the end of the first quarter
Our pipeline actually grew during the second quarter
Given the amount of content and discussions we're having this morning, we didn't go into great detail around the way the pipeline grew, what happened to it
But the number of sites that we turned operational against the number of bookings actually increased the size of that pipeline
So I wouldn't expect that you will see a lull in the new bookings and new contracted nodes as we put against – as we built to operate and put on air the nodes that we did
The one thing I would mention and I think we talked about this pretty extensively in the first quarter
It was not normal growth that we saw towards the end of 2016 and into the first quarter of 2017. We saw that as a big stair step in the level of activity
So it's continuing to grow, but I certainly wouldn't want to imply
We saw another stair step like what we saw in the first quarter, but it did grow relative to the number of nodes that we put on air
I think we'll talk directionally about what's in the process and where we think the growth rates are because it's related to where our revenue expectations are
But we like to spend our time talking about what the impact is ultimately to our dividend and what the impact is to the growth rate there
So we're more likely to probably transition that conversation back to our historical approach of talking about revenue growth translated to cash flow growth translated to dividend growth and have a more wholesome conversation where we're balanced around the cost of the capital that we put into these systems and the cash flow return against those and then what that implies for dividend growth
I would imagine directionally though, we'll continue to talk about activity levels as we have historically and what we're seeing both on the tower side and then also on the small cell side
Sure
On the first question, yes, we have historically paid out about 75% of our AFFO in the form of a dividend, and that was our working assumption as we laid out this transaction and calculated the $0.15 to $0.20 of expected increase in the dividend related to Lightower
There are no notable differences in our calculation of AFFO or AFFO per share relative to the way we've handled it historically
When you look at their business, and we talk about small cells, as we've discussed, typically, there's about an 18-month to 24-month cycle from when we receive a small cell order to when we have it on air
So we're not assuming that we're bringing our small cell expertise to those assets in a way that would result in first year of ownership additional revenues from small cells
Obviously, we're going to continue to run that business, and they have a pipeline of revenues that we would continue to turn on air and get the cash flow benefit from
But the real revenue synergies, if you want to call it that and the upside from small cells and growth over time, that will be outside of the first year of ownership and really minimal impact in the first 12 months
So that's a longer-term benefit that we'll see and speaks to our comments around our expectation, we'll be able to increase our long-term growth rate by 100 basis points
Operator, we have time to maybe one more question
You bet
End of Q&A
Well, thanks everyone for joining us this morning
Obviously, as you've heard from our commentary, we believe that Lightower is a great acquisition that we think it’s going to generate significant value for our shareholders and positions us really well to serve customers by expanding our portfolio in some of the best markets in America
So I appreciate you joining this morning and we'll talk to you soon
| 2017_CCI |
2017 | CDR | CDR
#Thanks, Nick.
Good evening and welcome to the fourth quarter 2016 earnings call for Cedar Realty Trust.
As I will discuss in a moment, it has been a very busy few months at Cedar with dramatic ad<UNK>ces on the leasing, redevelopment and capital migration fronts.
Before reviewing our results I want to take a moment and acknowledge my colleagues who are with me on this call; Phil <UNK>, our CFO; <UNK> <UNK>, our COO; Mike Winters, our CIO; Adina Storch, our General Counsel and Charles Burkert, our Senior Vice President of Construction and Development.
I would also like to take a moment and thank all of team Cedar for their continuing and tireless efforts to ad<UNK>ce the causes of this Company through their commitment to everyday excellence.
Before moving from the topic of team Cedar, I also want to take a moment to acknowledge Jim Burns our longest-serving Board member who let us know that he will not be standing for re-election to the Board.
Jim has been an invaluable advisor to management and has set an example of professionalism and probity from which we have all learned a great deal.
I'm pleased to report that Gregg Gonsalves, a retired Goldman Sachs partner in their Real Estate Investment Banking Group will be nominated to fill the soon to be vacated spot on the Board.
Moving to our results.
We are pleased that our 2016 full-year operating FFO of $0.57 per share is above the range of our initial guidance.
However, with the sale of Upland Square late in the year, we are net short, which will lead to some earnings dilution in the near term as reflected in our 2017 guidance, which Phil will elaborate on in a moment.
Correspondingly, we are now well situated to exploit investment opportunities.
Furthermore, we significantly de-risked our portfolio through the sale of Upland by reducing our exposure to a very large asset in a very thinly populated market.
Yesterday, we began the process of putting some of that capital to work with the acquisition of Christina Crossing in Wilmington, Delaware.
We acquired this approximately 120,000 square foot Shop Rite anchored center on an off-market basis from a local developer who is very active in its attractive urban market and with whom we hope to pursue future investment opportunities.
This 80% occupied center with 112,000 people within a three-mile radius offers us a significant upside opportunity as it will benefit from our lease up and re-merchandising efforts.
Moreover, the center will benefit longer term from a significant residential and commercial development activities surrounding it.
During the quarter, we made terrific progress on the leasing front with the leasing for three of our four vacant anchors discussed back in late November 2015 having been completed and the fourth anchor lease just about done.
As <UNK> will expand upon, we had a strong quarter on both the new and renewal leasing front with significant cash basis increases on a comparable basis.
Although, we will not see the true upside effect from much of this activity until 2018 these new leases, coupled with our leasing pipeline provides a solid foundation for earnings growth going forward.
More generally, our greater focus on merchandising mix in many of our centers, while leading to some temporary earnings drag is positioning us well in the face of the changing retail landscape.
We have also upgraded our leasing team and continue to make targeted hires in that department which positions us well going forward.
Similarly, as we get our large-scale redevelopment projects poised for commencement, we are highly optimistic about how the execution of these place making projects will fundamentally change how our Company and portfolio are viewed.
Specifically, we are ad<UNK>cing two distinctive urban mixed-use projects in each of Philadelphia and Washington DC.
Notably, much of the near-term NOI drag is coming from the measures we are taking now to position these projects for commencement by relocating certain tenants, buying out others or triggering co-tenancy rents.
In addition to these two projects, our pipeline of redevelopment and value-add opportunities is growing, I anticipate, there will eventually be a page in our supplemental and corporate presentations providing significant detail regarding many, if not all, of these pipeline projects.
In addition, similar to the leasing team we have and continue to make targeted hires in this department as well.
Our balance sheet remains healthy with no debt maturities for the next two years and a relatively benign maturity schedule thereafter.
This is not an accident.
With Phil as our steward we have keenly focused over the past few years on arriving at this point where we can comfortably execute our value creation strategy at the asset and portfolio level with the support of a strong and flexible balance sheet.
In summary, we continue forging ahead with our long-term strategy.
We are migrating our capital from the lower density to higher density markets in the DC to Boston corridor.
We are positioning ourselves for a pipeline of attractive value creation opportunities within our portfolio.
We continue executing on the leasing and operational initiatives that will support and grow value over time.
And we [obviously] manage our balance sheet to ensure that it can withstand market shocks and is accommodative of our business plan.
With that, I give you <UNK> to discuss our operations, leasing and redevelopments in greater detail.
<UNK>.
Thanks, <UNK>.
On this call, I will provide a brief update on our balance sheet and highlight our operating results before focusing on our 2017 guidance.
Starting with the balance sheet, during 2016 we continued to strengthen our balance sheet.
We ended the year with only six mortgages totaling about $140 million and 80% of our property NOI is now an unencumbered.
For the third consecutive year, we rolled down secured debt, in this instance primarily through closing a new seven-year $100 million of unsecured term loan.
Further, we ended the year with almost $170 million of availability on our revolver and no debt maturity for the next two years.
Additionally, we have not yet settled our forward equity offering completed in 2016.
As a quick reminder, our forward equity offering was for 5,750,000 common shares and we have until August 1, 2017 to settle it.
It is currently our intention to physically settle it in full by August 1 and the proceeds received will be $44 million, less any dividends paid prior settlement and some administrative costs.
With respect to FFO, for the quarter operating FFO was $12.1 million or $0.14 per share.
You may recall on our last call I noted that the disposition of Upland Square would be about $0.01 per share dilutive per quarter until the proceeds are redeployed.
In fact, this is why sequentially, operating FFO per share decreased $0.01 from the third quarter.
For the full year, operating FFO was $49.2 million or $0.57 per share.
This result is $0.01 above our guidance range for 2016.
Now moving to our 2017 guidance, we are establishing an initial 2017 operating FFO guidance range of $0.53 to $0.55 per share.
Let me first give you some details related to this guidance and then provide a high-level roll forward of operating FFO per share from 2016 to 2017.
Starting with the details, consistent with the prior year, we are only including acquisitions and dispositions completed through the date of our call even though we continue to actively migrate our capital from lower density markets to higher density markets.
We will update our guidance each quarter as acquisitions and dispositions close.
We are projecting same property growth of negative 1% to 2%.
The primary drivers here are as follows.
First with <UNK>'s oversight, our team has ad<UNK>ced redevelopment plans for some properties and identified other properties to target for redevelopment in the future.
Accordingly, we'll start incurring some intentional vacancy and we're signing short term less favorable leases with regards to rent, but with needed landlord recapture and/or relocation rights.
In the aggregate, these redevelopment activities are likely to reduce property NOI by $5,000 to $1 million.
Second, in addition to the vacant anchors we have previously disclosed, we intend to proactively pursue the potential re-anchoring and/or re-merchandising the certain other properties.
The impact here is a little harder to estimate, but could reduce property NOI by up to $500,000.
Third, our re-anchoring and re-merchandising cavities along with ad<UNK>cing our re-development efforts will temporarily trigger some co-tenancy causes for certain tenants until the new tenants take occupancy.
We anticipate temporary co-tenancy rent reductions between $1 million and $1.5 million.
Before leaving the topic of same property growth, I want to briefly provide some context regarding our same property pool and the timing of the impacts related to the items I just discussed.
Even though the vast majority of our properties are included in the same property pool, less than $1 million per year and $250,000 per quarter, equate to 100 basis points of growth.
Further, based on our anticipated timing the early quarters will be impacted the most.
Now let me provide a high level roll forward of FFO per share from 2016 to 2017, starting with our 2016 reported results of $0.57 per share.
First dispositions closed since the beginning of 2016 exceed our acquisitions and in our cycle of capital migration, we are net short as <UNK> stated.
This will cause a decrease of about $0.03 per share in 2017, net other related interest savings.
This adjustment alone gets you to the midpoint of our 2017 guidance.
Next our negative same property growth will be offset by a similar positive lift and interest savings from our refinancing activities.
Accordingly, combined these items still placed us right at the midpoint of our 2017 guidance of $0.54 which despite starting 2017 at a time in our capital migration cycle when we are net short, is still approximately the midpoint of the guidance we provided at beginning of 2016.
One last note here to assist with modeling.
Our recent acquisition Christina Crossing currently has occupancy of about 80%.
As <UNK> noted, we have a leasing plan for this property to increase its occupancy and NOI.
However, as a result of the current occupancy level this asset initially has a low yield and will not contribute significantly to earnings in 2017.
I hope walking through our guidance information both in detail and in high level was helpful.
And with that I will open the call to questions.
Yes, I think if you look at this year, it was about $18.2 million and in our operating FFO we have an adjustment for about $1.4 million for the COO transition.
So that gets you at around $16.8 million.
It won't be all that different from that.
It will be slightly higher maybe with those additions on the redevelopment team, so call it $17 million-ish.
Yes, and I think on that call I said it would be negative early in the year, but not likely for the full year.
I also added the same kind of context regarding the size of the pool that I did on this one.
But, yes, <UNK> has been here almost a year now and we're looking at redevelopments not just the ones that we hope to start in near term, but even several years out.
So, with that in mind, we're planning a lot earlier.
So with, more clarity on our redevelopment activities our re-merchandising activities, our re-anchoring activities, also with the anchoring ---+ the new anchors moving in, the free rent periods and all the related co-tenancy impacts from this, we just have a lot more clarity on that now.
So wow we're excited about the long-term value creation that that redevelopment pipeline is going to add it's disruptive in 2017.
Look, I think that once this thing gets going I would say the average annual capital spend is adjusting up, which is what we indicated we'd like to achieve and it gets closer to maybe $50 million a year.
This year I don't think necessarily it will be at that magnitude because again we're still laying the groundwork.
We don't yet have shovels in the ground, but certainly we'll be able to maintain the kind of run rate we've had in the past of 20% to 30%.
But these projects are going to be multi-year, multi-phase projects that will, you'll see average annual spend drift up closer to $50 million.
And again as I said shortly after <UNK> started our hope is to get it to be about 5% of enterprise value every year.
So we'd like to maybe even see that drift up and it has to be for projects that pencil and that makes sense and that deliver the appropriate risk-adjusted returns.
We're not really seeing ---+ we're seeing clearly implied cap rates pressured up just based on where REITs were trading in the markets.
We're not seeing that kind of upwards pressure.
So certainly on the transaction front, whether it's things we're looking to buy or things we're looking to sell, the cap rates aren't going down, but we're not seeing some dramatic uptick in cap rates.
I would acknowledge that one of the reasons why we feel pretty good about our platform and where we're taking it is that these development projects that we're pursuing are higher yielding and that with our cost of capital of they certainly deliver very attractive returns.
But even if there was to be a little bit of inflation even if you were to see cap rates truly drift up, we would still be creating substantial value for our shareholders by pursuing these redevelopments.
So I would say that for now at least we're not seeing the kind of upward pressure that might be implied by where REITs are trading right now.
Yes, so for the full year we're looking at negative 1% to 2%.
In the last half people start taking delivery, we would start getting additional rent from that and start secure some of penalties.
A lot of the co-tenancies have a lag even after the cure they don't necessarily stop immediately.
I'm not going to tell you for the full year it's going to be in that range and it will be a little higher early in the year.
Again, for one quarter, <UNK>, $200,000 moves in 100 bps.
So it will be a little high ---+ on the high end of that range or even a little higher than the high end of that range for the first couple quarters most likely.
We would expect 2018 to normalize that.
The one thing I'd add we always do, our same-store box in imperfect metric, we do it on cash and try to make is as helpful and as transparent as possible and a few of those anchors will have some free rent period, but we expect 2018 to be much more normalized.
Not on all of them.
We think it will probably take a couple of years.
The stabilized yield will probably be in the [mid-7s] if not higher.
It is very exciting about what's going on in Wilmington and it's the name of the center at Christina Crossing.
But what's going in Wilmington right now, especially right around this property is that the group we bought this center from is primarily a residential developer and some office.
This is was their only shopping center asset and they're in the process of master planning and developing a significant amount of residential and commercial around this shopping center.
And so our merchandising strategy is oriented towards a lot of the improvements that are going to be going on around the property.
And more generally with what's going on in downtown Wilmington, this center is literally walking distance from the Amtrak station in Wilmington and is we expect going to benefit from a lot of the exciting residential development that's going on in downtown Wilmington now.
<UNK>, I don't mean to be to be sarcastic, but I would worry more about (inaudible) talking their own books and I would ---+ where cap rates are going in secondary markets.
I think that what we have seen and we have exposure to secondary market shopping centers and urban market, primary market centers.
And I could tell you that the cap rate relationship has endured.
We've sold assets in these secondary markets.
We've bought assets in these primary markets and we continue to see, call it 150 to maybe 200 basis points of cap rate spread.
Pretty consistently across those markets.
And so I could tell you, we just don't worry that much about it.
We still have conviction around our basic strategy which is that we can buy assets in our target markets, sell assets in our non-target markets and continue to migrate capital, reasonable cap rate spreads between what we're selling, and what we're buying.
Look, we have a terrific pipeline of potential acquisitions.
Just to give you a feel for how these off-market deals come together.
Mike Winters, who's in the room literally has been chasing after this deal for, I don't know, four years, maybe five years already.
Pretty much since I was here we've been talking about this deal and this being a market that we wanted to get into.
And so these deals take time, and it's very hard, sometimes to predict when the stars will align.
So the key is to have enough of these deals in the pipeline where something hopefully breaks your way in a relatively consistent manner.
So, we can't tell you which one it will be, but we can tell you that with enough of them in the pipeline that something will break our way.
And so look, we're optimistic looking out through the balance of the year just based on what we're working on and the various things are underwriting that we should be able to take down another two or maybe even three assets this year.
But again as Christina Crossing is a great example, it takes time and patience to land these deals.
<UNK>, I think we've already done that and maybe it would be helpful since we're concluding here to summarize, we are focused on grocery-anchored shopping centers between Washington DC and Boston.
And as it relates to portfolio transformation we continue to migrate our capital from low density markets to high density markets and we continue to pursue redevelopments of the assets that we own or that we acquire in these high-density markets.
And that's the strategy for Cedar and that's going to be the strategy for Cedar for the foreseeable future.
And hopefully, we'll continue to build this foundation for creating value over time.
I've been at the Company now for a little bit less than six years and we've gone from 140 assets to 60 assets, we've executed our strategy that's been reasonably clearly articulated to the Street and we will continue to execute on that strategy until we feel that we need to evolve that strategy as the marketplace evolves.
Thank you all for joining us this evening.
We appreciate your continued interest and support as we successfully transform this company to an owner of first retail assets in the highest density markets between Washington DC and Boston through our leasing, redevelopment and capital migration activities.
| 2017_CDR |
2017 | CORE | CORE
#Good morning, and thank you for joining us on our First Quarter 2017 Conference Call.
Our top line growth trajectory continued at a healthy pace in the first quarter, both in revenues and store count and we continue to make good progress on our core strategies.
However, our profit results did not meet our goals.
While some of the factors were outside our control, we need to continue improving our execution, especially hitting our productivity targets in 2 of our divisions that are involved with the integration of the 7-Eleven business.
I am confident we will get there and that is why we have reaffirmed our guidance today for 2017.
We have a strong organization, the right strategies to improve our profitability and continue our momentum in the marketplace.
I will provide a summary of the quarter and recent events and then Chris will walk through the quarter in details and discuss our outlook.
After that, we will take your questions.
I would like to start with a quick update on Rite Aid.
We are in deep discussions ---+ deep into discussions on a renewal of our contract.
As we discussed in our last quarterly earnings call, we expanded our product categories with Rite Aid and added dairy at their locations in Southern California and Northern California.
We will also be starting the planning process for delivering fluid dairy to approximately 700 stores in the Southeast.
We believe we will reach a mutually beneficial agreement in the near future and look forward to updating you at that time.
Now turning to the first quarter, we grew sales at a strong pace of over 16% and continue to gain market share with our net store count ending the quarter at approximately 42,000, which is up 8.5% year-over-year.
Despite this growth, we, along with other food distributors and retailers in our industry, face macro headwinds and challenges across our divisions.
These included bad weather in certain regions, higher fuel costs in the quarter, as well as continued overall weakness in consumer market demand.
These market dynamics are occurring at a time when we are scaling the company for growth.
Operating costs for the quarter were $30 million higher than last year's first quarter, including increases in cubic feet handle, higher fuel prices and miles driven, the addition of Pine State and infrastructure investment to support a larger company.
Our first quarter results also reflect the off-boarding of the 1,100 Circle K stores in the Southeastern region, that we previously announced.
Finally, the integration 7-Eleven stores continues to experience some challenges from a productivity and execution standpoint, particularly in 2 of our divisions where volumes have doubled.
The good news is we are making progress, although we know we have more work to do to get the execution and service levels improved and the cost right.
Taking all of this into account, adjusted EBITDA came in at $19.6 million compared to $24.1 million in the last year, which was one of the most profitable first quarters in the company's history.
As we look out over the rest of 2017, we see some real opportunity to better leverage our operating costs and refocus on the higher margin products to reach the financial goals that we have set.
We have some puts and takes in terms of off-boarding the Kroger stores, on-boarding the Walmart stores this month and absorbing the impact of the $2 per pack cigarette price hike in California.
Overall, we see significant growth potential and better bottom line performance ahead.
Bear in mind that the first quarter is historically our lowest EBITDA quarter of the year, typically under 15% of annual EBITDA.
As we move through the year, we are focused on leveraging our warehouse and delivery expenses through a number of initiatives.
We have plans to eliminate some inefficient stops and have mandated rerouting for all divisions to ensure our goal to reduce miles be achieved.
We also plan to leverage our largely fixed SG&A expenses to a greater degree, as volumes increase throughout the year and production levels and new hires increase.
As we improve the execution and new customer wins take hold, we have an excellent growth runway ahead of us.
As a result, we are reiterating full-year guidance for 2017 and we are fully committed to achieve our target of 9% to 14% adjusted EBITDA growth on a mid-single-digit sales increase.
Moving deeper into the quarter's results, sales of $3.5 billion included solid double-digit growth in cigarette and non-cigarette, and the strategically important food and fresh categories.
The strong sales volume is driven primarily by market share wins and additional volume from the Pine State acquisition.
Sales for the center of store categories and higher-margin items were softer than expected due to weaker-than-normal consumer demand.
We were able to rebound somewhat from a rough start in the first 2 months of the year and had improved performance in March that we are seeing continuing in April.
We remain very encouraged by our performance in our growth categories, which include food, up 11% and fresh, which increased 14% despite the macro pressure space.
Food and fresh are key elements of our core growth strategies and we believe they will help drive strong earnings growth going forward.
The largest challenge to earnings for the quarter were warehouse and delivery expenses, which increased 25% during the quarter.
The higher expense levels represent a significant amount of effort required on the part of our operations team to absorb the large increase in volume and execute with a high number of new employees.
We also increased comparable cubic feet of products shipped by 2.9%, increased deliveries by almost 7% and increased miles driven by 4.4% in the quarter.
SG&A expense grew 12%, but as a percentage of sales, declined 6 basis points.
We believe the investments we have made are prudent and will certainly pay off during the balance of the year, and in the longer term, as we observe these additional cost and volume increases.
I would like to provide an update on our core growth strategies.
Recently, several of our senior leaders attended and participated in a NCA State of the Industry Conference.
There was good discussion at the event of the current state of our industry and it aligns well with our core strategies.
A few important trends I wanted to highlight: first is the demand for fresh.
It's becoming clear that consumers are favoring products that have the appearance of being less prepared and are both fresh and convenient.
Secondly, is understanding consumers' growing focus on health and wellness.
C-Stores can no longer just replace product offerings, they must stay ahead of the curve in thinking about consumer trends and Good For You offerings.
Third is continuing innovation of the store experience, both in-store and out.
Competition is intensifying and broadening.
Other retail formats are emerging as warehouse stores, traditional drug stores, dollar stores, offer many of the products found in convenience stores.
Some retailers, like Walmart are even exploring the C-Store format themselves.
C-Stores continue to fare well competitively, but as operators, they need to think about their offerings.
They must understand that all types of retailers are looking to offer convenience and scale into smaller footprints.
Fourth, the growing dominance of e-commerce and the emergence of home delivery, both are driving new competition, while also creating opportunities for those who figure out how to harness digital solutions to drive greater convenience for customers.
And finally, trends in digital marketing.
The industry's traditional promotional awareness programs and campaigns have lost their effectiveness, especially with the millennial and future generations who have very distinct and different purchasing habits than C-Store core customers.
Helping our customers stay in front of these trends is critical to their success and our ability to anticipate and provide innovative solutions to these evolving trends is key to successful partnerships with our customers.
These are the primary drivers to our focus on our core strategies.
We continue to make good progress with our strategies and further differentiate ourselves in the market in which we compete and drive incremental financial returns as well.
Our vendor consolidation initiative and fresh food strategy both performed well in the quarter and generated $34 million in incremental sales.
The fresh category was led by dairy and bread product, which grew 21% and 13% over last year's first quarter and were the largest contributor to the growth of the fresh category.
We are committed to focusing on these opportunities that offer our customers fresh, healthy food that meets their changing demands.
We have several new programs and products to advance our strategy that I will touch on.
We have been working on a new pizza program to serve our customers that will feature crust made from scratch, 100% California vine-ripened tomatoes for the sauce, 100% mozzarella cheese with no preservatives and packaging made from recycled materials to offer a more sustainable footprint.
We anticipate the pizza program to be complete by late June and ready for launch in July.
We are also in the exploratory stages of looking at kiosk sandwich programs whereby sandwiches are made fresh in store for customers.
This is on trend with what consumers perceive as fresh, meaning they can see the product actually being assembled to order while they are in the retail location.
We are exploring for both national branded and private branded, as potential solutions.
We see this as a late 2017 to 2018 opportunity for Core-Mark.
Turning briefly to our Core Solutions Group, this is a critical part of our strategy to help customers gain a competitive edge and face the industry's challenges.
In the first quarter, we conducted over 800 FMI surveys with a greater than 60% acceptance rate.
We continue to see these stores grow their nonsurrogates at a higher rate compared to stores that have not participated and we continue to see a significant reduction in turn rates for these independent retailers.
We are accelerating the number of FMI surveys to be completed this year, which will assist us in reaching our financial goals for the year.
At the same time, we know that these surveys will assist our customers to grow their profits in a soft retail environment.
In closing, I would like to reiterate that we are focused on operational execution and the growth of the higher-margin products, as well as continued market share gains.
This means we must accelerate our core strategies in order to deliver the margin enhancement that will drive profitable growth.
We have the right approach in place, but we also have more work to do to better leverage our fixed costs and drive the productivity gains that we expect as we increase scale.
I am confident that we will get there.
The investments we have made to expand our business, build our infrastructure and innovate in our operations give us the tools to achieve our margin goals and deliver strong healthy returns over time.
With Walmart coming on board and our momentum in the marketplace being strong, our future is bright and we have tremendous opportunity to create shareholder value in the years ahead.
I will now turn the call over to Chris <UNK>, our CFO.
Thank you, Tom, and good morning.
We generated solid top line growth in the quarter, with total sales increasing 16.4% to $3.5 billion.
Our GAAP EPS for the first quarter was $0.05 compared to $0.12 last year.
Excluding the LIFO expense, EPS was $0.11 for the quarter compared to $0.17 last year.
The disappointing bottom line was due primarily to soft comparable store sales in the first 2 months of the quarter, combined with higher warehouse and delivery expenses related primarily to the absorption of the 7-Eleven volume.
Although EPS was below our expectations for the quarter, it is important to remember that Q1 is typically our weakest quarter.
At this point, we still expect to reach our previously announced sales and EBITDA guidance for the year.
I will touch on more ---+ I'll touch more on that later.
The healthy increase in sales for the quarter was driven mostly by market share gains in the Northern New England division we acquired last year.
Excluding the acquisition, our sales increased approximately 9%.
Sales to Murphy USA, combined with other market share gains including 7-Eleven, accounted for the lion's share of the remaining increase in sales for the quarter.
We saw strong growth in most categories and are especially encouraged by continued strength in strategic categories, even in the soft economic environment.
Starting with cigarettes, sales increased approximately 18%, driven by a 10.6% increase in carton sales.
Our same-store cigarette carton sales were down 3.8%, also reflecting a sequential decline from the fourth quarter of 2016.
This was slightly more severe than the decline reported by cigarette manufacturers for the quarter and mainly driven by significant tax increases in certain states.
Non-cigarette sales increased 13.5% during the first quarter, led by OTP sales, which grew over 17%.
The increase in OTP was driven by market share gains, the Pine State acquisition and the continued shift from cigarettes to smokeless moist tobacco products, which is a continuing industry trend.
We saw healthy growth rates in food, our largest volume commodity, which grew almost 11%, and fresh, which grew 14%.
Our same-store non-cigarette sales in both January and February increased less than 1%, but we're much stronger in March with an increase over 5%.
Same-store sales for the month of April were consistent with March, especially in the U.S. Further strengthening of consumer spending, coupled with our strategies, could provide a significant tailwind for the remainder of the year.
Gross profit increased $22.9 million or approximately 15% in the first quarter of this year compared to last year's first quarter.
We recorded $6.6 million of cigarette holding gains in the first quarter compared to $1 million in Q1 of 2016.
Cigarette manufacturers in the U.S. increased carton prices much earlier this year than last.
As this was expected for us, we were not able to build our cigarette inventories ahead of the price increase as much as we normally would.
However, we were still able to capture meaningful holding gain.
We do still expect the cigarette price increase from U.S. manufacturers in the second half of this year consistent with prior years.
In addition to the holding gains, gross profit for the quarter included LIFO expense of $4.2 million compared to an expense of $3.4 million last year.
Remaining gross profit, which excludes holding gains and LIFO expense, increased $18.1 million or 11.8% for the quarter.
Non-cigarette remaining gross profit increased $12.1 million or approximately 11%, while cigarette remaining gross profit increased $6 million or 13.5%.
Remaining gross profit margin decreased approximately 20 basis points to 4.9%, driven primarily by the addition of Murphy USA, given its substantially higher sales mix of tobacco products that have significantly lower margins.
We have now lapped this business so beginning in the second quarter, our gross profit margin will be more comparable.
Cigarette remaining gross profit margins declined 7 basis points due mainly to the additional volume generated by the net new market share wins.
Non-cigarette remaining gross profit margins decreased 26 basis points during the quarter.
Excluding the impact of the net market share gains and our acquisition, remaining gross profit margins for non-cigarettes were down 10 basis points.
Margins were also compressed by approximately 12 basis points due to the higher OTP sales volumes.
The sales weakness in January and February, which affected certain of our higher-margin food commodities, resulted in a reduction of our overall non-cigarette margins.
Because of this, we did not see the 20 to 25 basis point increase we normally expect each quarter.
However, we are encouraged by higher sales levels in March and April.
If these trends continue, we expect to see the impact in our margins.
Total operating expenses increased approximately $30 million or 21% for the quarter ---+ (technical difficulty) On sales growth of 16.4%.
As a percent of sales, OpEx increased 18 basis points in the first quarter of 2017.
Warehouse and delivery expenses increased approximately $23 million or 25% during the first quarter.
The increase in these expenses includes $6.6 million of operating expenses from our Northern New England division acquired in June last year.
As a percent of sales, warehouse and delivery expenses increased 22 basis points due primarily to significant cost overruns at 2 of the 3 divisions involved in on-boarding 7-Eleven and increases in fuel and employee health care costs.
SG&A expenses increased $5.9 million or 12% compared with the first quarter last year, including $4.3 million of expenses generated by the Northern New England division.
SG&A in the first quarter of 2016 included a gain of $2 million related to the settlement of a legacy lawsuit.
As a percent of sales, SG&A expenses decreased 6 basis points, or 11 basis points, adjusting for the legal settlement last year.
You may have noticed we had an income tax benefit of $1.2 million for the first quarter this year.
New accounting guidance went into effect at the beginning of the year.
In general terms, the new guidance requires us to recognize a tax benefit or tax expense, depending on the difference between our stock price at the time shares vest versus the price of the corresponding shares when initially granted.
If the price has risen, which was the case here, we recognize the tax benefit.
Conversely, if the price declines, we will have higher tax expense.
The benefit was $1.5 million in the first quarter of this year.
We will likely see the largest impact of this change in the first quarter each year because this is when the majority of our internal stock grants vest.
We still anticipate our full-year tax rate in 2017 to approximate 37.5%.
Our free cash flow, which is calculated by taking net cash from operations less net CapEx and capitalized software, generated cash of approximately $144 million for the first quarter of 2017 compared to net cash provided at $38 million for the same period in 2016.
The primary driver of this improvement was the sell-through of our cigarette inventory from the end of 2016, in both the U.S. and Canada.
We increased our purchases of inventory at the end of last year in order to maximize incentives.
In addition, we saw a reduction in non-cigarette inventory, driven primarily by the impact of the market share gains and losses and some year-end buys across several non-cigarette categories.
Our total long-term debt was $233.4 million at the end of the quarter, compared to $347.7 million at the end of 2016.
The free cash flow we generated in the first quarter was used to pay down our credit facility.
Capital spending totals $14.4 million for the quarter compared to $11 million for the same quarter last year.
The increase is due primarily to investments in the new consolidation Center in the Northeast.
We announced our quarterly dividend of $0.09 per share to be paid on June 22 to shareholders of record on May 25.
To summarize, a soft sales start to the year, combined with higher warehouse and delivery expenses, led to a disappointing bottom line in the first quarter.
But as Tom mentioned, the first quarter is a small contributor to our annualized EBITDA goal.
We feel comfortable reiterating our full-year guidance.
As a reminder, we are expecting revenue growth of between 5% and 7% for 2017 and adjusted EBITDA improvement between 9% and 14%.
The faster growth in adjusted EBITDA compared to revenue is due primarily to a favorable shift in sales mix to non-cigarettes, driven primarily by our core strategies and the leveraging of our operating expenses.
This financial performance will not be easy but we see enough opportunities out there at this point that allow us to believe our financial goals are attainable.
Some other more significant opportunities are: sales momentum, including market share wins; execution of our core strategies including BTI, fresh and FMI; and most importantly, leveraging our OpEx during a soft retail environment.
Additionally, if we see further strengthening of consumer spending as we are seeing in early spring, that could provide a strong tailwind for the remainder of the year.
At a high level, we are confident about the long-term course we are on to drive growth and improving profitability.
We believe the execution of our core strategies, coupled with our flexible go-to-market approach, uniquely positions us to continue to capture market share and to help our customers succeed.
And with that, operator, you may now open the line for questions.
Yes, no.
Again, to think how our guidance was created, we took into account definitely the start up for Walmart, the off-boarding from ---+ the off-boarding of the Circle K business.
But really our 2 main components of our business in the first quarter was 1 with soft same-store sales.
So for existing customers, we benefited from market wins that carried over into the quarter but we definitely had soft sales.
And then we definitely had severe cost overruns in 2 of our divisions that were servicing the 7-Eleven stores.
At the same time though, as our sales softened, our divisions needed to react much quicker to that softening and we have the thing called the iron bar where basically, if our sales and profit declines, gross margin declines, we have to reduce our OpEx in line with that fall off and so we just didn't react as quick enough.
So right now, we're really geared towards improving that execution.
And so really, those were the 3 components.
Yes, did we have off-boarding costs with Circle K.
Yes, we did, and that impacted it.
Higher fuel cost, health and welfare but really, the 2 divisions caught ---+ the 2 divisions' operating costs were much higher than we anticipated and that's our #1 goal, is to get those back in line.
Yes.
Definitely the first 5 months of the year have a lot of ups and downs, right.
Because we talked about the Circle K off-boarding, we talked about the difficulty with 7-Eleven absorption, we had the $2 per pack increase in California, Kroger coming off and Walmart coming on.
So all mixed together, once we get it all rolled out, we should see our margins get back to that basic of growing our non-cigarettes 20 to 25 basis points.
Once all that activity is flushed out, June will be the first clean month when all that activity is done and so I anticipate that to happen.
I think the, again, our focus is we have to be very focused on our 2 divisions with 7-Eleven and that's critical that we get them right as quickly as possible.
And so, that's really a high priority for us and we need to do that.
And so I think that the other divisions will get their expenses where we want them.
But the 2 ---+ 7-Eleven divisions are probably our most pressing issue right now.
Definitely, there are opportunities.
Definitely, there ---+ it's not as robust of an RFP environment.
2018 will probably be a little bit stronger than we're seeing in 2017.
But right now, we're pretty well set ---+ almost set from our own customers, so we really haven't had to go into any competitive bidding environment with any of our customers.
And I think time will tell, as we get into some RFPs for non-Core-Mark customers, we'll see how that is.
But again, our whole focus is financial discipline and we have to make sure that the decisions we make from a pricing perspective are in the best interest of the company and our shareholders.
And so that will always be, sort of the discipline we have to hold, as we look at potential opportunities.
I think one of them will be, but in a very narrow way.
So what we've done, because of the large number of items that are specific to Walmart, we've set up satellite warehouses to handle probably 70% to 80% of the volume.
So those are standalone operations.
So the nice thing is, those are really going to be operated by themselves.
So it should not have a material impact on any of our divisions that have the satellite warehouses close by.
So I think we've sheltered that and we definitely are very mindful in those 2 divisions, that our focus is on their core business with 7-Eleven and ---+ but ---+ and with the other group, to be able to handle the rollout of the Walmart stores.
Yes.
Really, our focus is to get it done in the next 2 months.
It is interesting, Ben is, we have been so focused on expansion and growth, right.
And now, as we've sort of seen a softening of our customer sales, same-store sales, we now had to get back to the basics of saying, now we need to, right, leverage our operating cross and really implement the iron bar.
And so we've been a little slow on that and so now we've sped up the process.
And so everyone has opportunity, right, to reroute, even those divisions in the Southeast that already did a reroute.
Now that we're, that was based on a ---+ expected sales performance from our customers, but now that, that's not where it should be, then we still have to go back and tighten those routes.
And so there is a lot of opportunity in that and so over the next 2 months, really, is our focus to get those implemented and start seeing the savings from reducing the miles we're driving.
Yes, so Ben, I would say that given where we ended the quarter ---+ and first of all, we will end the year with debt.
And I think it depends on ---+ if no other, I guess, transaction or new customers is added, I think we ---+ you could expect to see our debt level to come down a little bit by year end but maybe close to the $100 million, $150 million area.
It's a little bit higher.
So what we did see is, we saw sort of a buildup of purchases by our customers in the last 2 week of March and then we definitely saw a severe fall off in the first 3 or 4 weeks of April.
So right now, it's tracking a little bit worse.
The manufacturers estimate about an 18% to 20% decline immediately, and then get back to some normal cadence, 12% or 13% decline once all that shakes out.
But we're a little bit north of that 20% right now.
And so really, it's going to take a little bit of time to shake out.
That was a massive increase but we'd still anticipate that ---+ getting back to that normalized maybe a 12% or 13% decline, once all the noise and people ---+ the sticker shock is over with the smokers in California.
So we have ---+ so the 9-month trend, we'll go first to that.
So we really were fully rolled out in November for all the stores.
So our focus is to get the execution and the improvement or service levels where we need to be, and from a cost perspective, by the end of the second quarter.
So that's sort of in that 9-month trend there.
And definitely, we've seen ---+ you see a higher level of turnover in those divisions because of the large number of new employees.
So it's a sort of breeds upon itself.
As you get new employees, less productivity, people work long hours and then you ---+ and maybe people that aren't right for the jobs.
So as you stabilize, which we're seeing stabilization in several of the departments within our operations, you start seeing better productivity and less turnover.
And so that's really than 9-month trend.
But the second thing I think, and so, you put those 2 aside, which definitely had a significant impact on our expenses.
But in the other divisions, is we again, focused on off-boarding Circle K.
But we didn't react, right, as the sales stop.
In 1 month, okay, January is down, and you say okay, well it's going to come back.
And then the second month, it didn't come back in February, then that's when we need to be rerouting, right.
Focus on efficiency savings, et cetera.
And so we were very slow on the uptake on that, and I think, again, like I say, we sort of got, with all the expansion and growth is ---+ we've got sort of get back to the mode of running our business as we normally run it which is ratcheting down expenses and growing our profitable categories.
So that ---+ so significant cost, but not enough leverage in our other divisions and ---+ which would've definitely helped the quarter if we would've done a better job on that.
Not really.
Here's our focus, right.
Where our focus is to do more with less, but that is to just be more efficient because we definitely have inefficiencies within our selling organizations, that we can take some of the dollars that we're spending and really focus really on our FMI strategy.
Because what we know today is FMI is our ---+ really the strategy is our way that we open up the doors to vendor consolidation and price with our customers.
And our customers that have an FMI survey are much more profitable and successful and we are much more profitable.
So definitely, we want to accelerate the pace.
Annually we've been doing about 3,000 but our intent is to do more than that.
In fact, I think we're shooting for 4,500 new surveys, 4,500 surveys this year versus 3,000.
And so I think that's really our goal, and it's really just about reassigning resources to that key strategy.
| 2017_CORE |
2015 | VG | VG
#Again, just to clarify, the CPO, Omar starts actually this coming week, and Pablo started, again, about 10 months ago as CTO.
You're exactly right.
We see the UCaaS features cascading from Business into Consumer.
So that's absolutely a design paradigm in our product development.
In Business today, communications are multi-modal, video, voice, text, and they are device agnostic.
We see very similar things happening in Consumer.
There's also, clearly, mobile initiatives.
And if you look at Omar's specific background, having come from Qualcomm and Motorola Mobility, et cetera, he's a clear expert in mobile.
So the mobilization of what we do is a very key component as well.
And that's another piece of the puzzle as I think about the design paradigm.
The way we've described the changes in the broader Consumer business, is we think about them as two broad levers.
The first lever is to fix the marketing efficiency and churn vector, and we spoke about that today.
That's been very successful in all the things that I spoke about in my prepared comments.
The second lever is product, and we're building the team, led by Omar, to attack that.
Now, it's not just in Consumer, it also extends into the Business side as well.
So we're confident that in 2016, you'll begin to see some interesting changes in our product families that will more specifically address your question.
Thank you.
The situation hasn't changed very much.
We're still seeing a bifurcated market into ---+ which breaks into a small handful of companies that have, call it, more than $50 million of revenues, all on Broadsoft and tend to have different regional and salesforce strengths than what we have.
So very good opportunities there, and then a very long tail of smaller companies in the $10 million to $20 million revenue space.
In every case, what we continue to see are companies that have either founders or relatively tired investors on and are growing at around market rates.
But in order to grow faster, they need significant capital, and in order to compete in this landscape, which I think was referenced before, need capital and (inaudible).
So that opportunity for us and the need for them to ---+ for some ---+ for many of them to consolidate continues to be there.
I'd say the dynamic of us being the best buyer also continues, and essentially, I think the cost of capital advantage, the fact that we are a branded competitor, and that others have a dis-synergy in buying this companies continues to be the case.
Not everybody is realistic on price, but we believe that there are deals to be done that are very compelling and essentially are close to the value of the customer base and between synergies and what you're paying, you're getting some of these other strategic benefits along with the deal.
And in every case, the stuff we're looking at, or the things that we'll execute on will be substantially below where the UCaaS names trade on a revenue multiple basis in the market.
<UNK>, this is <UNK>.
You're right.
The narrative in the market is to de-emphasize the SMB space, and that is clearly not our narrative.
We think ---+ and so, first of all, as I said in my comments, 90% of employer-based firms have 20 employees fewer ---+ they're flipping to the cloud the fastest.
The way to win in the SMB market is to have low acquisition costs, which is what we have, I think, we're uniquely able to do that.
The way I've often thought about it is we have a ---+ we clearly have a terrific (inaudible) sales operation, but I would assume that's a replicable asset by our competitors.
What is not a replicable asset is brand.
And brand feeds the top of the lead gen funnel for us.
And that brand advantage that we have over everyone else in the market is extraordinary, and I think that's resulted in a lower acquisition cost.
So the subscriber economics for us at the low end are terrific, and that's the part of the market, which is the largest and the ---+ growing the fastest.
So while, yes, clearly opportunities are moving up market, and the LTVs there are greater because you've got less business failure, long-term contracts, et cetera.
And we've got ---+ and we're already there.
We have a huge presence with, now, our Vonage Premier family at the upper end of the market.
So our strategy is to serve both ends, and I think we're uniquely positioned to do both ends profitably the way we've addressed the market, as I spoke about in my comments.
Well, the ---+ sure, the ---+ as I mentioned just a few moments ago, there's two broad levers, which is the marketing efficiency and churn vector and then the product side.
The marketing efficiency and churn side is not just a cost play.
Clearly, there's a cost element.
We wanted to get rid of marketing dollars that were being spent unproductively, and we've done so.
But by virtue of reformatting from brand-based, now the direct response and digital in Consumer, the [CACs] are coming down such that you begin to consider putting your foot back on the gas because the ratio of LTV to CAC comes back in line.
Again, a year ago, it was out of line, but it is increasingly coming back in line.
So that's a clear piece of the puzzle.
Remember, we added quarterly, over the last three quarters, pushing towards 100,000 gross line additions each quarter.
So it's not like it's going completely away by any stretch of the imagination, so that's one piece of it.
The other side of it is the product side.
And, as I mentioned before, the reason we reorganized the product group and brought in Omar as Chief Product Officer to help drive it, is because we see opportunities to extend UCaaS products solutions down towards the consumer, other mobile solutions, and a whole variety of things that I'm not comfortable sharing at this moment, that I think could be those green shoots.
We're not going to see the results on the product changes until end of 2016, clearly.
But you're already seeing these green shoots, if you will, on the marketing efficiency and churn vector.
Yes, we don't break that out.
What I can tell you, just to give you a little bit more detail, is that the 38% organic growth rate that we talked about was diluted by the addition of SimpleSignal.
When we acquire a company, in every case, the company is not growing at 40%, it is not growing as fast as it will grow under us.
So when we do an acquisition, you see a lowering of the growth rate and, obviously, an increase in the ---+ of the organic growth rate ---+ and an increase in the revenue.
So without the addition of SimpleSignal, i.
e.
Between Telesphere and the old VBS, growth would have been above 40%, if that gives you a sense of the two products.
And I think <UNK> did say that the lower end of the market is adopting cloud faster.
It's also a much shorter lead time to add a customer at the lower end of the market or on the Essentials product.
Thanks, <UNK>, it's <UNK> again.
We have challenges every day.
Integration is a lot of work, and I always refer to it as the sausage making.
And what people don't see behind the curtain is think about some of the detail things you have to do when you bring these businesses together, particularly to think about VBS, Telesphere, and SimpleSignal.
Each had a separate contract [what made these master agents].
They paid their salespeople differently, they commissioned the channels differently, they sold each of their products under a company brand that were each themselves a bit different.
They might have had different billing systems, different lead-generation systems, on down the list.
So we are organized.
We have been very effective, and it's under <UNK>'s leadership to drive out the differences and to create commonality in what is now Vonage Business.
So when I spoke about in my comments whether all that foundational work that we've done in the quarter is just essential.
It is essential in order for us to be able to continue organically, but it also is necessary and essential in order to do yet again another acquisition because we have to have a stable base to bring it into.
We're getting there very quickly, but it's something that we attack at every day.
Sure, I would try to address that.
So the seat net additions we report in Business are the net organic additions of the business.
So the absolute count of seats includes, at the end of the quarter, includes SimpleSignal.
But the net additions do not include that.
So that, you can get the exact number on how many actual seats were added that way.
We talked about SimpleSignal adding about $12 million of revenue in the three quarters of this year, so its contribution in the second quarter was slightly less than a third of that, just given that it is growing.
And I did give you the math of how we would have grown in the 40s without the dilution of SimpleSignal, which, again, we believe, over time, with capital and our strategy we can re-accelerate.
Your second question, which was the burn on EBITDA for Business.
I would tell you that the margins for the Consumer business are in the 20s ---+ in the 20% range, which we think speaks to the long-term margin capability of that business.
So EBITDA in Business continues to be slightly negative.
We also have the brand spend, which we believe will actually benefit our entire business, although it is more focused on the business side.
But that's something that we're looking at more from a corporate perspective in terms of the spend.
Yes, so seats, if you look at what we report externally, seats, net additions, were 20,000 in Q4, 26,000 in Q1, and 29,000 in Q2.
That's all organic.
There's been no price actions taken at this point.
We don't have any price actions anticipated in the second half.
Generally, no.
I think that fundamentally the cloud and the UCaaS business has the potential, the capability, to have a higher margin, higher gross margin, than the Consumer business.
The only caveat to that is the fact that there is an element of access in our revenue.
But for Business this year, we talked about access being low teens percent of the revenue and, by definition, when you offer access, you get a three-year contract and quantitatively and qualitatively you get a very, very sticky low-churn customer.
So that continues to be a good trade.
That is with the access fees would be the only kind of structural difference there.
Otherwise, it ought to be able to be higher.
I would note that today we think we're very good at provisioning access because of the POPs we have, and the relationships we have with a number of carriers.
That being said, I think we've only scratched the surface on the synergy potential there as it relates to Vonage as a consolidated entity and our overall relationships with these carriers and what we can do on the access side versus what others can do.
Sure, and sitting here today is speculation because, as you said, we are in the land grab, and we're monitoring subscriber economics and costs per add very closely.
As long as we continue to see even close to what we're seeing today in terms of attractiveness, that means we're still in the land grab, and it's still very attractive, and we've got the capital to fund that.
And we will, clearly, give guidance for 2016 in early 2016.
All that being said, I'm sitting here today, I would say that we're not expecting any EBITDA contribution out of the Business business next year.
I'd look at that as a breakeven-ish type proposition because we're going to continue foot on the gas.
Because of our size, we're naturally going to have a better margin than we have today.
So we're going to have some natural benefit in there that ought to have, again, sitting here today, have us in the breakeven area.
And then we believe, in 2017, again, primarily based on size and scale, not so much the market slowing down, that we will be producing EBITDA out of our Business business, and have a significantly sized business.
I would also note, just thinking about scale, you've got to think about M&A, where we expect that we'll be participating in M&A in the near to medium term.
And so you have your organic growth, which has us on a certain trajectory but, scale-wise, you should expect that there would be some more revenue, have therefore some margin opportunity being added as well.
This is <UNK>.
There are different platforms, so not from a specific product point of view.
<UNK>, do you have anything to add there.
Well, I just think it's more of a ---+ as <UNK> addressed earlier, it's really that product mix.
We really sell them as a complete solution, and we are seeing, even at a single customer level, most have multiple locations and want both the Essential products at smaller offices and want the Premier products at larger offices.
So we really look at them as a single product, both utilizing the legacy Telesphere platform that was created as well as the legacy platform of Vocalocity.
Let me grab that.
Generally, no.
The key thing to understand is that we think that each platform is purpose-built for the market it serves.
So rather than having ---+ trying to have one size fits all, which we don't think is appropriate.
We've attacked the market with two platforms at scale.
Where we get great efficiencies is in distribution.
<UNK> owns all the direct sales and all the regional channel managers supporting all the master agents.
In those respective salespeople's ---+ in their sales bag is both Essentials and Premier because they're calling on customers regardless of size.
Okay, great.
Thank you, Liz, and that does conclude our call for today, and we look forward to speaking with everyone next quarter.
| 2015_VG |
2017 | IIIN | IIIN
#Thank you.
Good morning, and thank you for your interest in Insteel, and welcome to our third quarter 2017 earnings call, which will be conducted by Mike <UNK>, our Vice President, CFO and Treasurer and me.
Before we begin, let me remind you that some of the comments made on today's call are considered to be forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected.
These risk factors are described in our periodic filings with the SE<UNK>
All forward-looking statements are based on our current expectations and information that is currently available.
We do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
I'll now turn it over to Mike to review our third quarter financial results and the macro indicators for our end markets, and then I'll follow up to comment more on market conditions and our business outlook.
Thank you, H, and good morning to everyone joining us on the call.
As we reported earlier today, Insteel's net earnings for the third quarter of fiscal 2017 fell to $6.9 million or $0.36 a share from $13.5 million or $0.71 a diluted share last year.
Our results for the quarter were adversely affected by unusually weak shipments during what is typically one of the seasonally stronger periods of the year, together with narrower spreads due to higher raw material costs.
Shipments for the quarter were down 20.8% year-over-year and 7.5% sequentially from Q2 as compared to an 8.8% increase between the second and third quarters last year, reflecting the higher variability in demand we've experienced this year due to fluctuations in weather conditions and the timing of large projects.
We believe the volume drop off was driven by a combination of the unusually wet weather in many regions of the country, a lull in new project activity and competitive pricing pressures that were compounded by the weak demand.
Rainfall in the Southeast, Midwest and Northeast regions of the country was up 36% to 63% year-over-year for the quarter, which offset the more favorable weather in our largest market, Texas.
The resulting deferral of business from the construction delays should benefit us in future periods, although there's no way we can estimate the impact at this time.
Many of our customers were also negatively impacted by a significant slowdown in business during the quarter due to a reduction in new projects relative to work that was in process or completed.
The weakness appeared to be more prevalent in the publicly-funded infrastructure segment of the market and should subside in the coming months as the higher spending levels that have been authorized by numerous states and cities begin to have an impact.
Average selling prices for the quarter rose 3.5% sequentially from Q2 as a result of the price increases we implemented to offset the recent escalation in our raw material costs.
The amount realized was sufficient to provide for a slight sequential improvement in spread that fell short of our announced increases due to competitive pressures.
Gross profit for the quarter fell $10.9 million from a year ago to $16.7 million, while gross margin decreased 660 basis points on the lower sales to 17.2%.
More than half of the reduction was due to the drop off in shipments, about 1/3 was driven by the narrowing in spreads relative to the prior year and the balance was from higher unit manufacturing cost on the lower production volume.
On a sequential basis, gross profit fell $1.6 million from the second quarter and gross margin narrowed 90 basis points, primarily due to the reduction in shipments, and to a lesser extent, higher unit manufacturing costs, which were partially offset by the improvement in spreads.
SG&A expense for the quarter fell $0.6 million from a year ago to $6.2 million on lower compensation expense, primarily related to reduced incentive comp under our return on capital plan.
Excluding the incentive comp expense, our SG&A costs were down $0.1 million or 4.7% from last year.
Our effective income tax rate for the quarter was essentially unchanged at 33.9% versus 33.8% a year ago and 33.8% year-to-date compared to 34% for the same prior year period.
Moving to the balance sheet and cash flow statement, our inventory position rose $24.5 million from the second quarter, and was primarily responsible for the year-over-year reduction in cash flow from operations for the quarter.
Most of the increase was planned in response to the trade cases that were initiated by domestic rod producers as well as the potential tariffs and/or quotas that could result from the Section 232 investigation, with the balance resulting from the weaker than expected demand.
Based on our forecasted shipments for Q4, we ended the quarter with close to 4 months of inventory on hand valued at an average unit cost that was below the current market level but above the beginning average for the quarter as well as Q3 cost of sales.
These higher costs could pressure our margins in the fourth quarter depending on the relative strength of demand and our ability to raise prices further.
We ended the quarter with $37.8 million in cash on hand or about $2 a share and no borrowings outstanding on our $100 million credit facility, providing us with plenty of financial flexibility.
As we move into our fourth fiscal quarter, customer sentiment remains positive, project pipelines appear to be healthy and activity levels are expected to improve in the coming months.
The most recent reports for the Architectural Billings Index and Dodge Momentum Index reflect favorable trends that imply further improvement in nonresidential building construction in the coming year.
Yesterday, the American Institute of Architects reported that the ABI remained above the 50 growth threshold for the fifth consecutive month, rising to 54.2 in June from 53 the previous month.
Through the first half of the year, the index has averaged 52.1 compared to 51.2 for all of last year and 51.6 for 2015.
In June, the Dodge Momentum Index rose to its highest level in 8.5 years and the 3-month average which smooths out the usual month-to-month volatility, was up 16.7% year-over-year, reflecting similar increases in both the commercial and institutional components.
The most recent construction spending data reflects the continuing disparity between the private and public sectors and the relative weakness in infrastructure investment.
Through the first 5 months of the year, private construction spending was up 9% from a year ago, with nonresidential up 5.3% and residential up 12.4%, while public construction spending was down 3.5%.
Public highway and street construction, one of the larger end uses for our products, was down 1.3% following last year's modest 1% increase.
We expect that public sector activity will begin to pick up later in the year as the recent funding increases provided for through various ballot initiatives, fuel tax increases and other measures at the state and local level translate into higher infrastructure spending.
I will now turn it back over to H.
Thank you, Mike.
As reflected in this morning's press release, demand for our reinforcing products was weaker than expected during the quarter as well as compared to last year.
While leading indicators continue to reflect underlying strength in nonresidential construction markets with the prospect for future growth, adverse weather conditions in certain regions and project delays, particularly in the publicly-funded infrastructure segment of the market, combined to have a significant unfavorable impact on shipments during Q3.
The disappointing demand coincided with our efforts to increase prices to recover raw material costs that began escalating during our first fiscal quarter.
As we mentioned in the Q2 call, we expected the usual favorable seasonal factors would support these efforts.
Unfortunately, the seasonal pickup in demand failed to materialize and certain competitors elected to maintain or reduce their prices in the weaker environment.
Any incremental business that competitors may have gained through these tactics should prove to be short lived.
Looking forward, there are some indications that the seasonal uptick in demand may have gained some momentum following the July 4 holiday period as shipments have improved to a level closer to expectations.
However, we're likely to continue to experience some margin pressure until demand picks up to the point where the industry has additional pricing flexibility.
Turning to inventories, as Mike indicated, the pronounced build during Q3 followed the initiation of wire rod trade cases targeting 10 countries that supplied the majority of imports to the U.S. and the initiation by the Department of Commerce of a Section 232 investigation of steel imports.
We elected to increase our raw material inventories to bridge the transition to new offshore sources and to manage the risk of supply interruptions or dislocations that may result from changing conditions in the steel market.
In addition, our shipment shortfall contributed to higher inventory levels.
Based on our most recent forecast, inventories should be close to their peak level and are expected to decline through the fourth fiscal quarter.
We believe the rationale behind our decision to build inventories continues to be valid, and we're not uncomfortable with our position in view of its favorable carrying value relative to market.
Turning to CapEx, we previously indicated that we expected CapEx for 2017 to come in at approximately $25 million, while acknowledging that our estimates have tended to be on the conservative side.
While the timing of outlays is different ---+ difficult to pinpoint due to supplier and contractor schedules, we continue to forecast that 2017 expenditures will fall between $20 million and $25 million.
The scope of the anticipated projects has not changed as we continue to aggressively pursue attractive growth and cost reduction opportunities as rapidly as our internal resources allow.
Two major projects have been completed during the year, with the commissioning of new raw material, cleaning and PC strand production lines at the Houston plant and the new ESM production line at the Missouri facility.
These projects will have a beneficial impact on our operating costs, as well as expand our range of products, improve our quality and service, and increase our capacity to serve growing markets.
Looking forward to 2018, we expect to make additional investments in our ESM product line to further upgrade our technology, expand our product range and reduce operating costs.
We plan to pursue a number of other cost reduction and modernization opportunities as well, and we'll provide additional guidance on 2018 CapEx during our next conference call.
This concludes our prepared remarks, and we'll now take your questions.
Sonja, would you please explain the procedure for asking questions.
I don't know that there's any way that we could make a real valid estimation of that.
It's beyond our capability.
I wouldn't call it regional as much as it is focused on the publicly-funded sector.
We saw a slowdown in highway lettings that was reasonably widespread.
And as you know, we've also hit the end of fiscal years for governmental entities, which frequently come with funding lapses or funding slowdowns, and anecdotally, we believe that those factors were at work during this quarter.
Well, I would say really it means exactly what we said, that it is closer to expectations.
But that doesn't necessarily imply that it's robust.
No.
Yes, it's typically a timing issue where the work's deferred and we see a benefit at a later time.
Although it's always difficult to predict the timing or magnitude of the impact, especially in the current environment just with many of our customers dealing with labor constraints, it makes it more challenging to immediately ramp up.
So it could take some time for that benefit to work its way through.
That's probably a fair expectation.
I would say the biggest impact of the looming Section 232 is in combination with the trade cases that are being pursued on wire rod.
I think that there's a sense among the wire rod producers that they're going to gain some relative power through strengthening markets that are driven by these factors.
I would say that probably hasn't happened at this point.
But that would be the biggest impact on ---+ that I see on our business at this point.
There would definitely be a benefit for the ---+ from the budget being resolved in a timelier manner this year.
You may recall last year, there were a couple of short-term continuing resolutions that just created some uncertainty in terms of the FAST Act funding.
So ideally, Congress would be able to land on an annual measure this year.
In terms of the impact the FAST Act provided, just from relatively modest annual increases in the 2% range, so just in terms of the impact on our business, it would be relatively modest.
The bigger question marks the status of the additional infrastructure package where the level of uncertainty on that has obviously risen just with what's going on with the healthcare bill and tax reform and so on.
So the timing and end result on that's probably a little more uncertain than it was this time last quarter.
In answer to the first part of the question, yes, it's primarily domestic competition.
We compete with imports in one segment of our PC strand business but it's a fairly narrow and targeted segment.
So the overwhelming majority is domestic competition.
Our markets are regional and even local in nature.
And while we have competitors who are active in multiple geographies, generally we would take the view that these markets are local and regional.
Well, I would say first that no one should underestimate the competitive nature of this marketplace.
Our business is a highly competitive business, and our focus to gain advantage has been really on execution in our manufacturing opportunities and providing our people with the best possible technology both in our factories and through our information systems.
And as for what the future holds for margins, it's difficult to say, but I would point to looking over the last many years, absent the period of the Great Recession, that I don't think that there's any reason that we can't expect to continue to generate margins that are consistent with past history.
And as we continue to move our products up the value chain and add more value in markets where we can retain that value, then we would expect to see favorable margin results from that pursuit.
So despite the rather ugly comps that were reported today, we believe the future is good for the company, and that we're positioned to execute and compete very effectively in our markets.
So we're going to take advantage of the technological developments that will give us the operating edge in our manufacturing facilities, as well as to support our growth in our engineered structural mesh marketplace where there have been ongoing considerably important developments that will provide us the ability to lower cost and improve the range of products that we offer.
And then the other, of course, the other major part of CapEx that we've had during 2017 has been the expansion of our Houston facility, which is a onetime investment that will bring the cost of that facility in line with Insteel expectations.
So we have every confidence that our markets will continue to grow and support the CapEx that we need to make to maintain our competitive edge.
No.
I would say that the weakness we saw was across the board in all our product lines.
And within welded wire reinforcing and we have 3 different product families, each of which displayed weakness, as well as our PC strand displayed weakness.
The Wire Mesh Corporation expansion into South Carolina was about 15 months ago, is when they started up.
And certainly, they've had an impact on the market.
And the other expansion that is starting up as we speak is in Dayton, Texas on part of Sumiden Wire Products.
And yes, it definitely will have an impact on the market, particularly at a point in time when there's a lull in demand as we've seen.
This is not unexpected.
It's unwelcome, but it's not unexpected.
And we'll work through it.
And assuming that the PC strand market grows as it has in the past, and that there's a recovery in demand, we have every expectation that the market will absorb that capacity.
Well I think to the extent that weakness has been driven by weather, it's probably not as much Texas as it has been the rest of the country during the previous quarter.
But I wouldn't single out any particular region as an outlier.
The weakness has been somewhat across the board.
The comparisons for the quarter are all significantly impacted by the weather.
I mean, Texas ---+ in Texas, the weather conditions were actually more favorable than a year ago when we were dealing with a slowdown relating to the excessive rainfall and flooding.
So that actually moved to the positive this year.
And then in other regions of the country, it swung in the other direction.
In the Southeast in particular, the heavy rainfall, even up into Pennsylvania and the Northeast, had a pretty significant impact during stretches of the quarter.
Yes, I think we've, in the past, kind of limited that disclosure to Texas being our largest market, right in the vicinity at 20% of our shipments.
<UNK>, I would have to say it's the latter, that we haven't seen customers lay off employees and reduce operating hours during our third fiscal quarter in a long time.
And we did see some of that during the current quarter.
So ---+ and of course, while we can all read the weather statistics and we know what's going on, so much of this is anecdotal that it's difficult to quantify except we talk to our customers and we see what they're doing and we see ---+ we're aware of what they're bidding or what they're not bidding at the time.
So I think that, certainly, weather has exacerbated the situation for our third quarter, but there's also just been a lull in demand.
And I think it has been focused mostly in the publicly-funded sector and would probably have its origins around funding questions.
Again, it would be discussions with customers.
And then you have the backdrop of some improved funding on the parts of states who have taken the funding matter into their own hands to address their shortfalls.
And we've seen over the last couple of months that the level of momentum in our markets has actually begun recovering.
So if we take all of those factors and assess them as a whole, it appears that we're seeing a recovery in those markets.
And in terms of ---+ just in terms of the sequential trends, May was clearly the low point for us during the quarter in terms of the year-over-year reductions, in that it fell off some in June.
We were still down from the prior year, but it fell off from what we experienced in May.
And the same holds true for July, so far.
So I mean it's moving in the right direction, but it's still not all the way back to what you'd expect for this time of year.
No.
Other than ---+ it's difficult to precisely quantify other than just looking at the comparisons between the rainfall levels and the change in shipments.
And then you have to adjust for any customer-specific issues in either direction.
So I mean in the case of that region, we did see a reduction in shipments overall, but I don't know that we can parse it down to that level though.
Thank you for your participation in the call today.
We appreciate your interest and don't hesitate to call us back if you have follow-up questions.
Thank you.
| 2017_IIIN |
2015 | CRI | CRI
#As it relates to the spending question, there is a little bit of catch-up where some spending will likely move from the third quarter to the fourth quarter.
And on balance, we've been behind in our hiring plans.
It's taken longer to fill some key positions.
And we certainly ask the organization to pull back a bit on hiring activity, given the unevenness of the consumer demand.
So my guess is that hiring picks up a little bit.
We do have a number of technology initiatives as well that are pressing ahead.
And some of that spend falls into the fourth quarter.
We have increased marketing as well.
So that's been a kind of a conscious decision all year long to invest additional amounts in marketing.
Certainly the 53rd week works against from an earnings contribution point of view, the overall effects of foreign currency.
There is a net negative effect on earnings that hits the fourth quarter as well.
I'd say those are the primary reasons why perhaps the earnings guidance isn't higher than it would be otherwise.
As it relates to the international business, our agreements are to sell products in US dollars.
So we don't, per se, have an FX exposure there.
The assumption is, is that we'll be successful opening up 250 of these side-by-side stores over the next five years.
Each of the side-by-sides on a combined basis do some portion of about $2 million a year with good returns.
So that's the basis for the $500 million assumption.
Thank you.
Well here's directionally what we know, is probably with eCommerce in recent years, our US eCommerce business, over 40% of the demand on the US eCommerce business was coming from outside of the United States.
That was an unexpected benefit.
And then in our stores, I don't know about back to 2012, but we've always had a big international guest in our stores, particularly in the tourist locations.
Both brands, it was a common experience to be shopping down in the Orlando or Dolphin Mall stores, Sawgrass Mills that you'd see customers from outside of the country.
Our understanding, a lot of customers from Brazil queued up to check out with suitcases, loading up and bringing a lot of product back to their family.
And so in the stores, our best information is the level of international demand was probably in the stores, some portion of 15%.
It's probably closer to 10%, based on our latest analysis.
In this most recent quarter, third quarter, international demand on our US website went from over 40% closer to 30%.
So it was significant.
It was quite significant.
I would say I'm certain we had felt some impact from it.
I would say it was most significant in the third quarter this year.
And as we looked at the change in exchange rates that we started to see it last year, but it didn't have a, I would say, a material effect on our business.
I would say it did in the third quarter.
And I think time will tell, depending on how the exchange rates move in the balance of the year.
It's hard to predict.
But so far in October, I think we're doing okay.
I would say on average the tourist, tourist use of coupons is less than domestic consumer.
A lot of these folks are on vacation.
Their spend is larger.
They tend to come in and stock up.
Some of them have counter-climates than we do.
And they tend to come in and stock up.
Because they come once a year or twice a year for the product.
But the coupon dilution is less with international tourists.
Thank you <UNK>.
Well thank you all for joining us this morning.
We appreciate your questions and your interest in our business.
We'll update you again with our progress in February.
Good-bye.
| 2015_CRI |
2016 | AAP | AAP
#Well, first of all, we have the industry-related market share tools that are out there.
We do use those.
I wish we had more, but I use what's available.
So we see that once a period.
I see it Wednesday this week, for the purposes of the most recent period.
And we've been watching it very closely, and we watch it by geography, we watch it by category, all of the things that you would expect there.
And we have seen, I would say, relatively uniform improvements on it.
I mean, you've got pluses and minuses, as you always will.
But we've seen the sequential improvement come fairly uniformly.
Share, yes.
Great question, <UNK>.
I mean, I went up there fairly early on, because we were really struggling ---+ I think May, something like that, May or June, I went to a couple of the facilities we have up there.
What we did is, we tried to impose a bit of a cookie-cutter approach to those distribution centers.
And they really weren't engineered to do it.
We had more stores than we should have assigned to them, at a delivery frequency that was very difficult for them to execute flawlessly.
And that created a very chaotic environment in the distribution center.
We weren't able to fill orders properly.
There was accuracy issues.
Yes, we were delivering 5X to the stores, but if you ask the general managers of those stores, they would have said: please stop doing this.
Because we were just ---+ it was a bit of a Lucy Show-type thing going on.
We just had stuff coming in and out, and in and out.
And we weren't getting the right part to the right place at the right time.
So we essentially unwound that.
We went to 3X in those distribution centers.
We got into a much better cadence with the stores.
We executed our first one in August, okay.
Then we went in September, in the second one.
We've now done all of them.
So there's transition costs that we've incurred in the last couple of ---+ in the third quarter ---+ and will incur in the fourth quarter, by the way, as you move to this new system.
And we're seeing much better fill rates, like significantly better, much better accuracy, and the general managers are much happier, and they're selling more.
So it just goes back to, the customer wants the right part in the right place at the right time.
The customer doesn't say: hello, have you got 5X.
They say: have you got the right part.
And when we're able to fulfill that part, regardless of how we got it there, that's what they're looking for.
So I was in both of those facilities in ---+ what's this, October ---+ I was in there in October.
Totally different place.
There's not stuff all over the place.
We've got clean aisles.
I can see down the aisles.
That's kind of important to me in a distribution center.
I don't want to see stuff laying on the loading docks.
I mean, I tip my hat to the teams in those DCs, because they've really worked at it very hard.
And as a result, our customers are much happier.
Sure.
Well, first of all, I'd call out zero-based budgeting, <UNK>, and I do have some experience with that.
I love it.
It's a terrific opportunity to really standardize how costs are managed across the organization.
And I would consider what we have in there a AAA bond.
It's really about getting horizontal views of all of the costs that you have across the enterprise, as opposed to each cost center manager managing their costs in more of a vertical fashion, and us saying: gee, can you do better.
It isn't a do-better exercise, it's a change-the-physics exercise.
We're not managing those costs the same way anymore, and we're asking people to look at the costs in ways they haven't been looked at before.
So those costs, we've got a very clear idea.
<UNK> is running the control tower.
We're very clear on where those costs are coming out.
They're across the P&L, <UNK>, so I can't call out specific things.
They're really throughout the entire P&L.
The supply chain obviously is a big area of opportunity.
We just talked about one here, 5X to 3X.
You deliver parts three times a week instead of five times a week, it costs less.
And unless you have a really good effectiveness reason for doing it, which we didn't in that case, when we go from 5X to 3X, we save a lot of money.
So we're going to continue to look for those types of opportunities.
But it's those types of things where, as I said earlier, the cost is coming out.
It's not volume-dependent or revenue-dependent.
What do you mean by the trade-off.
I think it falls into the camp of my earlier answer.
I don't know that there was a lot of rigorous analytics done.
I don't know that we looked at the DC itself, and how many dock doors they had, and how many stores they were servicing, and delivery frequency.
We just felt that, that was a solution that could work everywhere, and it doesn't.
That's kind of the short version on that one.
It varies.
It varies by market.
We have different cadence for super hubs and hubs throughout the network, as we do for stores.
Was the question the mix of the parts.
Yes, again, we look at it market by market, looking at the VIOs, the vehicles in operation there.
And we're seeing a good mix of all makes, all models, at the store level.
And importantly, because many of the stores have access to the Worldpac assortment, we're measuring all that activity, and then basically working with the merchandising team to push those parts closer to the store, so they will get is closer to the customer without having to have that extra touch.
We're seeing, again, a good cross-section of parts there, mostly Asian versus high-end European ---+ which of course, is a Worldpac.
But I would say for the most part, domestic, Asian and certainly some European, Volkswagen, some Audi, and so forth.
But it's a good mix.
But importantly, when you go to the market there, we're going to the customer with the answer of: we have all of it ---+ all makes, all models, across the entire enterprise, and we're bringing that closer to the customer.
So as that develops and evolves, we'll continue to build the inventory to support that activity market by market, capturing all the look-ups on the online, which we do at Worldpac today, and certainly capturing all the call-ins as well.
That's going to be dynamic inventory.
Whatever the calls are out there for the customer development side, we're going to have the part closer to the customer.
Okay, so I really appreciate everybody coming this evening, and the interest you have in our business.
I'd just wrap it up by saying, we absolutely believe that AAP is a very compelling investment opportunity.
The industry is performing well.
We're in a compelling market position, we feel.
There's a tremendous opportunity for us to drive growth and margin expansion.
I think you've seen that the team is executing a pretty focused agenda going forward.
We're aligned around the plan.
So, big opportunity to drive substantial shareholder value, and that's our commitment to you.
So thanks for coming tonight.
| 2016_AAP |
2015 | WSM | WSM
#Okay, hi, Dan.
Regarding the tax rate, no, we were not aware of that when we first gave out our guidance.
Obviously, there are things that change, as you go through any quarter.
And there's variability with your tax rate, and obviously this was a good guide for us, so that's a positive.
On the flip side, we also didn't expect this incremental supply chain costs.
And so thankfully, we had this, and we still landed a very solid quarter at $0.58.
The second part of your question, Dan, I will take that, about the macro.
And look, we're watching the markets along with everyone else.
It goes without saying that a significant and sustained pullback in the stock market could lead to a reduction in consumer confidence and impact the discretionary spending landscape.
But that being said, our demand has been strong all year, particularly our furniture business.
And recent economic reports in housing and consumer confidence are positive.
And I believe our brands are well-positioned to gain market share in the second half.
I will take that, it is <UNK>.
I think the labor cost we are expecting is going to be predominantly in Q3, as well as the shipping cost.
Obviously, Q4 has got a lot of noise going on with it, given it is the holiday quarter.
So there will be things going both directions from that.
But it's specific to this incremental investment, labor, we expect ---+ and shipping, primarily, we expect to be in Q3.
The investment in the inventory tool is obviously ---+ is a multi-year investment, but we will be rolling out enhancements as we move even through this year, and through the next year or two.
I think that the big thing to remember is that shipping furniture and large [cube] has always been a competitive advantage of ours, and a big differentiator.
There's a lot of people who sell stuff, and have websites.
And if you can do that really hard thing well, you put yourself ahead of the pack.
And it is just really crystal clear to us that customer service in this area, in high touch, is incredibly important.
And honestly, while the port disruption was extremely difficult, the good news is that it caused us to re-examine every single element of our supply chain.
And we have identified significant opportunities to improve service levels and, over time, drive down costs.
Yes, we were disappointed that we were not able to completely offset the big launches in electrics in Q2 of last year.
Last year, we had our big Nespresso and Vitamix launches in the quarter, and our cookware, I know as I said, a lot of our proprietary businesses, were very strong.
But they were not strong enough to completely offset those releases.
And why we are confident that this is going to improve is that we have more releases in electrics, and across all of our businesses, as I mentioned earlier, towards the back half.
Also, one of the other businesses that was a disappointment, further than what we planned [down] on our outdoor business.
Because frankly, the market has been saturated with a lot of outdoor cooking items, and we did not see enough real innovation to invest in that.
And we didn't want to just drive mark downs.
So we pulled that back, probably a little bit too far, frankly.
And that's an opportunity for us, going next year, to drive more innovation in that area.
And also, obviously, it is not as big a part of the business in Q3.
I think we have a very exciting lineup for that back half, both through Q3, our Thanksgiving entertaining assortments and food stories, as I said on the prepared remarks, are very strong.
We have a lot of key big money introductions.
And then Q4, it's very competitive, obviously, to talk about the specific product lines.
But I think we have a lot of opportunity, not just with the product line, but peak season execution, and providing our customers with a great experience.
And being more efficient, frankly, than we were last year.
Sure.
Yes, gross margin was actually down about 70 basis points.
And 50 basis points, as we said, was due to the port, with the higher shipping and fulfillment-related costs.
We also have in there ---+ which I know creates a little bit of noise ---+ but when we have higher franchise revenues, technically, that puts pressure, so to speak, on the gross margin, because it is a cost-plus model.
And so it impacts the gross margin, with very few costs in SG&A that drops down to a higher profitability at the op margin level.
And so you're seeing about 20 basis points of impact, within the gross margin level, for that.
We also had some higher fulfillment-related costs that were primarily offset with the 40 basis points of occupancy leverage.
But I think the really great news, which is unfortunately under the covers ---+ you guys cannot see it ---+ is that the pure merch margins are essentially flat to up.
And I think you've been hearing me say that now, for a few quarters.
And what that tells us is that the health of the business is great, and that the fact that our long-term initiatives, such as the insourcing of our foreign agents, is working.
And so that is a really great story.
I think unfortunately, we have the noise of these higher shipping costs that, over time, should improve.
And as you had mentioned, with the occupancy leverage, these pure merch margins that are flat to slightly up, and then the shipping costs going away, we should see improved margins over time.
The retail profitability was about 10 basis points, and that was primarily due to occupancy leverage.
That was the biggest driver.
But the retail revenue was both from the new West Elm stores that outperformed, and the incremental acceleration of both our franchise and Company-owned stores.
If you are talking about the revenue line ---+
Yes, we're really focused on total brand performance.
And so we are actually really pleased with the results of both channels.
I know there's been some focus on e-commerce, then we had a 9.1.
But with total revenue growth of 8.5, we have strong growth, effectively, in both channels.
And so obviously, sometimes, the customer is going to want to shop online, sometimes they want to shop in the store.
And we want to serve them wherever they want to shop.
So I really would not read anything more into it than that.
Yes, what I said earlier is the ---+ whenever you have something that happens that's significant, you learn a lot, and you get into it.
And we see opportunities to both be better in-stock, and then to cut overstocks, hence our inventory optimization initiative.
And as I think you all know, we've regionalized our network, and that's a big change from the way we used to run it.
And so we have a lot of opportunity to understand better customer demands by region, and get the product there, in the first time, in the right place, and the supply chain is critical.
Customers have a lot of choices.
And the ---+ it is one thing to buy something; you need to have a great experience.
And so as we've gotten into this, we have seen this is a strategic investment that is so important to the core of what we do, which is to serve our customers better than anyone else.
Yes, our promotional calendar has been strategic and competitive.
We plan it in advance, and assess it on an ongoing basis.
Our posture is to be competitive.
We expect to continue to take market share through the back half of the year.
And the reality is, the competitive environment is a reality.
And we've talked about before, we've anticipated this, we've made changes in our supply chain that allow us to be more competitive.
Most notably, the insourcing of our foreign agents, our in-house product development.
And we are focused on giving our ---+ most importantly, our customers, inspiring and innovative products at great prices.
From a sales impact for the port, I guess the good news is that it was less than what we anticipated.
We haven't really quantified it, because the farther out you get, just like when we said in the Q4, the beginning of it and the end of it, it gets really murky as to what's causing what.
And so we believe that there was definitely an impact in Pottery Barn Kids, which is what we had expected.
But it wasn't anywhere near where we thought it would be, in the range of the $5 million to $10 million.
And so it really was, for us in Q2, the port story was about higher shipping and fulfillment-related costs.
The second part of your question.
I'm sorry.
On the macro, as I said earlier, we are three weeks in.
We have a Labor Day shift, we've had a lot of market volatility.
We never read too much into short-term volatility or changes that are based on volatile markets.
We've seen it before.
But the balance of what we are seeing is that we have a strong lineup for the balance of the year.
The key aspects of our business that differentiate us haven't changed from our strong brands, our multi-channel model, our superior supply chain.
And we are focused on profitable growth.
I think that holding yourself to a high level of profitability forces a discipline that ensures success.
And so regardless of what happens in the macro, we believe that we are poised to take share.
So I think ---+ we're trying to understand your question a little bit.
But I think on the costs that were incurred in Q2, we did say earlier that that will continue.
It is not necessarily related to the cost of getting a 6.3 comp, if that's what you're alluding to.
It is really the incremental cost associated with the port, the higher shipping and fulfilment costs.
But also this incremental supply chain labor costs.
And those will continue, to some degree, into specifically Q3.
Maybe a little bit in Q4, but predominately Q3.
But not at the same levels that we have been trending.
That's hard to (laughter) disaggregate.
Who knows.
(laughter)
Yes.
No, no, not at all.
I want to thank you all for joining us again today, and asking great questions, and thank you for your support.
We will talk to you next time.
| 2015_WSM |
2017 | AVA | AVA
#Well, thank you, <UNK>, and good morning, everyone.
We're off to a good start in 2017 with consolidated earnings above our expectations.
Our higher earnings in the first quarter were mainly from increased hydroelectric generation, which put us in a benefit position in the Energy Recovery Mechanism in Washington, and lower-than-expected operating expenses.
During the first quarter, we experienced a high amount of precipitation in our area.
In fact, March was the second-wettest March on record in Spokane.
And since October 1, 2016, the Spokane area has seen almost double the normal precipitation for that time period.
Wet weather also occurred in the Upper Clark Fork area, and this has led to the fourth-highest amount of hydroelectric generation that we have experienced during the first quarter since 1989.
Going forward, we expect slightly above average hydroelectric generation for the remainder of the year.
AEL&P had another solid first quarter with earnings slightly above our expectations, primarily due to increased electric loads from colder-than-normal weather.
One of the operating highlights of our first quarter was we received the Edison Electric Institute's 2017 National Key Accounts Award for Outstanding Customer Service.
The award is given to electric companies that provide superior service to national, multisite energy customers.
Avista was 1 of only 8 recipients chosen by customers in a nationwide open ballot process.
We're proud to be one of the few utilities in the country to receive this award, and this is an acknowledgment of the incredible service our employees provide to our customers.
Looking forward to the rest of 2017.
Our focus continues to be on regulatory matters.
During the first quarter, we had constructive meetings with members of the Washington commission regarding our continued investment in our utility infrastructure and expectations for future general rate cases.
We intend to address their concerns by filing a general rate case with 3-year rate plans for electric and natural gas in the second quarter.
We also plan to file a separate request to update Washington power supply cost, requesting approximately a $15 million revenue increase.
We are requesting that the power supply update become effective in the third quarter of this year in order to begin recovering our power supply cost for 2017 under normal operating conditions.
In Idaho, we intend to file electric and natural gas general rate cases during the second quarter.
In Oregon, we've reached a settlement in principle to our 2016 general rate case.
A settlement agreement will be filed with the Oregon Public Utility Commission in the next few weeks.
Based on our earnings for the first quarter of 2017 and our expectations for the remainder of the year, we are confirming our earnings guidance range.
So at this time, I'll turn the presentation over to <UNK>.
Thank you, <UNK>.
Good morning, everyone.
We had a great quarter, off to a good start, like <UNK> said.
But I do have some sad news to report, my Blackhawks got swept.
So I'll be grouchy through the rest of the call because the Hawks are out of the Stanley Cup Playoffs.
For the first quarter, Avista Utilities contributed $0.90 per diluted share compared to $0.88 last year.
And the increase in earnings is due to general rate increases in Idaho and Oregon, customer growth and lower operating expenses, partially offset by expected increases in depreciation and interest expense.
On a capital expense basis, we continue to be committed, as <UNK> said, to investing the capital on our utility infrastructure, and we expect our capital expenditures to total about $405 million at Avista Utilities in 2017 and about $7 million at AEL&P for 2017.
We continue to have strong liquidity as we have a $253 million of available liquidity under Avista's committed credit line and $25 million of availability under AEL&P's committed credit line.
In the second half of 2017, we expect to issue up to $110 million of long-term debt and up to $70 million of common stock in order to fund our planned capital budget and maintain an appropriate capital structure for the year.
Moving on to earnings guidance.
As <UNK> said, we are confirming our earnings guidance to be in a range of $1.80 to $2 per share at Avista Corp.
We expect Avista Utilities to contribute in the range of $1.71 to $1.85 per diluted share for 2017.
The midpoint of our guidance range does include approximately $0.07 of expense under the Energy Recovery Mechanism, which is within the 90-10 customer and shareholder-sharing band.
As <UNK> mentioned, we had stronger hydro.
And so our expectations for the ERM is ---+ has improved $0.01 to $0.02, and we expect to be in the 50-50 sharing band.
Now the difference that you'll see for this year is, as of the first quarter, we were in the benefit position under that.
And that is going to reverse throughout the rest of the year and end up in the expense position in the 50-50.
Our outlook for Avista Utilities assumes, among other variables, normal precipitation and temperature, but we do assume slightly higher-than-normal hydroelectric generation for the remainder of the year.
Our 2017 earnings guidance continues to encompass unrecovered costs on return on equity of 70 to 90 basis points.
And in addition, as we reported before, our guidance range continues to have regulatory timing lag directly associated with the Washington rate case from 2016 of 100 to 120 basis points.
This results in an expected return on equity range for 2017 at Avista Utilities of 7.4% to 7.8%.
We continue to work on reducing that timing lag and provide ---+ more closely align our ERM returns with those authorized in our 2019 to 2020 time frame.
And as <UNK> mentioned, we intend to file a multiyear rate case, and we can talk about that as we continue with the call.
For 2017, we expect AEL&P to contribute in the range of $0.10 to $0.14 per diluted share.
And our outlook for AEL&P continues to assume normal precipitation and hydroelectric generation for the remainder of the year.
We expect our other businesses to be between a loss of $0.01 and a gain of $0.01 per diluted share, and that does include the costs associated with exploring strategic opportunities.
Our guidance generally includes only normal operating conditions and does not include any unusual items as settlements or acquisitions or dispositions until such things are known.
Our guidance also does not include any amounts related to our potential power supply updates that <UNK> mentioned we expect to file for 2017.
I'll now turn the call back to <UNK>.
<UNK>, this is <UNK> <UNK>.
The commission's last order on reconsideration came out February 27.
So immediately following that, once the case was finished then we were open to be able to go in and have a conversation with the commissioners and the commission staff.
And we have had multiple conversations individually with not only the commissioners, but the commission policy staff and then also the commission energy staff, which is a separate party in the case.
So we've had multiple conversations as well as had a meeting with all the parties in our most recent case.
And all of that is really designed to gain a better understanding of what the commissioners' interests are and what their needs and expectations are going forward.
And so those meetings, I would say, have been very constructive.
If you look at the last order, the commission indicated an interest in multiyear rate plans, and so that will be our plan moving forward is to file a multiyear rate plan.
As we talked with them about other concerns that were expressed in the order, one in particular was capital investment.
And what we've learned there is ---+ we've told them clearly what we're planning to do.
They're looking for more information about why we're doing what we're doing in terms of capital investment.
And so that was also helpful as we go forward.
So then as we look at other issues that were raised in the case, one is advanced metering infrastructure.
In the order, they indicated they were open to an accounting petition to allow us to set aside those costs for future recovery.
And so we filed earlier this week a petition with the Washington commission to set aside the costs associated with our investment in advanced metering infrastructure.
And of course, that's a 5-year project beginning this year.
So by having deferred accounting, that would allow us to set those costs aside for future recovery.
And so we're hopeful that they'll ---+ the commission will approve that.
Also, as we look at other opportunities to make progress this year, we've decided to file for a ---+ what we're calling a power cost update filing, which will be made at the same time as we file our general rate case request.
In the past, the commission has entertained that type of request where we can reset base power supply costs on a shortened time frame.
Puget Sound Energy has what they call a power cost-only rate case, where in between cases they can update their power supply costs.
So this proposal would be similar to that.
So by filing that, there is an opportunity to have the commission address that and potentially approve that by the third quarter of this year, which would do a couple of things.
It would reset the base power supply costs and the base for the Energy Recovery Mechanism.
It would also make some incremental progress toward getting the rate relief that we need in this next case by getting part of that this summer.
So all in all, I would say that the conversations with commissioners, commission policy staff and commission energy staff have been constructive and have helped confirm our plans moving forward for our next general rate case.
So <UNK>, as we well know, there's lots of things happening in the electric industry around distributed energy, around storage, around digitizing the grid, around sensor technology.
We were 1 of 10 cities designated as a smart city by the feds.
What we're doing is what we've traditionally always done around innovation, which is a big piece of our company and our culture, what we're doing is we're leaning in.
We've got some ---+ our best and brightest engineers who are looking at things in our Urbanova smart city around what we can do there.
We're doing a lot of interesting things as we start to deploy AMI and what does that mean.
The new Itron meter is very unique.
It\u2019s ---+ we\u2019ll be the first utility putting that meter in, which is in essence like a smartphone going on a residence or a business.
We're continuing to explore our storage that we have in Pullman.
We're continuing to digitize not just Spokane, but across our electric system and upgrading.
And we're doing some work on sensor.
So I guess, what I would tell you is by doing all of that and having that traditional history of innovation here, I don't know if we're going to come up with an Itron.
That really isn't necessary our plan.
But what our plan is, is to make sure that we are being progressive and innovative and looking at opportunities to better serve our customers.
When we have started successful nonregulated businesses, our history is we started them because we solved a customer issue and provide better service.
So whether it was Ecova or whether it was Avista Energy or whether it was Itron, it was all around meeting our customer needs.
So we're going to do that.
And if something happens because of that, we have a history of being able to monetize that.
But again, we're not going to force the issue or do something where we're going to overly get aggressive here.
So I hope that answers your question.
<UNK>, I don't really see it as being anything near term at all.
Let me remind you a couple of things, when we did Ecova, it took us a decade to earn $0.01 a share.
So these kind of ---+ not necessarily that it is something that maybe the next one would be different.
But as you know, these take a lot of time, they take a lot of capital.
And fortunately, utilities can be patient capital.
Let me remind you, we also have ---+ we're looking at new technologies.
We invested in that ---+ we put $25 million into that technology fund.
So we're having great insights into other technologies that are happening in the space.
So again, I just want to say is that we do not have in our forecast any retail revenue coming from nonreg businesses.
That's not what we're going to do.
But again, we lean in, we look, and I like our track record.
So if something did happen, we would have the courage to step out, but we don't see anything near term doing that.
But we're going to continue to lean in and let our engineers do what they've always done, which is innovate.
No.
If you get your power supply cost revisited, how much of the headwind could that alleviate.
Well, if so, we expect to file $15 million.
And as <UNK> said, we expect it to go in the third quarter.
If it went in, say, September 1, for example, and the commission approved it ---+ and we still have to go through that process of demonstrating to the commission.
But if they approved it, it would be about a $0.05.
You\u2019d get about 1/3 of that for the rest of the year.
And then the difference also would be what changes from there forward to your power supply cost because you've reset your ERM.
So that I can't predict because I don't know what the change would be.
So it would be up to a $0.05 a share for this year.
But the thing that it helps, <UNK>, is as <UNK> said, is that goes into next year and alleviates some of the request that we have to make next year in our ---+ that we would file at the same time, but it would alleviate some of that request for the general 3-year rate case.
How much of a headwind was it in the first quarter.
How much of a headwind was it.
I mean, it's no different than what we've said in the past, the whole not getting our ---+ any rate relief in our last case was $0.20 to $0.30.
That still remains.
That's all built into our expectations, and that's from that prior case.
So this is attempting to chip away a little bit at that with means that we can do.
And then as <UNK> said, we've held constructive discussions.
And we will file our next case, and you'll see that when we file that later in this quarter.
And then I saw in the release there was an issue with you had some decoupling revenues hit this quarter from prior year periods.
How big was that.
It was pretty small, $0.01 ---+ $0.01 or $0.02, not very big.
Okay.
And then any correlation between hydro conditions you're seeing and what they're seeing in Alaska.
No.
Alaska has a decent hydro year.
We may be a little bit higher from a water perspective.
<UNK>, do you want to talk about.
Yes.
I mean, as <UNK> mentioned, our start of the year is pretty phenomenal, really, from a hydro perspective with all the precip that we've received, and we still have a snowpack in our drainages that is over 100% of normal for this time of year.
So our hydro is looking good.
In Alaska, it's a little ---+ it's more towards normal.
I would say it's less than it was last year for them.
But they're still in good shape.
They expect to be able to continue to serve their interruptible customers with hydro for the remainder of the year.
That could change.
But as of now, they're on target.
This is <UNK>.
I would say that we've covered the issues actually multiple times.
Ann Rendahl, one of the commissioners; and Brian <UNK>, the Director of the Policy Staff, is actually coming to our offices later this week.
So that's a continuation of the dialogue.
The new commissioner, Jay Balasbas, who started May 1, is coming over also next week.
And so we're continuing the dialogue and then starting the dialogue with him actually with him being a new commissioner.
So I'd say that the dialogue is not over.
We've covered the issues.
But as long as we have time and opportunity to discuss the next case, then we will do that.
The ---+ if we file second quarter, then the ---+ if they take the full statutory period 11 months, which they typically do, then you're going to end up in the early second quarter of 2018.
But with the power cost update, we've indicated that if we're successful there, we'll get part of the increase that we need in the third quarter of this year.
And we've indicated that's roughly [50%], and then the balance then would come in the second quarter of 2018.
We'll have to look at that.
We haven't ---+ we'll have to consider where we are.
We'll have a lot of discussions.
So that will come.
We'll make that decision probably early next year as to how contentious or where we think any of the issues are and if we're comfortable putting guidance out or if we're going to wait.
So we'll just have to see where that ---+ where we progress as we go forward.
| 2017_AVA |
2015 | POOL | POOL
#On the remodel/rep<UNK>ce side, we began seeing that recovery in 2011.
That continues to date and we are not back to normal behavior yet, but we are certainly on our way there.
In terms of new pool construction, that is <UNK>gging and I think that we are beginning to see a term that was used in the financial community about five years ago, four or five years ago, green shoots.
So we are beginning to see green shoots both on the psychology of homeowners to invest in their homes.
Obviously that took a hard hit back in 2008-2009, so that is beginning to happen now in the form of home improvements.
And, second, we are beginning to see several financial institutions going back in and providing lending based on home equity, whether that's redoing a first or second or a home equity loan.
We are beginning to see that.
So I am not expecting a big pickup there in 2015, but I expect that as we move through the ba<UNK>nce of this decade we're going to get progressively more traction there.
Sure, two things.
Texas did not have a particu<UNK>rly strong first quarter, but when you look underneath that it wasn't so much because of energy or the economic environment in Texas.
It was driven primarily because the weather was not particu<UNK>rly good in Texas.
And when you look at the activity that we are seeing in April, we are seeing more normalized levels of activity.
So net-net is ---+ we haven't seen any headwinds, noteworthy headwinds because of energy.
Again, most of the business that we do, whether it's Texas or anywhere else, is basic pool maintenance and repair and then associated remodeling and rep<UNK>cement activities on existing pools.
So that, other than weather moving it up a month or two or back a month or two in the year-round markets, is not a big deal in terms of having any macro impact.
And new pool construction, I looked at the permits through the end of March <UNK>st week and in all of the markets in Texas ---+ Dal<UNK>s, Houston, San Antonio, and Austin ---+ where I looked at permit information on a monthly basis, in all those cases it was either f<UNK>t or better than <UNK>st year.
Consistent with the guidance in terms of what I just spoke about a minute ago and in terms of the second quarter and then going on through ---+ well, second-quarter guidance that I gave earlier.
Thank you, Maureen, and thank you all for joining us on the call.
We are now totally engaged in the biggest sales and profit quarter of the year with our sales increasing almost every day.
Our team is making it happen and we look forward to reporting our results to you on our next earnings call on Thursday, July 23.
Have a great day.
| 2015_POOL |
2015 | SKYW | SKYW
#<UNK>, do you want to address that.
Relative to the 700 platform, we do have a significant amount of conversation with several different parties on what to do with the 700s.
I can certainly say that there's ---+ as <UNK> mentioned in his comments, you may hear some noise in the next 18 months on the ongoing fleet transition.
But I can also tell you that the conversation about 700s is wide and colorful on many things that can happen with that fleet, most of which we are very comfortable with.
You know that fleet is a great airplane.
With 70 seats in that aircraft, there is a very high demand for it in the right market.
We have to look at it in light of also what's happening with several of our 50-seat expirations.
So, when we say we've got some good transitional conversations over the next 18 months, that's true.
There's a lot of good conversations and we are committed to be transparent when we have more concrete information on that type of stuff.
But we can tell you today there's a lot of conversations about our 700 fleet today.
I can't remember how many questions I heard in there, but maybe we first and foremost start about the cost conversation that you had relative to the retiring fleet.
I think that, admittedly, today, we have built an infrastructure to return aircraft.
And ironically there's some of that that's also ---+ I mean when you are taking new aircraft, you build an infrastructure to bring in new aircraft and you also have an infrastructure to retire aircraft.
We have a couple of infrastructures built relative to that.
From a cost perspective, as we said, we're going to have cost of fleet transition throughout the rest of this year.
If you look at what's going on out throughout the rest of 2015 relative to cost and expectations of this fleet transition, I would say that we've always shied away from giving direct guidance but, in Q2, we expect to carry some good momentum like we did in Q1 relative to our expectation.
And I think we said on a previous quarter we have a lot of aircraft still coming out in the last half of 2015 and we expect the results to mirror that, maybe slightly better than 2014 but very close to that.
2016, we would expect to get some cost efficiencies on the ExpressJet side of those retirements.
And, you know, we've got to see what happens as we continue to have these conversations with the 700s.
Now I'm going to come back to you <UNK>, because I think you asked a couple of things that we probably haven't addressed in that part of my response.
What was your other question.
Yes, so I think that, in some respects, we may have to probably admit that we've digested the impact of 117 in most of our models today.
And I think that we've certainly integrated that with our partners in some of the contract that we've had conversations with.
Other pilot costs we are experiencing today, we obviously have high training costs.
We're still growing on the SkyWest Airlines side.
There's a lot of training going on today getting ready for the heavy summer schedule.
ExpressJet is also in hiring mode right now, and so there's some training costs associated with that.
But those training costs on the ExpressJet side are pretty much mostly normal course of attrition type of stuff.
And we've kind of accepted these costs and as we look forward in our models in the future, we are just going to have to digest the fact that we've got to integrate some of these costs into our contract models and move forward.
<UNK>, right now, our models when you take a look at our fleet, our opportunities, our bids, and our attrition numbers, we feel comfortable throughout 2015.
In our opening comments, when we get to 2016, a lot of the hiring we are doing today is for 2016, but part of what we find is one of our responsibilities as we manage our relationship with partners is make sure we deliver within the parameters of what we committed to.
And all of our models today are demonstrating that we are very comfortable through the rest of 2015.
In 2016, you know, in this industry with pilots and depending upon how many pilots the majors hire, we're going to have to continue to approach it with our partners on a very, very proactive basis and continue to monitor.
But over the next nine months, it looks like our models are matched up very well.
I'm going to trend that over to <UNK> and let him approach that one.
I'm sorry.
So at the end of March, we had 56, and nine of those were Brazilians, so after we retire the last Brazilians in May, it will probably be around 45-ish 200s on an ongoing basis in our prorate operation.
Yes, well, Q1 is always a hard gauge.
I think fuel certainly is something that can help us out with that.
And this fleet we have with three different carriers and we are optimistic of what's going to happen this year.
Q1 was okay I'd say.
On the ExpressJet side.
You know, we are optimistic on the ExpressJet side if we can get and integration within that group.
We continue to have good evolutionary conversations.
I think that, at the end of the day, what we've seen from the entity over the last nine months is outstanding on the performance side.
They continue to deliver exactly what we need.
There's improvements on the financial side.
And it's our intent to continue to work with both groups.
They represent fantastic individuals and we want to continue to be very transparent with them in what we think the world looks like going forward.
And we are optimistic about that, that we can do something here in the near-term on that.
This is <UNK> from ExpressJet.
Yes, the Dulles wind down went very well in March and we didn't have any issues there.
Also, our partners are also ---+ with our fleet reduction and consolidation, we are pulling out of Denver on our United operation and also announced a few other locations that we are consolidating in our network.
So, it's going very well at this point.
Yes, they were retired.
Thank you Travis.
Again, we appreciate your interest in SkyWest.
Again, we are very pleased with the momentum that we have today.
And hopefully, we've communicated a very clear strategy of what we want to do on a go-forward basis to continue to add shareholder value.
And again, we are very appreciative of the efforts of over 20,000 aviation professionals that we believe are the best in the industry and continue to deliver just an outstanding product to help do the things we need to with our partners and our shareholders.
So, at this time, we'll end the call.
Thank you.
| 2015_SKYW |
2016 | TOL | TOL
#Sure.
I think about that nuance you mentioned about paying down the line is influenced a bit by the fact that we had a debt raise in the last week of the last fiscal year.
So our balance sheet was a bit grossed up at 10/31.
We took $300 million of that debt raise and paid down the line to essentially zero, other than the line of credit.
As we look at balance sheet management and leverage and liquidity, I think it's safe to say that with nearly $1 billion in capacity on our line, we are comfortable that we have flexibility to buy land and buy back stock, both meaningfully.
With the landholdings we have out there, I think you could expect California growth to be in the top third of our markets over the next couple of years based on the communities we see coming online.
It's definitely strategic.
Tapping the brakes I'm not sure I would agree with that definition.
We've sold really well.
Our backlogs have grown, which means it takes longer to build the houses.
We're sitting on spectacular land, so we don't want to give it away.
We don't want to still houses 12, 13, 14 months out.
We raised the price.
We don't just do that in California.
We do that in many places in good markets.
California has been a great market lately, so you are seeing more of that there.
If the backlogs were to come down, then maybe we wouldn't be as aggressive with pricing, but right now we're in a situation in California that we believe we are making the right strategic decisions to manage the business by raising the price, which may reduce the sales but we think increases the returns.
Sure, tax rate.
I think we said guidance at the end of our last fiscal year to expect 38% for FY16.
I think that still a good expectation.
As it relates to the impairments, about half of it was associated with exploring new land opportunities and incurring some cost that you write off when you choose not to go forward with those deals.
And the balance of it was actually sales of some model homes that we expected to sell a little bit less than our embedded cost in them.
Not much to talk about on impairments, right now.
The pricing, the margins, the business of New York City Living, this quarter is as we expected when we set our full-year guidance.
We're happy.
As we mentioned, there's a building in Hoboken which is really part of New York that has done really well over the last three to six months, but our buildings in Manhattan are also doing very well.
I think we found the right price.
As I mentioned earlier, we're comfortable with our pricing.
We haven't had to cut pricing, and we're happy with the business.
Stable.
We are hungry with the sharper pencil.
We still have capacity in most communities where we are delivering less houses than we have at other points in housing cycles.
Labor is tight, but it appears to be easing.
As I mentioned, we are controlling costs better, and that seems to be much better for us.
So, there is the capability in most of our communities to increase velocity.
Good morning, <UNK>.
Okay.
As you know we are not in Miami.
4% of our total contracts nationwide are to foreign buyers.
The biggest concentration is California at 15% to 20%, New York City Living at 15% and Seattle at 10%.
Those numbers have not moved in any material way in the last two to three years.
We are managing it.
We don't have issues.
It's not going up, it's not going down.
We are great at obtaining mortgages for that clientele.
We take big deposits to protect ourselves, big down payments, and it's business as usual with no issues.
Certainly in California and Seattle, these foreign buyers are occupiers of the homes.
These are suburban homes where they move their family to get an education, so the motivation is different than a speculative investor who's trying to put money in the United States.
<UNK>, I don't think it is going to motivate us to increase turns.
We're always working hard to be a more efficient builder while giving our client that luxury experience with many upgrades, and that's of course always the balancing act.
But remember, when we had many optioned lots, we had over 90,000 total lots.
So, today we are in the mid-40,000 lots, and while a greater percentage of those are owned, when you compare it to the top of the roll back in 2005 of over 90,000 lots, the number of owned lots hasn't changed that dramatically ---+ the percentage has.
We're focused always on the corner of Main and Main.
We're not buying land in B&C locations.
So if we see the right opportunity at Main and Main, like Shapell or like New York City or like what we see in Seattle and other markets, and we must buy that land, because the only way the seller works with us is if we write a check, we will step up and write that check.
I am very comfortable with the quality of the land.
As I said, we are focused more and more on optioning land, but when the right opportunity comes at the right location and we must buy it, we will.
<UNK>, on your first question, I can't comment on what others are doing, but I refer you to my last answer about owning land at the corner of Main and Main, and that appears to be paying off in our mid-Atlantic markets.
There is no new strategy except we love our land positions and our community locations and our brand, and the business is good.
Absolute increased demand.
The mid-Atlantic continues to do well in the beginning of the second quarter.
Thank you.
Hold on one second.
Back half of 2016 event.
One second.
So, on agreements for Q1, the South was flat on a per-community basis.
But the highlights or the highlight of that area, would be Dallas and the <UNK>sonville market of Florida, and it looks like Charlotte is up and Raleigh is up, but they are small markets for us.
But for where the most action is, Dallas sold 4.9 homes per community which is up from last year and the Company average, of course, is 4.3.
Does that help.
You are welcome
We still are refining that, and that will be in our 10-Q, which will be filed in the next 10 days or so.
Not with us at this time.
You are welcome.
Thanks, very much, Amy.
Thanks everyone for joining us today, and we look forward to seeing you next quarter.
| 2016_TOL |
2016 | ABCB | ABCB
#I would characterize M&A similar to the way I have for a while now.
There's a lot of activity, there's a lot of conversation, there's a lot of relationship building, among all sizes of banks.
And there's the timing issues that you typically deal with.
The way we approach it is, we are $6.1 billion or so, and we are in the sweet spot for profitability, from $6 billion to $10 billion, so we don't want to be in a position to motor through that too quick.
We want to have a lot of discipline around the way that we do that.
So, pricing is an issue, I don't think it's an issue for a deal that meets our criteria.
We have several banks that we are in talks with, that I don't think pricing is going to be the main hurdle.
Obviously, in some transactions it is.
But with our currency, and with the track record of our currency, I think we have a pretty significant advantage.
Geography, US geography ---+
I think geography ---+ we've said that we want to continue to leverage in our key growth markets, and that would be in Jacksonville and North Florida.
It would be in South Carolina.
It would be in Atlanta.
Well, let's see, I've covered them all.
Probably, still probably in the $500 million to $1.5 billion range.
Okay.
We had forecasted ---+ the cost savings we had forecasted do not include any branch closures, so all the cost savings we are going to get were going to be on the salaries and benefits side, core operating system, lower levels of professional fees and moderate levels of credit costs.
We are forecasting $3 million of JaxBank of incremental operating expenses in the second quarter for JaxBank.
That's down a little bit from where their core run rate was.
I think when it's all said and done we'll probably be somewhere closer to the $2 million range on operating expenses.
Probably, <UNK>, the majority of that's going to be salaries and benefits from consolidating their back-office.
An annualized number.
It was heavier this quarter.
We're paying some California state income tax as well as more South Carolina state income tax, whereas last year we didn't.
So last year we were probably running 32.5% on the effective rate, and this quarter is about 33.6%, I think.
I don't think it's going to go up, but I think probably what we reported this quarter is more in line with what will happen till we get some effective strategies.
Good morning, Casey.
Some of it was the ---+ we were almost 100% hedged; generally, we're not; we only hedge about probably 85% or 90%.
So we're almost 100% hedged.
The fall in the interest rate ---+ there was some gain that we picked up from that, as well.
We had been forecasting operating expenses probably in about the $48.5 million range.
We were probably a few hundred-thousand over that when you normalize what JaxBank added in the quarter.
I think what the ---+ closing the extra branches and some of the other strategies that we have in place are really designed to hold us steady at that level, let us still sort of reinvest.
And I think once we get JaxBank modeled in, probably we'll say at the $2 million range, we're probably looking at somewhere between $50.5 million and $51 million a quarter.
<UNK> is shaking his head, yes.
Yes.
We are ---+ I'm not sure about this.
Casey, we're trending down.
We were at 65% and change, we've got things in place that we expect to see, that continue incrementally to improve in the second quarter and third quarter and fourth quarter.
And what we think is the fourth quarter of the year we should be operating in that 60%, 61% range.
Thank you.
Maybe a tick higher.
Given, especially given that we're ---+ I'm looking at margin without accretion at 380.
We're modeling a higher margin for JaxBank than that, and some of that does come from fair value adjustments that we made on their deposit side.
If you look at JaxBank, standalone, say, third and fourth quarter of last year you'll see [costs have flown] significantly higher than what we're going to be showing.
We tone our fair value adjustment, we've got their cost of funds down to about our level.
Chris, I'm not quite sure how to answer that, except that it started on day one.
Clearly, the first place to look when you're trying to grow earning assets is more capacity for really good customers that they had, and we've already begun that.
How long it takes ---+ I mean, you start immediately, but clearly it takes more than six months for some and less for others.
But I expect ---+ and, of course, we didn't model any of that, but I expect it to be pretty significant additions for this year.
And, Chris, we've been calling, really, since we announced the deals last year, and knew we were going to have liquidity.
One of the things we had said, not indirectly highlighted it, lower ---+ us going out to the market with lower rate, expecting to get higher levels of volumes and all that's happened we've been calling on larger customers, really, for more than a year, and especially here in Jacksonville.
The 15-day, we've built the business ---+ we've built our business primarily by selling to realtors and builders, more so than just selling on rate.
So I would tell you our mortgage president calls as much on builders and realtors as he does mortgage bankers.
But the fact that we're able to close so reliably ---+ we say we're going to close 95% within 30 days, and the fact that we've got it back down to 15 days, which is really what we target, it is a real advantage.
Especially with higher-volume mortgage producers who are struggling in some of the bigger banks to get loans closed on time.
So, that is, given the way we run the business, that's a major advantage for us.
TRID probably costs us about $250,000 once it was all said and done and we sharpened the pencil on what the fourth quarter ---+ it probably cost us about $250,000 on where we might've missed the cost of an appraisal or something like that, and that cost has come down dramatically.
The time to close has come down dramatically, and I really credit the folks in the operations group, our mortgage team.
Chris, does that answer your question.
Let me answer the first one, and you can answer the second one.
Patrick, first let me clarify below 60%.
My goal is to get us to 60% operating efficiency before we go below that.
But, again, our goal has been to develop enough internal strategies ---+ some of them are only $25,000 a year strategies; some of them are $2 million strategies ---+ that will let us hold the line on operating expense and let us reap the rewards from growth and revenue.
And if you look back at the internal message, the internal message is that we are an industry leader on revenue growth.
I don't know exactly what the number is, but it's probably 20% annualized growth over the last five years in revenue, and that ---+ let's hold the line, let's figure out what resources we need to redeploy, as opposed to being incremental.
And so some of it is that.
Now there are ---+ <UNK>'s internal message is that we can actually go lower.
Hold the line is good, but we can actually go lower.
So I think the message I'd leave you with is: more redeploy the existing resources and see the revenue growth that we expect to have push the efficiency lower.
On the credit quality piece, I think the answer for us is better quality customers.
And with that comes lower margins, but the backside of that is much lower credit charges.
So that's what we've done in the last couple of years.
We've also added a lot more credit support staff.
So every loan is good when you book it, but then the follow-up is really, really important ---+ to see the yellow flags and the red flags and make adjustments.
And we've got more staff that will do that.
So, I think that is the key.
We are still working on credit, we took the charge in the second quarter last year and we gave guidance that we'd be seeing more stability in our credit cost, and that we got it, it would be $2.5 million a quarter.
And we've seen that three quarters in a row that it's been $2.5 million or slightly less, and we expect that to continue, and actually to get incrementally better as we go along.
We're still trending down in nonperforming assets, but we think we're in a pretty good place right now.
Patrick, one more thing ---+ we'll revise the investor supplement that's in the 8-K in the next week or so, and it will have probably three or four more pages on loan diversification and concentrations, and some credit quality metrics.
And I think you'll see, especially going back to 2007, a much more diversified portfolio ---+ to reinforce what <UNK> was saying.
It will support the target mix that we have, and the fact that the risk profile of the earning assets is dramatically better than it was five or six years ago.
<UNK>, I think the ---+ well, and I see those cash flows come in mostly out of the purchase mortgage pools, which are yielding at this quarter were a little better than what we had forecasted.
The cash flows were slower.
But the 3% ---+ I think those cash flows over time will yield about 3%.
And so even in a lower-for-longer environment, I think we'll probably be able to stay somewhere in the $425 million to $435 million or $440 million range on the commercial portfolio.
Now, that would be very ideal.
What we have struggled, as most banks have, with the pace of payoffs, especially in investor real estate, so it's really hard to keep some of these commercial assets on your books.
I don't think that's going to persist forever.
And so to the degree that we're able to see the growth and portfolio ---+ you asked how long, I think maybe a few basis points as we move through probably the next two years, a few basis points a quarter.
I would tell you that between the investment portfolio ---+ if I were to combine the investment portfolio and the purchased mortgage pools, which we kind of see as a hybrid between bonds and ---+ maybe I could see those hovering, staying somewhere, say, 25% of total earning assets.
And I don't know what the percentage is now, I know it probably would be higher than that.
So, probably coming down to 25%.
Again, we like the efficiency that we get from that concentration for the efficiency ratio standpoint, but that's not our true model.
Our true model is banking the local community and managing a normal commercial portfolio.
I don't know that we ever ---+ I mean, we've seen that for quite a while, and that's been a challenge to grow in the balance sheet is, you add $5 of production and you grow $1 in balances.
It's been ---+ and that's what <UNK> was alluding to.
It's been really a real headwind.
I can't see it increasing.
I think the probability is higher that it would diminish instead of grow, at least for us.
It's been pretty fast-paced.
Cap rates are so low, that virtually any real estate investor is probably wanting to take advantage of it if they could.
All right.
Thank you again for everybody that's joined the call.
If you have any follow-up questions or comments, please feel free to reach out to myself or <UNK>, and we'll do our best to answer your questions.
Thank you.
Have a good weekend.
| 2016_ABCB |
2016 | AET | AET
#<UNK>, the market remains rational from a pricing standpoint.
We don't see any unusual behavior.
More so this year than in other years.
So we see this as a rational environment, but <UNK> can give you some insights into how do we see the small group market evolving.
So <UNK>, I think I just want to remind you that the small group market has been very dynamic if you think about what's happened with history.
We've had the keep what you have dynamics.
We had the change in the 51 to 100.
So it's been a very dynamic marketplace.
We will continue to favor margin over membership in the small group market.
As I said in the third quarter, we expect to see continued decline in volume pressure in our small group business throughout 2016.
But as <UNK> said, the market is rational.
We see competitive pricing across the board and we will continue to drive margin over membership, as I've said before.
Yes.
I think your conclusion is correct in that certainly the individual performance was better than we had originally established.
We can follow up offline on some of the specifics, but certainly reinsurance was one thing that looked a little bit worse in terms of the rate at which we accrued.
I mentioned earlier that risk adjustment was modestly better actually in terms of what we thought was going to happen there and again the important thing here is the underlying claim cost performance that also looked to be a little bit better.
So net net that is a correct conclusion that it turned out to be a bit better than we thought coming into the fourth quarter.
It's really about the aggregate level of claims.
There's an awful lot of moving parts in this business.
So inevitably many of the elements you mentioned sort of play into the analysis.
But it really is sort of about the underlying claim costs that we're seeing supporting this business.
We're not giving out the names of states.
Although some of them are important states for us to get, none of them have been contentious.
All of them ---+ all the hearings we have had have been very straight forward, supportive for the most part.
We continue to see more approvals coming and it's an extended process state-by-state.
Some of these approvals are contingent upon Department of Justice approval, which is the norm for this.
The DOJ conversations are not even yet started on the divestiture front.
We're still sharing data and working on the framework of discussions and so that still is yet to come, but we anticipate that that won't be too far into the future here and we still look at the second half of 2016 as an appropriate time to get it closed.
That is actually standard in every deal we've done where the Attorneys Generals need to look at this information.
They join in with the Department of Justice to get access to the same information.
We actually negotiate the confidentiality agreements and get those signed, so it's all part of standard course for these kinds of transactions.
So I would say about 40% of that membership loss is Assurant and the way to think about that is we provided network rental fees, very low PMPMs, high margins, but overall manageable results and not material generally.
We've started ---+ I will save the bond market piece for last.
We can have maybe <UNK> comment on that.
But (inaudible), which is actually I think good news so far.
The yields keep falling.
But I think relative to the transaction, we continue ---+ we have a joint integration operating committee that meets to the degree we can meet.
We've started to work on culture between the organizations because culture trumps strategy and we want to make sure we bring these organizations together effectively.
It's a best-of-breed strategy.
We continue to pour over all the potential accretion opportunities in both organizations as we get to know more within the limits of what we're allowed to look at.
And I can say that we do have internal targets, which always are a little more aggressive than what we share with all of you, which is the appropriate way to manage these kinds of things so that we make sure that we deliver.
<UNK>, in terms of the deal financing, it's far too early, especially in this market, to declare victory there.
But certainly what's happened heretofore I think we still feel good about our financing assumptions.
It is both a rate and spread dynamic and those have obviously held so far in terms of what we have assumed.
So we still have some time to go here and as we've seen, these things can move around a little bit, but we still feel good about the assumptions that we gave you.
I think, Matt, that all depends on how the market reacts in each segment.
So as we look at the HIF relief, it's not really all relief.
There is a lot of work behind that.
For example, in the Medicaid relationships we have, those are separately negotiated.
So there obviously would be a conversation there with our employer clients already asking about how does that affect pricing, how do they want to handle pricing and with Medicare it's how they set rates.
So we view this as not a windfall by any way, shape or form, but something that's going to be delicate to manage because, unless it's extended, which we highly doubt, this is going to be a difficult transition going in and out.
As you know, we've spent a lot of time getting the fees into rates, so having them come out and go back in would be difficult.
So I would say more to come.
We have a team working on this.
We've had a couple reviews already of the potential strategies we could pursue, but we're not quite ready to declare victory or defeat on either side of this yet.
Our plan is that Louisville will be the headquarters for our government business, which will include Medicare, Medicaid and TRICARE.
And so that is the commitment we made in the merger agreement.
That is the commitment I just made in front of the Greater Louisville, Inc.
Chamber of Commerce last Monday evening, or last Tuesday evening in Louisville and something that's ---+ it's actually the only community where we've made a real estate commitment as it relates to putting these deals together.
I realize all the leadership decisions, operating model, management processes are still to be defined.
They are still a competitor and so we don't have the kind of visibility or command of that organization to make those decisions.
I do know that within the context of the deal, there are stay bonuses in place for people that are key to the ongoing operations of the business and we approved those as part of the merger agreement going forward.
And Bruce and I are in constant conversation about this and making sure that we're keeping the people we need to keep.
I think for now it's stuff that we have done.
We are providing detailed information and data to CMS based on what we've experienced as our data set.
As you know, the operational accounting for the HICS is not quite up and running yet, so they are running a bit blind as it comes to data and so we're sharing our data with them, giving them insights.
It's part of what's gone into the feedback around special enrollment period, the 3Rs and a host of other issues that we think are important to get addressed to stabilize this program going forward.
The changes made to date are necessary, but not sufficient and we need to do more over time to make this program stable and supportive.
There are two ways this program can go.
They can be a Medicaid Plus kind of program with a high risk pool on a national basis versus a local basis to try and support a population of folks that are below 400% of the federal poverty level, or we can shape the program to get a wider risk pool and a more stable risk pool that encourages healthier risk to come in and allows us to have a broader range of population in the program.
That's yet to be decided and will be based on the kind of changes we make going forward.
Well, I think the place to start is a number of years ago, probably three years ago when we had a big rate reset, we had a conversation with the administration, with CMS that said, listen, we want to get to 100% of Medicare fee for service as an appropriate rate structure, but we want to do that over time so that responsibly we do not adversely impact the Medicare beneficiaries.
And that has been our goal all along and we continue to work toward that.
And I think the last couple of years have demonstrated a better partnership in coming to conclusion around that.
Part of the noise that you will see in this is you had the earlier release from the actuaries, which is just one input.
Then you will have the February notice, which will be another set of what I would call the smorgasbord of issues that we want to talk about as we come forward with an ultimate solution that will make itself readily apparent in April.
I think the industry, both through AHIP and Better Medicare Alliance, has focused on making sure that all the issues are understood, that everybody is sensitized to the impact on the beneficiary ultimately and that we come to a conclusion that allows the program to continue to grow because we believe that Medicare Advantage in the long run at the right rate structure is the appropriate solution for solving some of our entitlement programs, particularly around the Medicare population.
Well, the risk adjusters in and of themselves are a set of numbers that you have to manage against, which means you have to find the information, you have to work on actually improving the quality of care so that makes the risk adjusters work.
And so part of what we're going to see as we go forward is that the Medicare fee for service 100% number is going to continue to drift down as the industry does a better and better job of taking people with chronic comorbidities and managing them more effectively by improving the quality of care.
And it's through that change over time that you'll see sort of two glide paths drifting down, the industry's rate structure drifting down on top of that 100% of Medicare fee for service.
Risk adjusters is just one part of that and those risk adjusters will change as we improve the quality of care and the underlying health of the Medicare population.
I guess that's up to you.
Of course we have a horse in the race and of course, we perform and we always want to deliver and then our belief is it's a very solid performance, 15% year-over-year.
Yes, don't over complicate it.
15% EPS growth in a year where we were really limited on share repurchase, we had a very good year.
Well, it's certainly an issue that we have watched carefully during the quarter.
We have not really seen any meaningful disruption as a result of ICD-10, and I suppose that is one of the silver linings of having a long time to get ready for this as a broader industry.
But it is something that we're definitely paying attention to carefully throughout the quarter and frankly even into the beginning of this year as well.
What we're doing, <UNK>, is we're running parallel views to see whether or not there's any gaming going on between ICD-9 and ICD-10 and so far, we don't see that.
And between the CPT-4s because we were worried about that.
But we worked with a number of hospital systems and provider partners to do this check to make sure that there wasn't anything adverse coming out of it and so far, so good.
I think first on private exchanges, we're seeing the slowdown we anticipated as a result of employers who have tried it, but didn't see the rate stability that they wanted to see and have pulled back, particularly on the fully insured segments and moved back to ASO.
And so that's a sign that there need to be better proof points.
And we are launching our own private exchange version, proprietary private exchange version, in a number of markets.
Small group this year we started already and we have some clients for 2016, or actually 2015, I'm sorry, and in 2016, we have some clients that will be trying out our product and will be launching a Medicare version of private exchange as well for 2017.
So we see a lot of importance in connecting the underlying network and cost structure of healthcare to the private exchange in order to provide the stability that employers need and retail customers need in order to buy from us through that kind of model.
And so that has not been proven yet and so you're seeing it slow down to a degree until people start to put proof points out there that work.
So I think that is something that we need to be keeping our eye on.
Now if you look back at our guidance on the $10, there was not a lot of reliance on private exchange growth for that to happen.
We see the government sector as a key driver of that growth opportunity, as we continue to grow individual Medicare Advantage, continue to grow group, interestingly enough year-over-year.
And as we watch PDP, last year profitable; this year growth in what we believe to be an appropriately priced segment.
So we see the government sector as a driver of that going forward and we believe that if we get the HIX right that that will be a contributor going forward as well.
Well, I think it's inning number one because just talking about outcomes is an amorphous conversation.
The conversation with pharma that we're having needs to be much more specific.
It needs to be what are you going to do to make sure that the drug you are supplying not only has the right outcome, but gets the right level of compliance by the end user in order to control the quality of care that that end user gets.
And my argument has been with these ---+ with pharma has been it shouldn't be about the number of pills you sell.
It should be about whether or not the people that are getting the pills are the right people, getting full compliance, getting an overall medical cost impact that in the end analysis in sharing that risk with us you get a better margin than just selling more pills.
It helps them change their distribution model.
It allows us to go directly to the patient into the home where we believe we can get the ultimate improvement in quality of care and compliance.
Consistent with our discussion before about that our outlook is really premised on the actions that we've taken and we've controlled, I think I would have to answer the question, no, that they have not been sufficient to change our outlook.
That is not to diminish that directionally.
They are clearly the right things to do, but there is just a number of administrative and I think enforcement aspects around the special enrollment period that we would like to see get built out and implemented over time.
A transcript of the prepared portion of this call will be posted shortly on the investor information section of Aetna.com where you can also find a copy of our updated guidance summary containing details of our guidance metrics, including those that were unchanged or not discussed on this call.
If you have any questions about matters discussed this morning, please feel free to call me or Joe Krocheski in the investor relations office.
Thank you for joining us this morning.
| 2016_AET |
2016 | CME | CME
#$900 million.
Can I just add something there.
<UNK>, let me just add something really quick here.
You know, we went down a couple million dollars in revenue in swaps clearing, but as you recall, a couple years ago, several years ago as we started to introduce clearing of swaps, there was a lot of people that thought that we would make anywhere between $500 million and $1 billion doing this business.
We went out forth very aggressively to price this in order to build up our core business and to grow the revenue in our core business.
And I think what <UNK> and <UNK> just walked you through is a couple million dollars down in swaps clearing, but multiples of that in our core business.
So I think that strategy really worked to perfection.
As you know, we don't give out guidance on volume, which is the main driver relative to clearing transaction fees.
But as we look at it as a management team, we were focused really on two things: managing our expenditures and growing our top line, and expanding our margins.
So you're right; we were expecting a very modest 1% increase in expenses and I think what we're looking at is two drivers.
One being our market data revenue, which we showed was ---+ where we showed the increase about 4% to 5%.
And then we've also used to lever in terms of pricing in our transaction fees.
We've provided a tremendous amount of value to our clients, so we have a 2% increase across the board in our transaction fees.
When you take a look at the month of January, we have had a record volume for the month of January.
We have seen large increases in our options complex.
So the things that we laid out to do ---+ growing internationally, growing our options complex.
We have taken the opportunity to adjust prices, so our top line is ---+ we are hitting on all levers there.
And on the expense side, one of the things that we are doing, like I said, is managing the expenditures very carefully.
And we have really focused on efficiency in light of security spending, regulatory spending, which we've made investments in over time and we are continuing to look at our technological infrastructure.
Also, we are looking at keeping our compensation relatively flat, as well, as we kind of manage the human capital here, too.
Rich, it's <UNK>.
With respect to the stress testing issue for clearinghouses, we invest significant effort already in various types of stress testing in the clearinghouse that we perform on a daily basis, including stress testing of the risk waterfall and the capital that's needed for CME to contribute to that.
So we would not anticipate any impact from minor changes in regulation there.
With respect to the CME exchange in Europe, there are plans to expand beyond the agricultural products and the FX products that are there.
And I will ask <UNK> to make a comment there.
Correct.
Sure, <UNK>; this is <UNK>.
We do have a venture group, CME Ventures, that has been investing in technology companies that we see as potentially being important to us in the long run.
So we have been investing in real-time payments.
We have been investing in blockchain.
We have been investing in big data, computing technology companies, and the like.
It's important for us because what we are able to do is, by making these investments, we can get kind of a view of the future, if you will, and bring that innovation back into the Company.
One of the things that we have a strong culture on is innovation and bringing this knowledge into the Company helps us in terms of our long-term planning.
Just to add to what <UNK> said, if you look at some of the emerging technologies and the investments that we have made, they translate very neatly into use cases for us.
And so there are a bunch of folks running a bunch of use cases across not just the payment and settlement side, but across many aspects of the operations of the firm, with the intention to reduce not just our cost, but the cost of connecting into our client base and, in turn, reducing our clients' costs.
Sure.
When you take a look at the RPC from outside the US, it tends to be higher than within the US, because those clients tend not to be members of the exchange.
They pay a higher rate.
So outside the US it's about 37% higher RPC than within the US, which in us ---+ when you heard <UNK> ---+ penetrating outside the US in the energy space, energy tends to be one of our higher RPC products.
So it's really ---+ it's an important growth area for us, both from a rate per contract, but also from a volume perspective.
I will turn it over to <UNK> to comment on the clients overseas.
Sure.
Thanks, <UNK>.
As I indicated in the prepared remarks, we are expecting a 4% to 5% increase in terms of overall market data revenue.
As you know, we are moving ---+ we have moved our grandfathered fee waivered clients from zero to $42.50 and now up to $85, the same as our other customers.
With respect to attrition and the like, we don't have that information now as we are going through the first billing cycle for customers at the $85 level.
So our base core, previously the non-grandfathered clients had remained relatively stable.
The grandfathered ones I think we will have a little bit more insight as we go into billing at the full rate.
<UNK>, would you like to comment on it from what you see from a customer perspective.
Sorry, <UNK>; this is <UNK>.
We generally have increased prices every two years and the last time we did it was two years ago.
I'm going to ask the chairman to answer.
This is <UNK> <UNK>.
Thanks, <UNK>.
You know, Pat, we have been working on the equivalence issue for quite some time now and we have been working with Chairman Tim Massad actually since the day he's been sworn in into the administration to take the role at the CFTC.
This has been a big issue.
This has been a long road working through all the different issues.
We feel very confident that we have gotten all the issues resolved.
I met with the chairman along with <UNK> and <UNK> and a few other folks just a couple days ago, and I assure you that Chairman Massad understands the magnitude of the potential market disruption if, in fact, the US is not deemed equivalent prior to the February 21 frontloading date.
So that being said, it gives us some comfort, but we would like to see it ahead of time.
That being said, we have seen some recent articles, I think in Risk magazine, where a couple of banks have made comments as to what they may or may not do come February 21.
And then you have heard from some other participants saying that they feel very confident and they are not overly concerned about this.
This is an issue that we are very focused on and we will stay focused on until it's granted.
But, again, I think the chairman has recognized that there could be market disruptions, and that would be the worst thing that could happen, not only to the US market but to the European participants as well, if equivalence is not granted to the United States.
So we feel confident that we will get this done.
Sure, this is <UNK>.
In terms of the JV, we are very pleased with our investment in our joint venture with McGraw-<UNK>.
The general drivers for the business are assets under management as well as license fees generated from exchanges that utilize their trademark and IP, so it would be primarily CME and the CBOE.
That ---+ so we end up profiting from activity, both from the move from active to passive investing, which is a megatrend in the investing space as well as trading activity, both from futures and options as well.
So we think we were very bullish on that business.
It has characteristics very similar to ours, a lot of leverage in their model.
And I think we are very optimistic in terms of the trends in investing and the position that the JV has globally.
This is <UNK>.
I just want to emphasize one thing that <UNK> touched upon a short while ago.
This is a testament again to the investment that we have made over the years in growing our salesforce around the world and that is ---+ and the deeper relationships and education campaigns that we have run in China.
The past two months, as the upheaval in China has intensified, we have seen a very large number of traders that are seeking opportunities outside of China, and that has been driving a significant portion of the international growth that <UNK> is referring to here.
You're also seeing the open interest for the entire exchange growing significantly, which is another thing that you did not see in the years that you mentioned.
So these things, together with the product development that has been done across the board, is what I would say differentiates us in this environment from the past ones.
Let me just give you my ---+ this is <UNK> <UNK> ---+ short take on that, because participants are interesting; they come and go and they go from asset class to different asset class.
But one of the things that we have been talking a little bit about this morning is the growth in the open interest in our options product.
And I really believe that when you look at options growth, that's what preserves your futures contracts.
That is what continues to attract new futures participants.
So we've done a really good job of bolstering our options products with the growth that we've seen in them.
Now you got to realize, they don't turnover as much as our futures, but what they do is they help the risk management product, which is a futures contract.
And you need to have bigger growth in your options in order to garner more participants in your futures and that's exactly what we are doing.
So we expect that mix ---+ it always goes up and down, but this is something that I have never seen in my 36-year history, to see the options growth outpace the futures growth.
And that's a great, healthy sign for this company.
Thank you all for joining us on this call and we look forward to talking to you in the next quarter.
Thank you.
| 2016_CME |
2015 | IART | IART
#From a medium term perspective, we're probably still looking at flat, maybe down slightly.
And what you saw this quarter, in terms of a slight reduction in the tax rate, which also is flowing through our full year is some additional tax benefits we're getting from the MicroFrance acquisition, coupled with some higher R&D tax credits.
Those combinations of items have resulted in a lower tax rate for the quarter and the year, and as we look out over the medium term, we're obviously looking to do some additional things around the tax rate, but I would not expect a meaningful improvement in the tax rate in the short term.
Thanks.
Thank you, and I would like thank everyone for attending the call, and your questions that you presented.
I would also like to take a few minutes just to reinforce a couple of key messages.
First of all, again, as we stated, we're raising the low end of our revenue and earnings guidance for the full year 2015.
Second, we closed the TEI and Salto acquisitions and our integration efforts are on track to our plans.
Third point is, our internal product development is progressing well.
We're going talk more about that next week, and we also published a strong DFU results from our founder's study, which is on track for a DFU launch in mid-2016, as well as, we're quite excited about our controlled market release for our two-piece ankle, which is going to happen towards the end of this year.
Despite an increase in our commercial and R&D investments in the second half of 2015, we are on track to meet our 2015 profitability targets, and that really positions us well for success in 2016 and beyond.
Lastly, we're looking forward to seeing many of you next week, again, Thursday, the 12th of November in New York for investor day.
We think it's going to be a really good session that digs into deeper clinical R&D and some of the market questions that many of you have been asking about.
Again, thank you for listening, and we look forward to speaking with and seeing all of you in the near future.
Thanks.
Thank you.
| 2015_IART |
2017 | KSU | KSU
#Thank you, Jeff, and good morning, everyone
I’ll start my comments on Page 11, where you can see third quarter year-over-year revenue was up 9% and volumes were up 3%
As discussed by Pat, volume growth was negatively impacted by several weather events in Texas and Northern Mexico
Prior to these events, volumes were tracking at a growth rate of approximately 6%
For the quarter, same-store sales as well as in-quarter renewals pricing both came in at a solid 3%
The Chemical & Petroleum business growth of 10% was primarily driven by, excuse me, by solid performance in our longer length of haul southbound LPG business, as well as our lubes and oils
This business was hardest hit by Hurricane Harvey, with the heaviest impacts being seen in the petroleum business, where customer facilities and refineries were shutdown several weeks due to flooding in Southeast Texas
Our Industrial & Consumer business also showed improvement in the third quarter with revenue growth of 9% and an increase of volume of 4%
We continue to see strength in our military shipments and our metals business was also positive due to an increased need for pipe in the energy sector
Once again this quarter, our energy line of business saw over 100% revenue growth in both frac sand and crude oil, driving an overall year-over-year revenue increase of 19% for the total energy business
We also saw an improved length of haul and attractive mix this quarter due to a larger percentage of the business having final destination in Texas
The automotive business was up 19% over 2016, driven primarily by growth in the manufacturing capacity as new model launches began to take effect
Given the number of vehicles damaged in the hurricanes and the floods, lot of industry saw an increase in sales in September, but most of that demand were satisfied through existing dealer inventories
As a result of this surge in demand, we are seeing a tightness in the automotive equipment across several regions of the North American rail network
Even with this tightness, we still expect to see solid performance in Q4 to fill this demand
We do not expect any impact from the storms outside of the third and fourth quarter of 2017. Intermodal revenue and volume increases have improved to 4%, partly driven by new business and the new cross-border services
During the quarter, this business unit was definitely impacted by Hurricane Harvey, as well as the less publicized floods in Northern Mexico
We continue to see a very competitive market due to low trucking rates in ocean shipping consolidation, but we’re positioned very well to deal with the competition
There is also a tightening in the U.S
domestic intermodal business that has impacted some of our customers
We believe and are seeing we will continue to see solid in both – solid growth in both of our major cross-border service offerings, as well as freight coming into the Port of Lázaro Cárdenas as customers continue to look for alternative solutions for their supply chain
The Agriculture & Minerals line of business revenue growth of 2% was primarily driven by grain demand
Our operating team did a fantastic job in conjunction with our partner carriers to due to much of the export grain shipments that were impacted by the flooding
The harvest looks strong for the fourth quarter and we expect to see continued strength in ag and minerals to close out the remainder of the year
On Page 12, you can see an updated assessment of our fourth quarter 2017 volume outlook
As I mentioned, we expect to see our cross-border service offerings continue driving improvement in our intermodal business in the fourth quarter
We expect growth in our Chemical & Petroleum segment due to the additional refined product shipments and strengthening in the plastics market
I want to remind everyone that the final transition date for the remaining regions impacted by Mexico Energy Reform will be November 30. We also announced during the third quarter, our planned investment in another storage and distribution terminal near Monterey that I’ll discuss later in the presentation
As I mentioned, the strong grain harvest will drive year-over-year fourth quarter Ag business, but at a slightly lower rate in 2016. This strength could be slightly tempered by volumes in our Food Products business through the end of the year
In Industrial & Consumer, we expect to see moderate year-over-year growth in both metals and paper
Our outlook in military and cement moves remains uncertain, but if we continue to see the volumes similar to what we’re seeing currently, then it’s possible we’ll have quarterly growth in this part of the business as well
Due to year-over-year change in plant shutdown schedules, our automated – our Automotive business will be facing tough year-over-year comps, but we’re still expecting strong growth for the total year
The challenge of the end of year plant schedules may be mitigated to some extent due to the heavy demand for replacement cars and trucks in the area impacted by hurricanes and earthquakes
Crude oil and frac sand shipments will remain strong in the fourth quarter, but year-over-year volumes in the utility coal market will create a difficult comp when compared to the second-half of 2016. Moving to Slide 13, as I mentioned before, we announced the planned investment in refined products terminal in Salinas Victoria just north of Monterrey Mexico
This joint venture with Bulkmatic will continue to demonstrate our commitment to creating quality facilities in critical markets that allow us to provide rail service and growing refined products markets in Mexico
This slide provides an update on our shipments in this important segment
Adjusted for the hurricane impact, we saw a 17% increase in volumes and refined fluids as well as LPG
LPGs continue to make up more than half the carload shift year-to-date
It’s important to remember that growth in this business will come in stair steps
The first portion coming after all the facilities are open, and the second, a larger step will come after construction of the storage tanks is complete in the second-half of 2018. On Slide 14, we have included a diagram that provides a visual of the KCS network, the important new terminals on our line and the existing pipeline systems for both refined products as well as LPG
As you can see, our investments are strategically located in to serve major population centers and growth areas that are not close to existing pipeline
The diagram also shows that almost the entire pipeline system is already running near capacity levels
Given the difficulty of acquiring land as well as topographical and security challenges of building new pipelines, we believe the strategic investments give us a significant foothold in this new and developing infrastructure
With that, I’ll now turn the call over to our CFO, Mike <UNK>
Yes, absolutely, Ken, thanks for the question
Definitely, I was talking about Mexico
The truck rates in Mexico continue to stay low, continued relatively cheap equipment and fuel, very competitive specifically into the Mexico City market, but we’re positioned well
We’re seeing great volumes off of the Lázaro terminal, also inter-Mexico, like I said, the cross-border is working very, very well
As you mentioned, we are seeing significant price increases in the domestic space, which allows – there’s a lot of things that happen there specifically for our market basically between Dallas and Atlanta, that’s a fairly competitive market
And so as those truck rates go up and as intermodal rates go up, obviously it’s positive for us, because we’re able to get more freight on the railroad
So we think intermodal is positioned well
We think it’s maybe coming out of that pricing funk that it’s been in for the last few years
And so we continue to believe, intermodal is going to be a great benefit going forward
No, I would say, it’s a mix issue exactly, <UNK>
There’s no repricing happened in the quarter
<UNK>, I would say that the pricing environment right now is relatively positive and strong
We continue to believe it will be inflation plus on both sides of the border
There’s really no change in that
We are seeing some change in some of the markets in the U.S
I would tell you, I think that the pricing in the refined products market has kind of stabilized
And I think everybody kind of is seeing how that’s going to play out
So we feel very comfortable that it’s a good solid pricing environment and we’ll continue to expect inflation plus
Thanks, <UNK>
Again, this is <UNK>
That’s a great question
And what I would tell you is, from a market share perspective, we still have very little market share there as the number of containers coming across the border is around 3% to 4%
And so you think about upside, there’s significant upside in converting that freight from the road to the rail
What I would tell you is, we are extremely pleased with the business
We just had a review this week with our partners BNSF and both groups are very pleased with what’s happened
We feel very comfortable that it’s going to grow
There’s a lot of interest
We also see the exact same thing with the UP, our partner in the automotive business and some of our other intermodal
So the IMCs are focused
They understand the opportunity
It doesn’t take much to understand it, just go stand at the border and look at the 16,000 trucks trying to cross every day, it’s a great opportunity for us
And I think, as Jeff mentioned, he mentioned the kind of quietly in his comments, he mentioned the joint facility between Mexican and U.S
If we’re able to get that time at the bridge down like he’s really working hard on, that’s going to be a great benefit to the intermodal as well as the carload customer
So we think it’s going to be a good space
Yes, great question, <UNK>
What I would say is the LPGs have been surprising to us how quickly it picked up
And bringing those LPGs into Mexico obviously it’s used in almost every home in Mexico
And so the storage facilities are being created in most of the major population centers
But what I would tell you is, we’re going to continue to see that business grow as well
I think refined products will probably grow a little bit faster now, because LPG has really got a quick start out of the gate
But it’s going to continue to grow significantly as again that’s one where they do not have enough from a national supply perspective and you’re seeing already facility is being constructed in the San Luis Potosí area, obviously in Salinas, Monterey
So it’s going to continue to grow as well
Yes, Chris, I think that’s the million-dollar question obviously is how fast is this going to ramp up? I think the keys for is we watch are going to be primarily a couple of things
First off, the instance of new retailers into the market, how quickly that happens, how quickly the infrastructure from a retail perspective occurs
Second is going to be the distributors that are currently in place, how do they play from a storage perspective, as well as distribution into these new retailers
And then third, what is the infrastructure off of the ports, off of other facilities coming out of Texas, right now it appears that the big Texas facilities are going to be around Beaumont area, around Corpus Christi and then into the center of the country across a number of different items
So we expect it to ramp up significantly from a retail perspective
Starting in 2018, a number of firms have already announced their plans and how big that will be
How quickly that actually plays itself out? I don’t know
If you look at the expectations from a storage perspective, you have about 10 years for the country to gain that that significant storage capacity they were looking at of adding 10, 15 days of supply
But we think here in 2018, you’re going to see some pretty significant volumes, not only in off of the ports, but also out of the rail line
Again, I think the pipelines are pretty full, they’re almost at capacity
So I don’t think they’ll be significant movement on that space
So we’re very positive about how it will impact this in 2018 forward, but the ramp up is going to be really tied to the retail – the new retailers
Yes, <UNK>, I would tell you that, we don’t have really any idea where it will end up
We know that what the proposals have been from a part and content perspective, deal content
What I would tell you is, there are – there is a little bit of a change in the downtime scheduling around Christmas that impacts us and 2017 and that might be some of the changes, just a calendaring space and how the calendar work for those particular plants
But overall, we’re very positive in our automotive business
And we continue to believe that no matter what happens
Mexico is going to be a great place to build vehicles for the world, and that’s going to have content from all over the world and we’re going to be a part of it
So we’re – we continue to be very positive on our automotive business
Yes, <UNK>, this is <UNK>
Our core pricing was 3% that’s both in renewals and in the what’s…
The same-store, I’m sorry, I was thinking about the second part of your question
When you think about the intermodal space, obviously those bids go out for the large customers, they go out sometime in the first quarter
And so it takes a while to see that
What you’re talking about is the spot market of intermodal that impacts both truck pricing and intermodal pricing in probably that spot market, let’s say, the top 20% or that piece that’s flexible during the search periods of the year
That’s not going to impact us as much as it would our intermodal carriers
And so, we’re primarily into that bid season in the fourth quarter, first part of first quarter, and then that’s when we would see the pricing improvements
But obviously, it’s going to be a benefit to us as truck pricing continues to go up and gives us some pricing power, as well as intermodal becomes a better option for some of those people who had products on the road
So it usually takes a full cycle of bids from an intermodal perspective on that
Yes
First off, we are seeing a little bit more movement
As I mentioned, we saw over 100% increase, but that’s from a pretty low number, basically hardly anything in the third quarter last year
Our capacity to move the Canadian crude or crew coming from anywhere is, we have plenty of capacity
There’s plenty of equipment, and Jeff is ready to move it when people are ready to move it
Obviously, the spreads create an environment where the market can change overnight
But we’re seeing some positive signs in crude by rail and we’re going to continue to take advantage of it when possible
And but we’re not going to say, boy, this is going to come on like gangbusters, but if it does, nobody would be happier than Jeff <UNK>, because he’s ready to move with when they bring it to him
Yes, Tom, I – I’ll take
This is <UNK>
Here’s what I would tell you, we are very, very focused on doing this in a rational, competent way in building out infrastructure and building out the Sasol Yard, the Sanchez Yard, these two terminals, that’s all infrastructure which allows us to take advantage of markets that are coming that we can see
That volume is going to come on in a ramp environment
We’re going to continue to see it grow again as retail markets change, as NAFTA is renegotiated, that will have a big impact on steel
We are focused on creating fluidity and capacity in Mexico across the border and in the U.S
, both in intermodal terminals, track, everything else
And so we’re going out in a very rational way in a way that allows us to take advantage of markets
We’re not making big jumps into anything that might be a swing in the marketplace
But we do – we see great growth in Mexico, great growth in Southeast Texas and along the Gulf Coast with the crackers and others
So it’s going to take time
It’s going to ramp up in a way that we think we can take advantage of it
But we are spending our infrastructure dollars to make sure we’re fluid and we have the capacity to get it when it comes
| 2017_KSU |
2016 | FISV | FISV
#Sure.
I wish I had a fully reliable crystal ball for this.
I would say that volatility in the market has everyone feel like there's volatility.
And we just have to continue to watch that.
The beauty of the majority of the solutions that we provide is, they're not discretionary.
And with all of the digital transformation that's occurring in the market today, there's a real need for institutions to invest and to keep up with what's going on.
Consumer expectations are growing so rapidly because of everything that's going on in the retail world and in the non-financial services world, that those expectations are requiring institutions to invest.
It's very much becoming non-discretionary.
And so I continue to believe we're going to see solid, solid growth in those kind of solutions in 2016 and in the forseeable future.
I don't know that there's much that we do that's not important to the FI.
We have very small businesses that are data-oriented businesses, which I guess you could argue are not necessarily mission critical.
But even the things that we sell that are, quote, discretionary, it's hard to know if you have to upgrade software on a solution that you use to manage risk, that purchase may be discretionary; so may have some wiggle room, but much of what we do is non-discretionary, from that perspective.
I don't think we're ever going to see a whole lot of variability in any year, almost regardless of the situation.
But clearly, I have the same crystal ball question that everyone else has.
We believe that the banking industry right now is in pretty good shape.
The rate increases will move through this year, and I think that will be generally good for banks.
I'm talking about not prospective increases, but just the December raise.
And I think that will be good.
And we'll see how the economy develops.
I think that will be the ultimate lynchpin for how banks decide to invest over the next year.
Thank you.
We feel really good about the surge in 2016, primarily because we know what's been manufactured, we know what has not been personalized, we know what isn't personalized, we know what's been ordered.
So we actually have pretty good visibility into what's going to happen in 2016.
We don't have a lot of visibility right now into what's going to happen in 2017, except for we'll know who has not issued.
And remember, you've got, in 2017, I believe it's 2017, you've got one more liability shift that's going to happen.
So we feel really pretty confident about the EMV at the level that we have incorporated it into our guidance.
I suppose it could go a little bit higher.
It could always go a little bit lower.
But it's pretty solid, at this stage.
And remember, <UNK>, that the clients have paid for a lot of the manufacturing stuff already, so they're going to want to issue these cards when they can.
And again, we have to wait for that, but as <UNK> indicated right now, we feel good about where we are in 2016 and going into 2017, also.
One other point I would make is, actually in Q4, we had more demand for BIN configuration than we could actually convert.
So we really saw this surge coming into the year, which again, helps support the confidence.
And remember, even if we have a bit of a blip up in 2016, which we believe we will, we do think that we'll get to a steady state level.
We don't see that EMV ---+ we do think that EMV will be constant on a card manufacturing and personalization basis moving forward, so long as plastic is being issued.
And I think that's going to be issued for a very long time.
And then a layer of uptick on the premium processing element of EMV.
And I think I'd also just check out what <UNK> went over at Investor Day, because it's pretty well holding as far as what we anticipated where we'd be, a little softer in 2015, obviously, but nonetheless, it's ramping as we thought it would there.
No.
It is something I still am very excited about.
It is taking longer to get scale than I would have liked.
But I am very optimistic about the runway for the solution, given the pairing of P2P with realtime, which I think changes the experience dramatically.
And then the other use cases that we have for Popmoney disbursements and some of the charities, we think are very important.
And then the last thing is, we've got a new technology that we are delivering in 2016.
We call it Card-Free Cash.
And it is a way for our debit clients, our ATM clients, to be able to access money at an ATM without a card, using the bank's mobile solution.
Well, that's actually going to be branded Popmoney across the US.
So that brand will show up across 20,000 ATMs, 30,000 ATMs.
So again, we have a good level of comfort that it will grow.
Yes, it's competitive.
But over time, I still believe the banks are going to be the ultimate winners of the P2P battle.
Thank you, <UNK>.
Thank you, everyone.
We appreciate your support.
If you have any further questions, please don't hesitate to call our Investor Relations Group.
And have a good evening.
| 2016_FISV |
2016 | MDR | MDR
#Hello, Rick.
So as you know, Andy, we never disclose the order intake, and obviously try never ---+ or never forecast backlog.
As we look at it, I think we said earlier is if you look at today, 79% of our business is now driven by what's happening in the offshore and moving forward.
And again, that's a reflection of a market where it's typically shallower water and typically areas where the costs to recover a barrel of oil is obviously less than some of the deepwater.
If you look at our supplemental deck, you'll see that also reflects the largest part of our revenue pipeline is still coming from NOCs, and that reflects the activity that obviously we see in places like Middle East and also parts of the Americas, which is predominately Mexico and Caribbean.
So we see that continuing and the bidding activity on that to remain steady.
Areas of opportunity for us, so if we talk in the offshore is that obviously we're still not made any penetration in either West or East Africa.
So we see that as being an opportunity for us, as well as some of the activity that's ongoing in the North Sea, and again, we're taking a look at that at this time.
And over a period of time, hopefully, we can evolve into those areas.
Longer-term growth is that we have shown this year like what we've done in Ichthys in Australia, but also with the three, I'd call the pipeline subsea tied backs, plus the other projects that we executed on, Jack, St.
Malo for Chevron and Julia for Exxon Mobil is that we are poised as a company to really take advantage of the deepwater subsea business.
The issue there is that seems to be a little bit further away in terms of the ---+ in terms of horizon of when that comes back.
And so we are looking at not seeing a lot of activity in that area until 2018 onwards.
But what is clear from the work that was done on Ichthys and with the projects that were executed in the deepwater subsea is that McDermott is more than capable to compete in these markets, but also compete strong commercially.
I feel that with the execution model that we have with the spoolbase, with the assets that we have is that McDermott is in a good position today in terms of its ability to compete against our peers from a commercial business.
So I think if you look at it, I mean, what obviously gives us a lot of confidence is the fact that at the end of Q3, we're at $2.4 billion of revenue in the backlog.
And if you compare that to our revenues that we've had in 2016 is that we are in this year in a stronger position moving into 2017 than what we've been in previous years at this time of the calendar.
If you consider also the bids that are outstanding, and some of these have been outstanding for a period of time, is that we would expect some of our customers to move ahead with some of these awards before year end.
Now none of that is obviously guaranteed, because obviously our customers are currently and constantly evaluating pricing, but we would expect that certainly one major and probably one other customer to move ahead with awards before the year end, or certainly no later than early next year.
So as you look at $2.4 million into the year, it gives us more confidence than what we've had in the previous two years.
And as I said, if you go back to who's our largest customer and the customer that we have, the largest market share is that we still have a large bid ---+ a large backlog of outstanding bids, which is sitting with that customer at this time.
So, we're sitting here today what we feel is a reasonable position moving into 2017.
Good afternoon.
Yes, the majority of the work that we're bidding with Aramco today is brownfield.
Now, brownfield is where we are either modifying, enhancing or expanding existing facilities.
So a lot of the bids today are on the famous fields such as Safaniya and Marjan and Berri.
So, we would expect that to continue in the same path moving forward.
I would expect next year is that you will see some greenfield awards in the market.
I'm not saying it'll come to McDermott, but there will be some ---+ .
Awards.
I mean, there are some areas offshore where particularly the major operators need to move to, and a lot of them will actually ---+ could be in the deepwater.
But I think over this next 12 months, I would anticipate that the most of our bids will continue still in a shallow water and more of that brownfield type, and again, in areas such as Middle East, Americas, and maybe some slight activity starting to evolve in Asia.
<UNK>, this is <UNK>.
We've been very CapEx-disciplined over the last two years, really kind of holding back to that $40 million to $50 million maintenance at project level.
We look forward into 2017, we would say we would see that $50 million level continuing, but we also see some maybe some tactical moves to add to our capabilities or just putting in some additional growth CapEx there.
That's correct.
That's correct, and we've kind of finished our capital build program on the vessel side, so we don't see a significant new capital build program at this point in the cycle.
Thanks, <UNK>.
Yes.
<UNK>, I think if you look at Q3, we demonstrated a very successful quarter from an earnings and free cash flow perspective.
Our CapEx level was the lowest it's been in the last few years, given the completion of the DLV 2000, the majority of it.
So I think that's a very good reflection of the capability of this business.
As I cautioned around 2017 initial outlook, we've yet to tie-down with our projects and our final backlog, where the potential working capital goes.
So I think at this point in the cycle, the only real variable that McDermott's looking at is on the working capital side.
But with that said, we feel comfortable given the discipline around cash so far and the large gross cash balance that we're maintaining at this point.
I think with what we're looking at today is that you can expect at least to, what I'd call one large project and one you would put in the major category to get kicked off during 2017.
Thank you.
Thank you, operator.
I appreciate you taking the time today to listen to McDermott's third quarter 2016 earnings call.
As a reminder, this earnings call will be available for replay for seven days after this call on our website at www.mcdermott.com.
Operator, this concludes our call.
| 2016_MDR |
2016 | NBR | NBR
#Well, as indicated in the remarks, in the fourth quarter we see a 5% to 10% reduction in EBITDA.
Looking at the first quarter next year, we think looking forward to relative stability.
And I think there is a prospect, as we said before, that most of our, almost all our rate relief cases expire at the end of the year and we'll be trying to recapture a bunch of those at the beginning of the year.
So I think the way we see it right now.
<UNK>, by the way, we have recovered in a couple of places, Mexico and partially in Argentina, as well.
So there is some foundation for optimism there, because some clients have been willing to give back those price discounts.
Sure.
I'm not going to discuss specific rates on this call.
What I can tell you is that we're seeing pricing move up, especially for our higher performance rigs.
There's still a lot of variability in contract terms, so rates you hear are not necessarily comparable, even for rigs that are same class.
But I want to be clear, rates are moving up.
And in fact, in our case, I would say what's really going on is as contracts expire, we're starting to see, we're on a path to convergence of our average day rate in our portfolio to the spot market.
We're not there yet, but we're on that path.
I think the feedback we're getting from customers is the [fear] of the new neighbors.
I think they see our commitment to technology and our commitment to execution and performance.
And I think these are some themes that we'll bring up at the analyst day.
And I think there's been a lot of talk in the past couple years about rigs and what good rigs are, what they aren't.
But the fact is just look at our utilization on the X rigs today, and we'll go into what really pad optimal really means.
But I think what you're seeing is the sign post that says people are really resonating now our message on what really the rig has to have, in terms of components.
And I think people are also resonating with our commitment to performance.
We have a huge internal commitment about the KPIs and beat our own performance, et cetera.
And I think that last call, I announced we have some record scores.
Of course, every contractor always has records on a well-off basis, but this is now part of our culture.
And I think the contractors are starting to favorably, the operators are starting to favorably react to it.
Sure.
I think I talked about this on the last call, as well.
I think during this downturn, we made some special steps to address labor to make sure we retained the best people in our labor force.
The interesting thing about this downturn is, because it was so deep, it actually cut into people that are really committed to the sector, as opposed to people at the margin.
And so there's still a bunch of those people on the sidelines, and we've been able to handle the upturn very well from just our own former hires out of the bench, and that's not exhausted.
So we don't see really a problem in the medium term here adding people.
And we also are embarked on a bunch of training issues with the concept of new rigs and new technology, you have to really adapt to that.
So we're making a commitment to really train these people up, so when they hit the ground running earlier than prior in downturns, which I think the operators are more responsive to, as well.
So all in all, of course, as the duration lasts longer, the likelihood of people returning dissipates.
But right now, I think we're handling it pretty well.
Well, I think the 100 builds that we're talking about is actually enhancing what we have today.
Obviously, we can dial that back if we see things reversing very quickly.
The cost of that is not going to be really very enormous at all.
A lot of the rigs are zero, because some of them well equipped already with all the stuff that they need.
Others are at $1 million up to maybe $3 million, with an average of $2 million.
So the overall number is not really that substantial to us.
In terms of new builds, I think new builds will depend on where the market does play out.
We're not drilling down on a brand-new, new build program on top of the 100 yet, and we'll adjust those as events develop.
Sure.
I think we're smack in the middle of our CapEx process, our budget process right now.
So take this number as a very preliminary, but we are thinking of keeping the CapEx around the $0.5 billion mark next year.
Good morning
I think it's really a prospect of increased utilization in the marketplace.
So that specific contract for these upgrades, because we think that they will make the rigs the best-in-class in the marketplace.
Going back to my question with <UNK>, I think the PACE-X, a PACE-X rig is a walking rig day one.
It has high pressure pumping.
It has four engines.
It's wired for four engines to just drop the third engine in.
It's capable of free mud pumps.
All that stuff is in there.
So it's not a big stretch to round it out.
And so similarly, we have other rigs, as well, non-X rigs that we can get that upgrade at pretty reasonable cost.
So assuming the market cooperates and we see the trend continuing, we'll do that in the a new ordinary course over the next six months without necessarily marking it to a specific contract.
Obviously, if we don't start maintaining utilization of the fleet, we'll slow it down.
But right now, our plan is to do that and then deliver a page over the next six months.
That's always the trick in the sector.
As you know, when you get to around 70% to 80% of utilization, that's when the hockey stick starts working on a pricing basis.
And that's a ways off yet.
But I think for us, the key is to get these in at competitive rates, prove up the value proposition to the customer, and then we have hot rigs in the market and we'll maximize our position.
And I don't think for us it's a big bet and we have and installed base of rigs that will be the premium 100 pad optimal rigs in the marketplace.
There's absolute conviction on that.
And as I said before, the customer's reaction is such that I think that's endorsing it right now.
So getting those rigs to be used, assuming there's no backtracking of the market overall dynamics right now, I'm very confident we're going to get those in the marketplace.
Okay.
What I would say is that the tendering activity is robust.
And so we indicated a couple of dozen in the Saudi arena, but it is more widespread than that.
It applies to Middle East generally, Kuwait, Oman, UAE, for example, and [north of] North Africa and Eurasia.
And overall, I would say number of Africa tenders is actually a multiple of what I just said in (inaudible) Saudi.
In other words, it could be more than 50 active tenders in the marketplace.
So it's a pretty robust marketplace right now.
I'll ask <UNK> if you have anything to add.
No.
You hit it perfect, <UNK>.
So it's a variety.
First of all, I think the Saudi rigs, for example, largely are going to be high demand, high spec rate.
<UNK>, they're all bigger rigs than what you see in the US.
There could be an opportunity to take some existing rigs from the US in certain, there's a minor portion of that could be rigs that could be relocated out of the US, 1500 horsepowers.
But that would be a minor portion of those rigs.
Most of them are deep gas, high spec rigs.
[No.
]
That was <UNK>.
(Laughter) Was that succinct enough.
So with the contracts we have in hand, the current market and customer preferences, we think our Lower 48 margin bottom at around $5,000.
And as I said, I think we are on the move to convergence.
Our rig count, last quarter our average was about 50.
I think we have visibility right now to almost about a 20% to 25% increase in average rig count.
And so with those two numbers, I think basically we think results will, in the fourth quarter will be about the same as the third quarter in terms of EBITDA.
In other words, the increased utilization that we have visibility on right now, combined with where we're at, we think might put us around the same for the third quarter.
And then as we go into the first quarter, obviously, then that utilization really kicks in.
And I think at the end of the fourth quarter, I think we'll be up even more than that average number I just talked about for the fourth quarter.
I think ours will actually be even higher.
So as we go into the first quarter of next year, I think then we'll start to see that improvement.
I'm not going to go into that in detail on this call.
I will say that some service on nearly every working rig of the five or six services we have.
And on some rigs, we're running two or more, about on 70% of the rigs.
And obviously, we're in the start-up phase and that's why you're not seeing visibility on the numbers yet.
But we think we have a plan that we'll be talking about at some point to explain what that penetration levels are and what the economics would be.
So you'll see more of that on the analyst day.
In the third quarter.
Smaller number than that in the fourth, yes.
Usually, yes, but not to that level, not close to that $12 million level.
I didn't say about, I said at least.
That's the way we're thinking about it, anyway.
So everyone's just giving me a look.
But yes, that's the way we're thinking about it.
Yes.
Hang on one second here.
Right.
So yes, as I said before, I think the amounts vary by rig.
Some rigs, it's marginal, some rigs, it's $1 million.
And it depends on certain rigs could be as much as $3 million.
So on average, I think we're talking about on the order of magnitude of $100 million, $125 million.
Some of that will be incurred this year and the balance next year.
So it's relatively modest.
So first all, for utilization percentage right now is 86% on those premium crest rigs that you mentioned.
That's where we are.
Number two, I think yes, we always have an issue of allocating capital between, what we try to do is allocate to the best opportunities, but also try to measure where those opportunities can be over the next couple of years.
So we don't just totally swing it to one market versus the other.
So we do have, we try to choose the best opportunities in international, as well as Lower 48, as we address them.
So the bottom line is, I think we will be keen to pursue some of these international opportunities, and the CapEx number that <UNK> gave you is a number that could be revisited if we were wildly successful there, but we would be prepared to that with international.
On the US side, as I said, until we see the day rates in the lower 20s with at least operational entity of some long enough term to make it make sense, we don't see gearing up for new rigs on a big new build program in the US right now.
Just to expand on what <UNK> said, and the M rigs and the X rigs are basically all gone.
We can't market anymore.
We're done.
They're done through year-end, basically
Right.
I think as I just said, if the rates get into the low 20s, then that dynamic that you just referred to becomes actionable, and that's what we will do.
I'm not going to go there.
No way.
I think the equity is wherever we are on the bankruptcy court and we're just following, we're a participant in the process right now.
So the fate of the equity is still an issue that's open with the bankruptcy court.
Obviously, the lenders have put forth a confirmation plan which does provide something to the equity, which is not really substantial.
The market has changed and we'll see what happens in the bankruptcy court.
That's all I'm saying.
I think we can assume is I'm always looking out for the interests of Nabors shareholders, whatever that's going to be.
Operator, we're about five minutes from one hour, so we'll take one more question, please.
Thank you, <UNK>.
Around 30%.
I think when you look at a technology curve in general, you always see there's the right end of the curve, which is called the laggards, which is like that 15%.
So I think there's always going to be that part of the market that doesn't come along, which will be relegated to the smaller E&P companies or private companies with smaller legacy rig guys.
That's the guys that are going to be hanging out in that arena.
I think that honestly, their economics be under pressure, but they just don't die, they kind of just drift along.
So I do see that kind of bifurcation existing, yes.
No.
I mean, pricing is always supply and demand.
And the notion that there's an oligopoly or something that's going to really affect pricing, I don't think is helpful.
I don't believe it.
And they're happy.
Because I always have confidence in the operator's ability or the customer's ability to create new opportunities or the market to create new supply, just like on the oil price.
So I'm not going to sit here and make that argument.
What I can say is I think relative to everybody else, I think what we've been working on is to make sure our relative position is as strong as possible, which is why we're really investing in the rig technology and the rig platform.
And the performance issues I spoke about earlier, that's our strategy to deal with that.
And we think what we've got to do is improve the value proposition to the customer to get a greater share of that pocketbook.
And that's what we're working on.
The other thing, if it happens, that's just a bonus.
For those that believe that, that's just a bonus.
But that's not part of my strategy here.
I'll let <UNK> answer.
Those rigs are going back on older projects.
The combined knowledge, some of the new bids that are going on have not been awarded yet.
So there's nothing new going on yet.
And that will wrap up our call.
Thank everybody for participating, and if you would close it out for us, Dan.
| 2016_NBR |
2017 | D | D
#Good morning
Strong operational and safety performance continued at Dominion Energy
All of our business units either met or exceeded their safety goals through the first half of the year
I'm pleased that our employees set an all-time low OSHA Recordable Rate of 0.66 last year and have a goal of improving on that record this year
Our nuclear fleet continues to operate well
The net capacity factor of our six units through the second quarter was over 96%
Now for an update on our growth plans
Construction of the 1,588-megawatt Greensville County Combined Cycle Power Station continues on time and on budget
As of June 30, the $1.3 billion project was 47% complete
All three gas turbines, the gas turbine generators as well as the steam turbine generator and casings have been placed on their foundations
All three heat recovery steam generators have been set with modules loaded
The air-cooled condenser is over 60% complete
Greensville is expected to achieve commercial operations late next year
We have a number of solar projects under development and we continue to see demand for renewables from our customers including data centers, military installations, and the state government
Three of these facilities, totaling a 119-megawatt achieved commercial operations during the second quarter
In total, we've announced 438-megawatts that will go into service this year and expect to add another 200 megawatts by the end of next year bringing our gross operating portfolio to 1,800 megawatts, about 700 megawatts of which will be in Virginia and North Carolina
We've begun the process to seek operating license extensions for our four nuclear units in Virginia
Earlier this year, the Virginia General Assembly enacted legislation establishing that the spending on these efforts, which could be up to $4 billion reaching into the next decade, will be recoverable through a separate rate rider
The General Assembly also stated the construction of one or more new pump storage electric generating facilities in Southwest Virginia is in the public interest with costs also recoverable through a rider
We are evaluating a number of options and expect to have sites selected later this year
In July, we announced that we'd signed an agreement with DONG Energy of Denmark, a global leader in offshore wind development to build two six-megawatt turbines off the coast of Virginia Beach
The two companies are now refining agreements for engineering, procurement, and construction
Dominion Energy remains the sole owner of the turbines, which is targeted for completion in 2020. We plan to seek wider recovery in Virginia for the project
We have a number of electric transmission projects at various stages of regulatory approval and construction
Through the first half of the year, $327 million of assets have been placed into service
We plan to invest $800 million in our electric transmission business this year and every year thereafter for at least the next decade
Our strategic underground program continues at Power Delivery
Earlier this year, the Virginia General Assembly affirmed its support for the program, and clarified the standards by which the distribution line would be prioritized
We plan to invest up to $175 million per year in this program to reduce the number of outage locations and their duration during major events
We see improving prospects for electric sales growth in Virginia
Weather normalized electric sales were up about 2% for the first half of the year, led by strong increases in sales to data center and residential customers
New customer connections in the first half of the year were 7% higher than last year
We also connected five new data centers in the second quarter, bringing the year-to-date total to 8%
In addition, anticipated increased federal spending on defense will provide strong support for the Virginia economy, which is the largest recipient of defense dollars in the nation
All of these factors support our expectation that annual electric sales growth of at least 1% will continue
Progress on our growth plan for gas infrastructure continues as well
Our Cove Point Liquefaction Project is now 95% complete and remains on-time and on-budget
Engineering and procurement is essentially finished
Structural steel and large diameter piping installation are coming to completion and the post installation pipe testing is essentially complete
Both phases of the operator simulator training have been successfully completed
Synchronization of a steam turbine generator to the existing plant generation grid will be completed this month
Over 90% of the project systems are now in the commissioning phase in line with our schedule
As we work towards commercial in-service later this year, we will bring the project to a state of ready for start-up this quarter, and construction will reach essentially complete status
On July 24, FERC provided authorization for hydrocarbon entry into four additional project areas
We have received authorization from the Department of Energy to export LNG produced during commissioning
We have an agreement with a third party to provide the commissioning natural gas and to export commissioning LNG from a facility
Finally, the fourth quarter will provide a period of sustained production of LNG prior to achieving commercial in-service date later this year
We are continuing to work toward commencement of construction on the Atlantic Coast Pipeline and the related Supply Header project
On July 21, FERC issued its file environmental impact statement
The report was favorable and concluded that all environmental impacts will be effectively mitigated and there would be no significant public safety impacts
We expect to receive the final certificate from FERC in the early fall
We are in the process of securing all the necessary water crossing and other federal and state permits and expect to complete that process later this year
ACP and Supply Header have essentially completed the design and engineering, executed the construction contract, and completed over 84% of materials procurement
We remain on-track to start construction later this year and expect completion of the Atlantic Coast Pipeline and the Supply Header in the second half of 2019. We have an additional seven pipeline growth projects underway with well over $750 million of investment
Our keys project was completed earlier this year, and we expect four more to be completed by year end
We are also investing nearly $300 million per year in our local gas distribution companies in three states through our infrastructure replacement programs
These costs are recoverable through rate rider programs in all three states
We are seeing continued interest in expansion projects driven by new power, industrial, and LDC loads throughout our system and expect to secure at least three or four new growth projects this year and significantly more through 2020 throughout our entire footprint including our traditional Appalachian Basin, our new Western system and our expanding Eastern footprint, which has direct access to the fast-growing Mid-Atlantic and Southeast U.S
markets
So to summarize, our business delivered strong operating and safety performance in the second quarter
Construction of the Greensville County project is on time and on budget
Construction of the Cove Point liquefaction project is nearly complete, and commissioning is well underway
We received a final environmental impact statement and continue to work toward commencement of construction of the Atlantic Coast Pipeline and the Supply Header Project
As we complete our major projects, we will deliver strong earnings growth starting next year
As <UNK> stated earlier, we expect earnings growth of at least 10% in 2018, and a diverse set of positive factors will support continued growth in years to come
Because of our unique MLP structure, our superior cash flows will also allow a dividend growth rate at Dominion Energy higher than 8% per year
You can expect more clarity on our long-term growth plan and ongoing dividend policy at this fall's investor conferences
With that, we will be happy to take your questions
Question-and-Answer Session
Good morning
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Hey, I was wondering if you could go through how you're dealing with the environmental opposition to the Atlantic Coast Pipeline within Virginia
What kind of deals have been reached with the opposition at this point?
I'm not sure I understand your question entirely
But there's no deals to be reached with the opposition
We're going through the permitting process as we have for the last two-and-a-half years
We'll get our FERC permit in the fall and it's a matter of going through
There's public hearings that will be held on the water permits in Virginia this month
They had them last month in North Carolina and those permits will be issued later in the fall and we will start construction in November
No deals to be struck with anyone
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
So it doesn't sound like there is anything – any significant opposition that you're dealing with
Is that a fair statement or?
There's certainly some vocal opposition in some isolated localities, but overall, folks in Virginia support the pipeline as they do in West Virginia, North Carolina and we expect to get all the necessary permits later this fall
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
All right
Thank you very much
Thank you
Thank you, and good morning
We'd like to see FERC commissioners impaneled in September, would be our best guess on when that'll happen and that would allow us – no later than September is our best guess on when that'll happen, and that would allow us to start construction on this particular schedule
We won't talk about potential expansion opportunities until after we've received our FERC permit
And then, we will sit down and talk to folks
Good morning
There's been obviously lots in the press about what's going on in Connecticut legislature
We're working very hard on that project in the legislation
As long as they're in session, we will be working on it, and we think there are prospects to have that legislation be adopted during the course of this legislative session
The governor's issued an executive order you referenced calling for a study
We don't feel the need to – for a study to be conducted, but we will certainly participate in the study
I think it's pretty clear what's necessary in Connecticut, and we'll let it play its course
Good morning
Well, this first two turbines are test turbines
They will be built in the area that's been designated that we have the lease rights to
It's about 25 miles, 26 miles offshore of Virginia Beach, so the turbines won't be visible
We've been working on this for a number of years, long, many years trying to find a partner who would give us the kind of certainty we needed on the cost to protect our customers
So that we could go to our commission, because it will need commission approval to authorize the construction of the turbines
They are – will be subject to rider recovery
If the turbines demonstrate that they work well in these waters and produce the kind of capacity that we expect, then it's up to 2,000 megawatts of offshore wind that would be available
We're building a lot of solar as well
Our IRP calls for up to 5,000 megawatts of solar
Solar uses a lot of land, and that's beginning to become obvious to people as maybe not quite as obvious to folks in the West, where vacant land is abundant
It's a little more obvious to folks in the East, where vacant land is not quite as abundant
So we're exploring all of our options to meet our customers' demands for decades to come
That's part of why we're looking at the relicensing of North Anna and Surry as well, and pump storage in the Virginia mountains
Good morning, <UNK>
Thank you
| 2017_D |
2015 | AMED | AMED
#All is a part of that but I will let <UNK> answer that piece first.
I think in general what we are seeing is as Medicare, as MA Medicare Advantage gets an increasing piece of the piewe see and we are from that business and embrace that business, we see a lot of opportunity there.
We think it is going to continue to grow and to continue to gain market share and therefore we are enthusiastically tweaking our care delivery model so that we can participate and make money by joining with our partners, our MA partners.
Thanks.
So we're looking at all options.
We have to attain the right balance and our M&A efforts are really digging in now.
We want to be pro active from an M&A perspective.
So we have some very good folks in the field starting conversations in key areas for us.
We are optimistic there, but we're also going to be very sensitive about evaluations and our ability to do accretive deals.
So we have to look at all our options in terms of how to employ our capital.
Good growth.
It's all over the place.
<UNK>, do you want to ---+ we have <UNK> on here.
He's our chief strategy officer.
Yes.
I think a rule of thumb is the larger they are the more expensive they are at this point.
The more private equity or venture money in there the more expensive they are.
Hence our strategy is to define geographies where we want to be and then to pro actively start knocking on door and we've done that.
Yes, okay.
So smaller deals, are they (inaudible) EBITDA or more.
Just curious.
That's a great question.
I think there will be people, and you've already seen examples out there.
I think some successful still to be determined of people that are trying to be intermediaries in this space I think to varying degrees of success.
Fundamentally, they are pushing price, and what they're doing is they're piecing things together and trying to wrestle price out, take therapies and then try to sell them as bundles and then say overall you'll get better care coordination at hopefully a cheaper price.
The thing that worries me about these companies, frankly, is they have imperfect information and therefore unless you have the entire continuum of information it's really hard to do pricing and then manage things in bundles effectively.
So I think that's a first stage of what we we're going to see in the post acute piece.
If somebody can get all of the information, use that information and drive costs down with the varying people that have to participate and then sell that effectively to the buyers, fundamentally manage care, I think that's ---+ but we have yet to see it.
I think the other pieces will be ---+ is people like us who will focus on care in the home.
I think That's going to be an increasing piece of the post acute Bundle.
I think we will start to get smart and smarter in partnering with our dme friends out there.
I think we'll get more partner-oriented to work with some of the facilities that are out there.
We already do that in hospice.
So I think if general we will start to be partners, but I think buying physical assets to me does make a lot of sense.
The idea is to continue to find effective technologies that are out there effective ways to grow, keeping people in their homes which is the most effective from an outcomes perspective and it's the most economically to keep people in their homes.
I think if we become the experts at that, we'll do very, very well.
And we'll be partners with everybody in the post acute space.
I mean we're ---+ we always get interesting proposals.
We seen a lot from the MA plans.
The larger ones are clearly very innovative and want to ---+ want us to participate.
Particularly, once again, I think, guaranteeing and trying to come close to that readmissions.
They pick heavily on readmissions.
They pick heavily on outcomes.
They pick heavily on ---+ as they are becoming more consumer oriented.
How do their members rate us from that perspective.
How do their members ---+ does this help their satisfaction and hence their retention.
So I think That's very important.
So I think those are the ways that they are choosing.
I think the ACOs are the larger people that are out there, the ACL bundlers and the ACL risk takers.
We've seen a lot of interest from those folks and then ACOs who are trying to build out the capacities and reaching for partnerships.
Is it driving a huge portion of our business yet.
Absolutely not.
Sure.
So we either reduced or sold, reduced or consolidated 50.
That's a very good question, <UNK>, and I'm going to talk to you about it.
The name as we ---+ did you hear the introduction when we were announced.
Okay.
I think it was called Amedysis.
We constantly get that.
So I came in with a very strong opinion.
When I proudly was telling everyone I was joining Amedisys, they came back with about a hundred variations on how you pronounce it.
So it's a tough name for a lot of folks.
I also don't think it reflects very well what we do.
I mean we take care of the most vulnerable people in their home and we pride ourselves on that.
I think a medical system which is where it oriented from the name, doesn't reflect that.
So we are outlooking at it.
The reserve I have on the name honestly is in some places it's very strong.
You'll go to doctors' offices and you'll go to where we have been a long time in Georgia, for example, and they'll know us, they'll say it, they put us at the top of the list.
And I guess my opinion there is why mess with success.
You go into other parts where we're less well known and people struggle with it.
So we are taking a look at it because I think it doesn't ---+ I do think the name doesn't reflect the fact that we do take care of people.
We're a care organization.
And we're largely ---+ 85% of our population is women which we're all very proud of and caregivers.
So I think as we're going through this and starting to look at this, we'll come to some decisions about this and we are certainly going to vet it in the markets and see what we ought to be doing.
That's a long answer.
The corporate ties to Baton Rouge, we're delighted with our employees here at Baton Rouge.
I've been very happy since I have come here.
We are looking at places where we can draw talent, where we can bring talent to Baton Rouge.
Some as we are constantly on the lookout for talent in terms of managed care and bundling certain types of IT, human resources.
We are trying to be a 21st century company and are open to locations in other places.
But I do want to say that the people here would do what they do, do a great job at it.
I hope the revenue recovery for example and I just talked to these folks yesterday about it.
They do a fantastic job.
And where we do great work, we're going to keep doing great work.
So that's our thought there.
Some of them ---+ everybody is fulltime now.
And they're coming down here but we are looking at very satellite places where our business is closer.
As you see when I want our people in the middle of our businesses and that's the most important thing.
As you've heard, I've spent a lot of time out there.
Our COO instead of being around the table with us, Dan McCoy is out there.
We're out there all the time.
I think it's important that we're close to the business.
And so whatever keeps our executive out close to the business, that's what's more important.
Thank you, <UNK>.
I believe there's about - we believe there's more margin as we talk about.
And I think we need to be in leading in that area.
On the revenue growth side, what we're looking at now is capacity.
So I think we believe that as we increase the efficiency of our caregiving operations and do more standardization, have the IT be additive, we believe that we can drive much more productivity.
So we believe there's inherent quite a bit of volume growth there.
So I think this year, we should start to see some of that and certainly next year, we're starting to push the idea that we need to really start to grow way above the rates we're doing now.
I think we said our ambition was two to three years on at least half of that and so call that our ambitious piece.
I think from the IT piece, we're looking at 17 ---+ end of 17 to extract that out so I think that 2 points there.
And then as we're moving into some of the other areas, care standardization, staffing optimization, capacity frame ---+ I think we could improve on our coding ---+ all those things, we're moving on that very quickly.
So I put two to three years out there.
I think the team heard it and you probably did.
And I think it's important that we deliver on that within that timeframe.
I think having a stable partnership ---+ when I talk to my Humana friends and my other payer friends out there that I know, yes, I mean, they are very interested in the stable good relationship with somebody who can drive here and the home and reduce hospital readmissions.
They're all over it.
And so I think the question is, how do we ---+ it's how do we ---+ we need to start to have some of those conversations.
We need to obviously be in the markets whether at and then we need to understand what sort of standard we have to live up to.
And then put our money where our mouth is on this.
There is a lot of interest.
I would like to be on that spot as you're seeing there's a lot of managed care people who understand this.
We're comfortable with taking risks.
And obviously with the growth of that in May, the world is moving towards that as a way of cost containment and as a way of attracting customers.
So I think it's better to lead than to follow in this pace.
Sure.
Thank you.
We all ---+ we have plan for proceeds of activities ---+ nothing really big so emerging, yes, in a significant way but we'll sort of tell we plan forth and anticipate some of our activities kickoff.
We have ---+ I'll start with your last question first.
Although we have this close to medium length of stay but two are the discharge length of stay say, down.
There's nothing really again that we would point to.
I think the activity, the additional admits and so forth - that's why part of what I'm seeing census grow more quite frankly than we have.
It's we're gaining patients so on but short length of stay so it's bringing the average down.
But no particular diagnosis that we would point to at this time that is really driving that.
Thanks, <UNK>.
We appreciate it.
Okay.
I want to thank everybody.
Thank you, Operator, and thanks everyone who joined us on our call today.
We sincerely appreciate your interest and I'll get this right, Amedisys.
And we look forward to updating you on our visits and on our next quarterly earnings call.
Thanks again.
Take care.
| 2015_AMED |
2015 | COLB | COLB
#Thank you Nicole.
Good afternoon everyone and thank you for joining us on today's call to discuss our third-quarter 2015 results which we released this morning.
The release is available on our website, ColumbiaBank.com.
As we outlined in our earnings release, we had record new look production during the quarter growing $348 million, our highest quarterly total in our history with just under $850 million for the first nine months of 2015.
This was the eighth consecutive quarter our bankers have achieved well over $200 million in new loan originations and along with the increases in non-interest income and careful management of expenses this helped us achieve our record earnings with net income of $25.8 million and diluted earnings per share of $0.45.
<UNK> <UNK>, Columbia's Chief Financial Officer, is also on the call with me today.
He will begin our call by providing details of our earnings performance.
<UNK> <UNK>, our Chief Operating Officer, will be covering our production areas this afternoon and <UNK> <UNK>, our Chief Credit Officer, will review our credit quality information.
I will then conclude by giving you a little bit of an update on the economy here in the Pacific Northwest including Washington, Oregon and Idaho.
We will then be happy to answer your questions.
But as always I need to remind you that we will be making some forward-looking statements today which are subject to economic and other factors.
And for a full discussion of the risks and uncertainties associated with forward-looking statements please refer to our securities filings and in particular our Form 10-K filed with the SEC for the year 2014.
At this point I'd like to turn the call over to <UNK> to talk about our financial performance.
Thank you, <UNK>.
This morning we reported third-quarter earnings of $25.8 million, or $0.45 per diluted common share.
We had many of the same items that have created noise in our numbers during previous quarters but this quarter they didn't materially influence our reported results.
We had $428,000 of pretax acquisition expense and OREO expense of $240,000 which were offset by an $826,000 benefit from the accounting impact of our acquired FDIC loan portfolios.
The combination of these items resulted in an increase to net income of approximately $100,000.
Our reported net interest income increased $684,000 over the prior quarter to $81.7 million.
The increase was driven by additional interest income on loans of $1.4 million after excluding the change in acquired loan accretion income.
Non-interest income before the change in the FDIC loss sharing asset was $24.1 million in the current quarter, up from $23 million in the prior quarter.
The change was primarily due to increased gain on loan sales which were up $1.1 million from the prior quarter.
On a core operating basis revenue increased $2.7 million over the prior quarter and $3.9 million or 4% over the first quarter of this year.
Reported non-interest expense was $64.1 million for the current quarter, down $4.4 million from the second quarter.
The decline was largely driven by acquisition expenses which were $5.2 million lower in the third quarter.
After removing the effect of acquisition related expenses, OREO activity and FDIC clawback liability expense our core non-interest expense run rate for the quarter was $63.2 million, down slightly from $63.4 million on the same basis during the second quarter but down nearly 3% from $65 million during the first quarter.
Most expense categories saw modest improvement with declines over the prior quarter.
However, some of the improvement was diluted by higher than usual fraud losses during the current quarter which increased $546,000 when compared to the second quarter.
As a result of both stable operating expenses and asset growth our core non-interest expense to assets ratio declined 5 basis points to 2.92% during the third quarter, achieving our target one quarter ahead of schedule.
We will work diligently to reduce this ratio further.
However, there are expense headwinds as we continue to make infrastructure investments in areas we believe will enhance our long-term profitability.
Sunday is the one-year anniversary of the closing of the Intermountain acquisition and we are pleased to report that during the third quarter we met our goal of $8.6 million in cost savings expected with this transaction.
Our bankers continue to do an amazing job delivering another quarter of record loan production and very strong deposit growth.
Our total cost of deposits and average cost of interest-bearing deposits continue to hold steady at 4 and 8 basis points respectively.
As a result, the operating net interest margin regained the 1 basis point it lost in the second quarter to match the first-quarter ratio of 4.18%.
Tangible book value per common share ended the quarter at $14.62, up from $14.29 at the end of the second quarter and our tangible common equity to tangible assets ratio was 10.1%.
Now I'll turn the call over to <UNK> to discuss our production results.
Thank you, <UNK>.
Total deposits at September 30, 2015 were $7.31 billion, an increase of $270 million from $7.04 billion at June 30, 2015.
About $180 million of this increase was in non-interest-bearing DDA.
On a year-to-date basis total deposits increased $390 million or about 5.6%.
Core deposits were $6.99 billion holding steady at 96% of total deposits.
Loans were $5.75 billion at September 30, 2015 representing a net increase of about $135 million or 2.4% over the second quarter.
Year-to-date loans were up $301 million or about 5.5%.
Third-quarter increase was largely driven by strong levels of new production at $348 million.
Line utilization played less of a factor in driving loan growth during the third-quarter, remaining essentially flat at 52.8%.
Assuming historical patterns hold we are likely to see line utilization to start drifting down.
Line activity in our C&I portfolio typically pulls back in the fourth quarter.
In this part ---+ this is linked to the pattern of borrowing activity related to our agricultural borrowers who apply crop proceeds to reduce operating line balances during this part of the year.
New production was predominantly centered in C&I and commercial real estate and construction loans.
Term loans accounted for roughly $225 million of new production while lines represented about $122 million.
The mix in new production was fairly granular in terms of size: 25% of new production was over $5 million, 36% was in the range of $1 million to $5 million and 39% was under $1 million.
In terms of geography, 69% of new production was generated by lending teams in Washington, 28% in Oregon and 3% in Idaho.
Following the pattern of new production, net loan growth in the third quarter was concentrated in C&I and commercial real estate.
C&I loans ended the third quarter at $2.35 billion, up about $100 million.
Industry segments with the highest loan growth include agriculture, finance and insurance and public administration.
Commercial real estate and construction loans ended the third quarter at $2.89 billion, up $53 million.
The commercial real estate asset types with the largest increase were office, warehouse and multifamily.
The low interest rate environment combined with competitive market conditions continues to put downward pressure on loan coupon rates.
The average tax adjusted coupon rate for quarterly new loan production declined from 4.08% in the second quarter to 4.02% in the third quarter.
The average tax adjusted coupon rate for the overall loan portfolio trended down as well from 4.44% at June 30 to 4.39% at quarter-end.
While market conditions across our footprint are highly competitive our deal flow remains active and I expect to see positive net loan growth in the fourth quarter.
That concludes my comments.
I will now turn the call over to <UNK>.
Thanks.
For the quarter the Company had a provision of $2.8 million which was once again driven by the originated portfolio which required a provision of $5.250 million.
The provision was again driven by loan growth, net charge-offs and modest migration trends experienced during the quarter.
Offsetting the provision for the originated portfolio we were able to release $520,000 from the purchased credit-impaired allowance and $1.9 million from the discounted allowance provision.
We had net charge-offs of $3 million for the quarter evenly split between the originated portfolio which had $1.6 million and the purchased credit-impaired portfolio which had $1.7 million.
The discounted portfolios had modest recoveries for the quarter.
In total that equates to about 5 basis points for the quarter.
So as of September 30, our allowance to total loans was about 1.2%, down from 1.23% at June 30 and 1.28% at year-end 2014.
Our allowance to nonperforming loans as of September 30 is 362%, up from 269% last quarter.
Key to the improvement in this ratio was the decline in nonperforming loans during the quarter.
For the quarter nonperforming assets declined $7.8 million or 17% thanks to declines in both nonperforming loans and OREO.
Nonperforming loans now represent just 33 basis points of period-end loans while nonperforming assets represent just 44 basis points.
Past-due loans at quarter-end word 20 basis points compared to last quarter when they were 23 basis points.
With that I will turn the call back to <UNK>.
Thanks, <UNK>.
While economic indicators have been somewhat mixed over the past quarter both for the United States and internationally it appears that forward momentum is still very strong in the Pacific Northwest.
However, we're carefully monitoring global economic conditions and the potential effect on our trade dependent companies.
The Kiplinger newsletter is forecasting that Oregon, Idaho and Washington will be in the top 10 states with the fastest-growing job growth for both this year and looking forward to the end of 2016.
The pace of retail sales grew faster in our two largest metropolitan areas than anywhere else in the nation the past quarter.
That would be Portland, Oregon growing over 9% and Seattle taking second at 6%.
In comparison sales increased 1.8% nationally.
The NAIOP, which is the National Real Estate Development Association, ranks Washington the eighth most active state for real estate development.
This is notably since we're the 13th largest state by population.
The development of office building, warehouses and retail space generated more than $5 billion in direct expenditures and supported nearly 80,000 jobs.
With our population and as our population continues to grow Washington is the 10th fastest-growing state primarily due to the booming Seattle-Puget Sound area.
The state climbed past the $7 million mark last year, adding over 90,000 in a single year and increasing its population by 1.29%.
They Seattle-Tacoma-Bellevue area was responsible for almost 70% of added Washington residents.
For you history buffs the Seattle Times recently reported that the city's population is approaching Gold Rush growth levels.
To find a time when Seattle grew faster than it has in the past two years you'd have to go back to the first decade of the 20th century and the period right after the Klondike Gold Rush.
Driven by tech hiring particularly by Amazon, Seattle's wrote growth is as fast as it's ever been.
Washington's jobless rate continued to drop, hitting a seven-year low.
However, hiring across the state slipped a bit in September as the labor force shrank and of the number of jobs fell by around 2,000.
The state's September unemployment rate was 5.2%, down from 5.3% the prior month, just a 10th higher than the US rate of 5.1% and a full point lower than 6.2% in September a year ago.
The Seattle Metro area unemployment in September was just 3.7%.
Washington State labor economist said he expects to see workforce participation, both national and state, to decline over the long term as more people move into retirement.
The Northwest Seaport Alliance reports that overall container volumes have improved 5% through the third quarter of this year, largely driven by full containerized imports.
Year-over-year imported full containers increased over 9% thanks to retailers who are increasing inventories and preparing for the holiday shopping season.
However, exports headed to international destinations dropped almost 11% through the third quarter, reflecting the stronger US dollar and decreasing demand from China and weaker economies overseas.
Indicators are a bit mixed in Oregon as well.
Despite strong payroll job gains in recent months Oregon's unemployment rate edged up slightly to 6.2% in September but improved from 6.9% a year ago.
The state also had 5,300 fewer workers, the first decline in 36 months.
The sectors showing the most decline were in construction, retail, professional and business services as well as leisure and hospitality.
The region, however, has regained more than twice the jobs lost during the recession and per capita personal income is approaching the prerecession highs experienced in 2007.
Oregon is continuing to outpace the nation in economic growth.
The state exported nearly $21 billion worth of products last year and is on pace to match that figure by the end of 2015.
Agriculture production accounts for $5.4 billion in the Oregon economy led by cattle production, greenhouse and nursery, hay, milk and grass seed rounding out the top five.
It has also been a great year for tourism in Oregon.
The lodging occupancy rate was over 90% in July and 2015 is shaping up to be a record-breaking year.
The number of visitors to the state's outdoor attractions are on pace to be the highest ever.
In Idaho the unemployment rate held steady at 4.2% in September while the state's labor force reached a record high of 800,000 people.
September saw an increase of 5,000 jobs which offset general seasonal declines across Idaho's economy.
Idaho has some of the strongest population and employment growth in the country.
According to the US Bureau of Labor Statistics, in the last year Idaho jumped to eighth in the nation in employment growth, up from 31st and ranked sixth in the nation for personal income growth.
Much of these upward trends is attributed to the state's economic stability, particularly agriculture which has been a strong and consistent economic driver.
The high-value agriculture industry makes up 1.2% of the national economy.
However, it makes up about 7% of Idaho's economy.
Idaho still expects agricultural exports to top $1 billion as they did in 2014.
Additionally economic drivers such as construction, manufacturing and trade contribute significantly to the state's economy making it significantly more stable than states invested in energy for example.
As many of you know we regularly survey our business customers throughout our market area to better understand their challenges, their opportunities and thoughts on the economic environment.
About 94% of our customers were confident about the future of their business.
This was true among all industries surveyed.
However, while most feel optimistic about the business conditions in general those in the construction, retail and manufacturing industries seem to be less optimistic with ratings below the average.
To summarize, the economy in our area continues to perform better than the country as a whole than most economic indicators and along with our business customers we are very optimistic about the future of the Pacific Northwest.
Our priorities going forward continue to be growing loans, improving operating leverage and effective utilization of capital.
We continue to feel very optimistic about our opportunities here in the Pacific Northwest which helps us support our decision to pay another special dividend of $0.18 in addition to a regular dividend of $0.18.
Both will be paid on November 25 to shareholders of record as of November 11.
We're pleased to pay a special cash dividend for the seventh consecutive quarter.
Both dividends totaling $0.36 constitute a payout ratio of 80% for the quarter and a dividend yield of 4.2% based on our closing price yesterday.
With that, this concludes our prepared comments this afternoon.
As a reminder, <UNK> <UNK>, <UNK> <UNK> and <UNK> <UNK> are with me to help answer your questions.
And now, Nicole, we'll open the call up for questions.
Well, some of it's related to just automation of processes in the back office, looking at how we can apply some automation in our customer facing areas, hardening our IT shell, cyber security, things of that nature.
I can't really give you specific details just because I'm not willing to open up our playbook for everybody that's on the call.
But it's not inconsistent with what we've done for many years where we've taken a long-term view and made these types of investments whether it's in new teams or new technologies.
And I think that with some of the things that <UNK> is looking to create with the production side in the banking solutions area there's going to be some investments that we're going to need to make over the next one to three years.
No, I would say that the full run rate is reflected in there.
And the reason I would say that is while we finalized those last handful of cost saves in the third quarter, our objective has always been that $63 million to $64 million range once we hit the one-year mark of the transaction.
That's what we talked about a year ago or a year-plus ago when we announced it.
And last quarter we were $63.4 million on an operating basis, down a couple hundred thousand dollars this quarter.
But realistically there's always things one quarter to the next that can create a little bit of noise and move the needle a few hundred thousand dollars one way or the other.
So while we might've received some benefit from those last few cost saves in the third quarter, there's a lot of moving pieces.
And so I'd say I wouldn't necessarily look for any incremental pickup in the fourth quarter related specifically just to cost savings.
I think that my comments were more associated with we are the most trade-dependent state in the country.
Of course a lot of it has to do with Boeing's very large exports.
But what we don't have a lot of color on yet is the extent of the port slowdown earlier this year and its long-term implications, particularly on agriculture.
And because some of the products that were actually exported or are exported they went to other ports.
And now that combined with China you just really want to make sure that you're not being too optimistic on the overall effect of just continuing slowing in any kind of exports, whether it's ag or clothing even.
We have companies here in the Pacific Northwest that export a lot of clothing to other parts of the world.
Yes, exactly.
Sure.
I guess I'll take it in pieces.
So I guess I should have made this point also when I responded to <UNK> is our non-interest expense to asset ratio is something that we're still committed to working towards lowering even beyond the level that we achieved this quarter.
So I don't know if that will help in terms of with <UNK>'s question about timing and amount and impact but as we grow expenses will grow as well most likely.
As we cross $10 billion we really feel like we've got that infrastructure in place.
We've been working hard on that for three-plus years.
We've had a lot of dialogue around it internally and we have the DFAST compliance stress test model that's operational.
We have the compliance function that's in place, many of the other things.
So as we cross over $10 billion it's really going to be volume-related items that would cause us to increase expense.
Additional production might lead to additional folks in our loan operations group, for example, or additional BSA analysts.
So we feel pretty good about where we're at there.
The interchange, loss of interchange revenue is something that we would hope we be able to replace with other revenue sources upon crossing $10 billion.
But for us that's a little over $7 million pretax right now.
I'll talk a little bit about you know the expenses for the quarter.
Looking at just the nature of the activity I think it was a special circumstance.
And the nature of the activity involving the loss was the result of fraudsters who acquired stolen debit cards from past third-party breaches and then created counterfeit debit cards for the purpose of running transactions not protected by authentication.
So upon detection what we did is we instituted corrective measures which quickly contained the losses and strengthened our ongoing fraud detection capabilities.
It's probably important to note, too, that as chip-based cards increasingly replace the existing card technology, further protection will be provided as well.
And as it relates to kind of the run rate second quarter was roughly $300,000, third quarter $800,000 rough numbers.
And the difference is largely this event that we think we've got isolated and contained.
But the fraudsters are busy.
Payoffs in the third quarter were not as much as they were in the second quarter.
What we've got coming down the pike and what my comments were focused on the expectations for the fourth quarter and typically we have pulled back on our lines of credit that take place about now and actually cross year-end and are in the first quarter and it's isolated largely to ag and construction.
But it's a pattern that we've seen before and one that I continue to expect.
In terms of prepayments for the third quarter, we're looking at maybe about $80 million in terms of a number.
And that's an amount that is below what we experienced in the second quarter.
I don't have the number front of me here.
You're welcome to call me.
Well we first of all I believe we have capacity within our existing team of lenders who have demonstrated the capacity to grow.
And I have to always suggest I'm on the lookout for opportunities to bring new members to our team as well.
And so that's a case-by-case evaluation and it's something that is an ongoing initiative.
Are you referring to the banking solutions group.
Okay.
As the bank grows we're scaling our organization accordingly.
And what we've done essentially is we've taken and concentrated the management of product management in one area which is the majority of the activity for this group.
And there are other activities including debit card, credit card in that as well.
But the concept is to get professional management over these product lines and to focus on growing non-interest income.
And there are plenty of complexities involved in managing products with compliance and so we want to do that very professionally.
So this group allows us to achieve growth in non-interest income, manage our compliance risk more proactively and go forward hopefully with growth.
At the end of the third quarter we have roughly $36 million of remaining net discounts on our non-PCI portfolios on and those are the PCI portfolios are the ones that we had lost sharing arrangements under or still have.
On those it's about $17.8 million of discount.
The accretion it will continue to wind down.
I think what you saw from the third quarter or the second quarter to the third quarter in terms of reduction will continue to play itself out.
The one thing that I guess the one wildcard there is the prepayments.
But all things being equal we wanted expect that next year accretion income will drop between $5 million and $6 million.
The line utilization in Q3 was 52.8%.
Second quarter was 52.9%.
My expectation is that I assume that will drift down a bit.
It's hard to predict but we do have an overall pattern that heads that way in the fourth quarter and somewhat in the first quarter as well.
Then it builds second and third quarter.
Right.
And volumes are difficult to predict but the pattern is there.
Sure.
Actually, comp was zero this quarter but we do still have some contractual things related to comp that will hit in the coming quarter.
So for the third quarter the 428 is broken out, there's $181,000 in occupancy, $40,000 in advertising, marketing type things, $71,000 in legal and professional services, $42,000 in data processing and then $94,000 just in miscellaneous.
So where we're at transaction to date is roughly $14.8 million.
We modeled $18 million.
Contractually what I do know is that we'll have roughly we expect roughly $800,000 in the fourth quarter and then there are some other things that occupancy type things that we're working through that may hit but I don't have a good number for what that is.
But I guess following up on the implementation of the cost saves that was really important to us to make sure that we hit that and reported back on that.
Same thing with the transaction costs, we'll continue to make sure we have visibility around that so that everyone knows where we ultimately end up.
But we're getting close.
Yes, I mean half of the provision is really associated with just the growth in the bank's loan portfolio in the originated bucket.
So thanks to <UNK> and his team he's really been doing a great job we've exhibited quite a bit of growth in that arena.
So that's driving $2.5 million, depending on which quarter it is $2.5 million to $3 million of provision expense.
The charge-offs in the non-PCI portfolio have really been running around 15 basis points on an annualized basis.
I would expect that would continue.
So you're really looking at activity levels in the provision consistent with the second and third quarter.
I'm trying to remember.
We're all trying to remember.
We believe that it's four this year.
You know, we always look for opportunities to become more efficient about how we're serving our customers but serving our customers comes first.
And just about all of our closures have been consolidations where we've had branches that we've acquired that are close to others and they're somewhat redundant branches.
We really have a long-term perspective on how we really determine whether or not branches are performing and we look at them in terms of kind of a hub-and-spoke situation.
So it's just an ongoing process, <UNK>, and I'm sorry I'm probably I should've let <UNK> answer this but we just continually look at it and weigh it against you know does it have customer impact.
The nice thing is that typically just through normal attrition we're able to find positions for those people who are being displaced by those branch consolidations.
So it all seems to work pretty well.
I think that there's still a lot of conversation.
One thing that may have slowed down some of the actual mergers is that peoples' earnings are coming back and just trying to reach a consensus on where companies should be trading at or really looking at earnings as a multiple.
And I just think that this has really been a year when companies have sat back and thought where are our earnings going, where are our expenses going.
I don't think the conversation is any less at all.
It's just that people are being very thoughtful about mergers and acquisitions.
It's really case specific I think.
I still believe that we're going to see more consolidation in the smaller banks just because it's very evident that unless we get at interest rate hike that it's going to be harder for a lot of companies to be able to improve their earnings just because they are not going to have much of a lift in terms of interest.
And so I think that there is probably going to be more at the lower end than the larger size banks.
Yes, yes.
Matt, if you're still out there I found the second-quarter information that you were looking for regarding pre-pays and it was $135 million.
All right.
Thanks everyone for joining us on the call.
Happy holidays ahead.
And we'll talk to you in the early part of 2016.
Bye.
| 2015_COLB |
2017 | GFF | GFF
#Thank you, Dennis.
Good afternoon, everyone.
With me on the call is Ron <UNK>, our Chief Executive Officer.
Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today and on our website.
As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffon's businesses and the environments in which they operate.
Such statements are subject to inherent risks and uncertainties that can change as the world changes.
Please see the cautionary statements in today's press release and in our various Securities and Exchange Commission filings.
Also some of today's remarks will adjust for those items that affect comparability between reporting periods.
These items are explained in our non-GAAP reconciliations included in our press release.
Now I'll turn the call over to Ron.
Good afternoon, and thanks for joining us.
We built on our first quarter performance with a record second quarter's segment adjusted EBITDA of $51.3 million, driven by growth in our Home & Building Products segment and improved EBITDA and margins across all of our segments.
These results were mainly attributable to continued steady execution as we were able to more than offset lower revenue in Telephonics and Plastics in the quarter.
The underlying trends in our businesses remain positive, and we are firmly committed to drive continued improvements and operating efficiencies.
Revenues for the quarter decreased 1%, which was consistent with our internal expectations.
We anticipate, as the year progresses, that we will be on track for 2% to 3% consolidated revenue growth.
Before turning to our segment-level comments, I want to provide an update on some recent news, capital deployment activities and return of cash to our shareholders.
On April 29, AMES welcome President, Donald <UNK>
Trump on his 100th day in office along with Vice President, Michael R.
Pence, and Secretary of Commerce, Wilbur L.
Ross to our wheelbarrow manufacturing plant in <UNK>burg, Pennsylvania.
Following a tour, President Trump signed 2 executive orders, adding another milestone to our company's rich American history.
Honored guests included Secretary of Veterans Affairs, David L.
Shulkin; and Director of Trade Industrial Policy, Peter Navarro.
Griffon is uniquely positioned to support the President's policies to promote economic growth, domestic infrastructure improvements and national security with our businesses.
Moving to capital deployment and return of cash to shareholders.
Earlier today, we announced a quarterly dividend of $0.06 per share.
Year-to-date free cash flow improved $15 million over the prior year period, resulting in negative free cash flow of $33.7 million.
Consistent with the seasonality of our businesses, we expect strong second half free cash flow and much more in the future.
On January 17, we settled our $100 million 4% convertible notes for a total of $174 million comprised of $125 million in cash and 1.95 million shares of common stock.
We borrowed on our revolving line of credit for the cash portion of the settlement.
We did not purchase any common shares this quarter under our board repurchase program as we continue to analyze the benefits of reducing net debt versus share repurchases.
As of March 31, 2017, $49 million remains under the August 2016 board authorization, should we see an opportunity to repurchase shares.
I'll go through our businesses, and then I'll turn the call back over to <UNK> for a more discussion on some of the financial results and outlook.
Let's start with Home & Building Products.
We remain positive on the outlook for the Home & Building Products segment as we continue to grow sales and leverage our manufacturing and distribution footprint.
We continue to see underlying strength in the U.S. housing market with the slow but steady multiyear housing recovery contributing to our improved results.
Single-family residential construction continues to improve.
However, annualized starts remain below historical norms.
The U.S. Census Bureau indicated 2017 year-to-date March single-family residential construction starts increased 6% over the 2016 period.
Also according to the National Association of Realtors, March 2017 annualized existing single-family and condo home sales increased to $5.1 million for a 4.3% improvement over the comparable 2016 data, further indicators that the market continues to improve.
In our doors business, Clopay is using a variety of consumer touch points to boost sales by augmenting their multichannel imagination advertising campaign with technology and in-store displays, so competitive advantage.
Utilizing the mobile application MyDoor or the Home Depot design configurator, consumers can upload a picture of their home to design the right door that complements their interior ---+ exterior, excuse me.
The order then can be sent seamlessly to our manufacturing facilities.
Clopay door investments and innovation and capacity underscore our commitment to and confidence in future of the business.
Turning to Telephonics.
Second quarter segment adjusted EBITDA improved 13% year-over-year, with a 210 basis point margin expansion due to improved program mix and operational efficiencies.
Second quarter orders improved 8% to $101 million over the prior year quarter.
Backlogs stood at $387 million with 73% expected to be fulfilled over the next 12 months, giving us good visibility throughout the second half of fiscal 2017.
Telephonics continues to have multiple opportunities for its radar and communication systems in both the U.S. and internationally as well as opportunities with public transit systems, the FAA and border security.
Earlier this week, Congress reached an agreement to fund the government through September 2017.
This bipartisan plan is expected to be approved by Congress soon.
The deal included up to $15 billion in supplemental defense funding, which provides for an implied $197 billion of weapon spending, which is a 5% increase over the prior year.
Telephonics with highly sophisticated intelligence, surveillance and communication solutions should benefit from this increase in spending.
Despite bipartisan plan, we'll also fund an incremental $1.5 billion in spending for border security, including for technology and fixing existing infrastructure.
Stability in government funding for defense and border security for the balance of 2017 provides visibility and reduces risk for defense and security contractors overall, including Telephonics.
Moving to our Plastics business.
On April 3, we announced that Alan Koblin, President of Clopay Plastics, will retire on September 30, 2017.
Ron Zinco, currently the Chief Operating Officer of Clopay Plastics, will succeed Alan.
During his 5-year tenure, Alan did a great job leading our Plastics business and has significantly strengthened the company.
Ron, who is named Plastics CEO in 2016, is the ideal candidate to assume the role of President with his 30 years of experience at Clopay, extensive knowledge of the industry and customer relations.
We are confident in Ron's leadership to oversee the business and with the support of the entire Clopay Plastics team continue to drive revenue and operational performance.
For the quarter, Plastics EBITDA margin improved 40 basis points over the prior year to 10.6%, reflecting management's continued focus on operational performance.
Our Plastics business continues to execute on its breathable films strategic initiatives focused on innovation and capacity expansion.
Efforts on these initiatives will continue to be a focus for the Plastics team throughout the balance of this year.
With that, I'll give it over to <UNK> for some more financial details.
Thank you, Ron.
Consolidated second quarter revenues declined approximately 1% to $495.8 million compared to the prior year.
By segment, Home & Building Products second quarter revenue increased 2%, while Telephonics and Plastics decreased 7% and 3%, respectively, all in comparisons with the prior year quarter.
As Ron mentioned earlier, year-to-date revenue was in line with our internal expectations, and we continue to expect consolidating revenue to improve 2% to 3% for the year.
Gross profit for the quarter was $115.5 million, an increase of 1% over the prior year quarter.
Gross margin increased 50 basis points to 23.3% compared to 22.8% in the prior year quarter.
Quarter selling, general and administrative expenses were $92.5 million or 18.7% of revenue compared to $91.6 million or 18.3% of revenue in the prior year quarter.
Segment adjusted EBITDA increased 6% to $51.3 million.
By segment, Home & Building Products, Telephonics and Plastics increased 5%, 13% and 1%, respectively.
We continue to expect full year segment adjusted EBITDA of $225 million or greater.
Our effective tax rate for the second quarter was 50.7% compared to 38% in the prior year quarter.
Excluding certain tax items that affect comparability in the current quarter, both years approximated 38%.
For the full year of fiscal 2017, we continue to expect the tax rate excluding any period items to be approximately 38%.
As is always the case, geographic earnings mix and any legislative action may impact rates.
GAAP net income in the second quarter was $5 million or $0.12 per diluted share compared to the prior year period of $6.1 million or $0.14 per share.
Excluding current period tax items that affect comparability, adjusted net income was $6.4 million or $0.15 per diluted share.
Second quarter capital spending was $20 million.
For the full year of 2017, we continue to expect capital expenditures to be in the range of $80 million to $85 million.
Depreciation and amortization for the second quarter of 2017 was $18.8 million.
For the balance of fiscal 2017, we expect depreciation to be approximately $66 million and amortization to be approximately $8 million.
As of March 31, 2017, we had $47 million in cash and total debt outstanding of $1.01 billion, resulting in net debt position of $963 million.
We had $158 million available for borrowing under our revolving credit facility.
Consistent with Griffon's historical cash flow patterns, the first 6 months of the fiscal year used cash and the second half of the fiscal year is expected to generate significant cash flow.
I'll now turn the call back over to Ron for his closing comments.
We executed well in the second quarter, and I'm very pleased with our first half performance.
We've made solid progress with operational improvements in all of our businesses and are looking to build on these results over the balance of this year.
We have ample resources to invest in each of our segments and remain committed to shareholder value creation through the growth of our business, return of cash via dividends and when appropriate through stock repurchases.
Additionally, we're always looking for new opportunities.
Finally, I want to thank our 6,000 employees in North America and around the world for their extraordinary efforts.
And we look to ramp up our performance in the second half of this year.
Thank you.
With that, operator, we'll open it up for questions.
Weather is a fact.
We're never going to use it as an excuse.
We're always going to be impacted by weather.
What we do with the weather is a function of how well we can operate our business.
And what I'm particularly happy about this quarter is that we had a lousy snow season, and we performed very well.
We continue to look at making operational improvements to deal with the things that are within our control.
Weather is not one of them.
We'll continue to run this business.
There will be good weather patterns.
And the point that I takeaway from this quarter is when things go our way, the operating efficiencies that we have in this business that the earnings power within AMES, within our doors segment is yet to really see both a strong economy and good weather.
And I hope to be able to see that happen at some point in the future.
We continue to look to rollout the technology.
Our North American business continues to be very strong.
We continue to want both operating improvement as well as volume improvement in Germany.
And Brazil, we're very pleased about where the business is.
Overall, we see this business as getting better as consumer markets around the world get better.
We're integral to some very large consumer product supply chains.
And we're going to continue to strive to not just to stay competitive but to be innovative and ultimately to try to drive margins through both operating efficiencies as well as a getting paid for the new technologies that we put into the business.
I think that's a fair assessment.
We've been in this business for a very long time.
Telephonics goes back to 1933, and it's been part of Griffon from the time we became a public company in 1961.
So we've seen more than a few cycles.
This is a trough.
And you're exactly right that expectations for defense spending are higher, but sequester still hasn't been resolved.
So in the things that we do, intelligence, surveillance reconnaissance products, particularly radar-driven products and the adaptation of that maritime radar for custom and border patrol use are terrific opportunities for us in the future, but defense spending has to increase.
And when it does, we fully expect that Telephonics will be a beneficiary.
I guess just to start with your guidance, EBITDA is sort of tracking up nicely in the first half of the year, but revenue is sort of tracking down.
And I was just sort of wondering how I should think about the pieces of the business that get you to that plus 2% to 3% versus the sort of down first half of the year.
And if you get there, does that mean that your EBITDA will be higher than sort of the range you provided.
I'll remind you we give guidance once a year in the hopes of giving people a expectation of how we see things from a credit standpoint.
From an earnings standpoint, we always believe that the earnings power of our business should be higher though in any given year things can happen.
So the revenue forecast that we have provided and our confidence in seeing growth in the second half of this year, really relates to growth that we see pretty much across all the businesses, but particularly in Home & Building Products that goes into its major selling season for our Clopay doors part of the business.
So the guidance remains $225 million or better at the EBITDA line.
And we're comfortable we're going to be able to get to that 2% top line growth.
Okay.
On Home & Building Products, I guess your margin was relatively, I guess, flat year-on-year and operating profit basis, maybe up a bit on an EBITDA basis.
Were there challenges to leveraging the sales growth in building products in the second quarter.
I mean, do you think that this margin sort of fell short of reflecting full potential for that business.
Any sort of comments on inflationary headwinds or tailwinds will be helpful, too.
Sure, <UNK>.
So we have completed the plant expansion at Troy.
We will continue to leverage that and see more and more efficiencies as we live and grow with that.
We had no problems meeting the additional capacity because we anticipated that, that would be happening and the expansion help us there.
And also on the AMES side of the business, though our revenue was slightly down from the prior year, we are operating efficiently, which help in contributing to our EBITDA.
And we foresee ---+ we continue to see rather the efficiency gains that we realized from our 2015 plant consolidation.
And we will continue to leverage that as well.
Particularly as the economy improves and revenue improves, we have the capacity to meet that.
And we should get very nice leverage from it.
Okay.
And then finally, the comment at the beginning of the call about focus on paying down debt at the current juncture, maybe if you could just sort of put that in perspective for us versus other alternatives.
I'll say a little bit differently.
We view building up cash is being opportunistic for us going forward.
So the leverage ratios that we're at is pretty much the outer limit of what we feel comfortable with.
But we're very comfortable with our businesses' ability to generate cash going forward.
Increased cash has multiple uses.
We can either use it to pay down our revolver, which is the most natural thing to do.
We could use it to increase our dividends, which is something we might consider.
And we're always looking for new opportunities that on to the businesses we already own as well as some opportunities that might grow the pie.
So we think the company is in very good shape.
The base line is something that we look at as the result of many years of hard work in getting the plant efficiencies to where they are.
And we are very optimistic about what we see going on and particularly, in the U.S. economy, where our businesses are skewed that an increase more robust economic environment continue to strengthen the housing markets, money spent on infrastructure spending, lower corporate taxes, higher defense spending is going to lead to a very robust growth at both the top line, the EBITDA line, for us most importantly, the free cash flow line.
And how we deploy that remains to be seen.
But a lot of things have to happen for all those things I just outlined to actually flow through and create that cash flow.
Okay.
And then maybe I'll throw in one more.
This may vary by business, but I think there's a lot of, obviously, hope for what new fiscal and regulatory policy can accomplish.
But in the sort of the interim until we get clarity there, it seems like there's a fair amount of uncertainty.
Do you feel like uncertainty is holding back demand in any of your businesses.
I will tell you that I think we have forecasted and we've executed, not just this year over last several years, in the same low growth, sluggish global economy.
And while the housing markets have significantly improved, we're nowhere near a recovery in housing in the United States.
There's still an enormous amount of pent-up demand from multifamily rentals to move into single-family homes.
And as more people get jobs, as people with jobs have higher disposable income, the housing markets will improve, the amount of money they spend around the house.
And from garden to garage, we have a set of businesses that will be a beneficiary.
So I don't believe that we're anywhere near peak in terms of the housing recovery.
And I think last numbers I've seen, they're less than 1% GDP growth in the overall U.S. economy.
If we get to a 3% GDP economy, our businesses are going to reflect that in the top line.
Defense clearly has been held back by governmental fiscal policies.
The world is not getting any safer.
Our military has been held back by sequester for years now.
And we think that, that is going to change with the new administration.
Okay.
One more just came to my mind, which is in Clopay garage doors, the revenue growth ---+ I'm not sure if you guys spoke ---+ I joined the call minute or 2 late, if you guys spoke about the components of that growth mix versus price versus volume.
Sure.
So it was volume driven.
And we had some pricing that offset some of the steel impact.
Steel prices this year are much higher than they were last year.
Thanks very much.
We're going to continue to work hard to deliver the balance of this year, and we look forward to speaking to you in August.
| 2017_GFF |
2016 | DHI | DHI
#We don't have an exact break down of the investors.
Anecdotally, I'd tell you it's very low, what we're hearing about any investor sales.
A lot of it is, just people that are moving out of a rental situation into a home that they can afford.
We had real weather, in the fourth quarter, in a couple of our bigger markets, across the Carolinas, and really Dallas/Fort Worth.
But as <UNK> points out, we have weather every quarter.
So would our numbers have been better with typical weather.
Yes, they would have been.
But we're very happy with the numbers we posted, and think we're going to have a great year.
I think that the confidence is coming from being in touch with the operators out in the divisions, and what they sense, and what they feel is taking place in their markets.
And across the board, our people feel very good about what's happening out there.
The labor side, I would say, it's still stressed, but seems to be improving, and the trade bases are starting to add people.
I think a big part of the improvement we're seeing is the consistency of production in the community by community is allowing these trades to staff and maintain a workforce to hit those numbers.
And it's taken awhile to get there, but they are adding people.
I think our trade base is seeing ---+ is becoming more and more confident, as well.
And <UNK>, in terms of what we saw in price changes, our revenues per square foot outpaced our stick-and-brick per square foot on a year-over-year basis for the second time.
So we've gotten to where that's in check.
Sequentially, that was essentially net neutral.
So you saw our margin tick up by 10 basis points year-over-year, and stayed flat from Q4 to Q1.
We are continuing to experience higher land costs, but in about the same range year-over-year as we were last quarter, so flat gross margins.
We're actually getting price.
If we look at our price per square foot, which is the best way we can try to look at our business apples-to-apples, we did see a low single-digit increase.
I will tell you, <UNK>, I spent a week driving Dallas, and a week driving Fort Worth in January.
And when I got back, I told Horton I had to get out of the field because if I stayed in Dallas and Fort Worth, I would become way too aggressive buying land.
It is as good of market as I've seen.
And as to Houston, I think that there's a lot of conversation, a lot of uncertainty, a lot of volatility within the oil and gas business, which I think is making people more conservative about buying homes.
And I think there's still pent-up demand in Houston.
I think the pent-up demand is growing.
But it is just not the frenzy that we've seen in the past, or is really taking place in some of the other Texas markets.
Thank you, <UNK>.
It's pretty much across the board.
I mean, we're seeing construction labor force increase.
And I think, and our strive to create more efficiency in the process of building and selling homes, and trying to actually take some labor out of a per square foot cost for the home has paid off.
And our trades are making money, and we're seeing less pressure on the cost side, and I think providing more value for the customer.
So we feel like we are positioned to deliver our year.
Oh, I think there are ---+ probably, we're in 78 markets.
We probably will end up mid 60s, primarily because some markets just don't ---+ we've ---+ don't allow you market your product, and we aren't going to give up the Horton brand to sell Express.
We have a lot of opportunity still to increase our position within most of the markets, and are actively out there looking every day to do that.
Maybe half way.
We're in 48 markets in 15 states today.
But to echo <UNK>'s comments, we haven't fully saturated the markets that we're currently in with Express.
So there's more runway within those 48, plus expanding into the mid 60s.
I mean, we are allocating capital to the programs that are driving the best returns, and right now Express is driving the great returns.
You bet.
Houston has been relatively stable for us on a year-over-year basis.
And so, we didn't see a further slowdown in Houston, but we're also not seeing any meaningful pick up.
We continue to see our lower-priced Express homes, very steady demand, steady sales pace.
But as had been mentioned a couple times on the call, definitely softer at the higher end.
But we continue to see good steady demand for the entry level, and people moving out of apartments, where we're providing an attractive rent versus buy equation, and driving people into those sales offices each week.
So we continue to have a close eye on Houston.
We are not heavily reinvesting in Houston right now.
We are replenishing where it makes sense, and where we can continue to add those entry level product offerings.
<UNK>, just to add a little more color.
We have some, what I would call, A-plus project location positions in Houston, that are maybe at the price point that we're seeing less demand for.
And we are not going to accelerate or liquidate those positions.
So we will see lower absorptions in those communities.
And these are ---+ they're communities we can't go replace, and don't want to.
So it's ---+ we're going to protect the value in our core projects, take absorption at the $250,000 to $300,000 range.
And if you're looking at what I look at, almost zero margin deterioration on the projects that are at the price point that are turning right now.
And we don't need, nor do we want to force sales in the core project where we have been selling $350,000 to $450,000, and are just seeing where absorption's reduced.
So that's my color on Houston.
It's going to be a tremendous market for us for a long time.
We are very strong in the ---+ I mean, we dominate the $250,000 to $300,000 ---+ $200,000 to $300,000 price point in Houston.
And we're going to continue to dominate that.
And if you look at our ---+ the benefit ---+ one of the many benefits of being D.
R.
Horton is the broad geographic footprint.
When the upper end in Houston slows down, the entry level in Denver accelerates.
So I mean, it's ---+ we have a lot of levers to pull.
My consistent comment to the people inside the Company is, it's good to be us, because we can hit our plan, and without being forced to sell a project we don't want to sell at the pace that its been running at.
Well, we're pretty much running on our absorption targets.
So, I think we will as we continue to push out the Express brand, and follow up replacing the Horton positions, I think we will see some community count growth.
We don't have visibility into that today.
We do have visibility into what we know we can deliver so.
It's hard to know exactly where the contributions are, sitting here in January, not knowing what the spring is going to hold.
We're certainly seeing good early signs.
But clearly, the strength of the spring selling season will help determine our year.
It will determine where we land in our range, or whether we could perhaps exceed our range.
And so, it's ---+ sitting here in January feeling good, feel good about our position, our preparations for the spring.
And then, we'll go try to execute as best we can over the next few months.
And we'll know a whole lot more when we talk to you next quarter.
Hi, <UNK>.
We really haven't seen an appreciable impact, and a delay in closings.
Our teams have worked very hard to prepare for the changing rules, and worked with our captive mortgage company.
DHM Mortgage and Associates have done a yeoman's job preparing for this change, as well as working with our preferred lenders.
So we really didn't see a material impact on our closings for the quarter.
We'll continue to improve our processes, and try to become more efficient, and make it a good experience for the buyers.
I think the labor side has been minimized for us, because we set absorption targets per community and drive to that, so we have consistency within the communities.
And our trades are not out there looking for work one week, and then have twice what they can do the next.
We are still just running a low single-digit percentage increase on cost per square foot, stick-and-brick.
Yes, no doubt.
The ---+ to be prepared for the new regulations our mortgage company financial services operation had to make significant investments, primarily in personnel.
The effort to comply is a big one.
And in order to meet those regulations and provide that experience to the home buyers, they've had to increase costs there.
Typically though, season ---+ on a ---+ from a seasonal basis, we see our lower operating margins in our first and second quarters, in our lower volume quarters.
And then, we typically see higher than average operating margins in financial services in Q3 and Q4.
And so, the margin here this quarter, in the low 20%s certainly does not preclude achieving the 30% to 33% guidance for the year.
Certainly do appreciate it has been a serious storm.
It's impacted a lot of people.
But we feel ---+ it's fortunate, it's early in our quarter, and our operating teams will be able to take care of our existing homeowners in the communities, and deal with the homes that are in backlog, and the specs that out there today, and be ready for sales next weekend.
I'd also like to add, it's a beautiful day in Texas today, as they say.
The sun is shining on somebody somewhere every day.
We love Texas.
Good morning.
Well, I ---+ we have a hard enough time managing our people.
I don't want to get into trying to help them help themselves.
So I don't know.
All we do, is get up every day and operate, and pursue to be the best we can be.
And we're tough competition.
Maybe they just ---+ I don't know.
But entry level housing is something we've done for a very long time.
It's a core competency of our Business.
It ---+ and with our footprint, and with that competency among our operating teams across the country, it's something that we've got a lot of practice at.
So it's something we're focused on.
And like we said earlier, it's a good market, and there's a lot of demand there.
We do expect some more competition down the line, and I think that would be a natural next step in the cycle.
I will say, we were first movers, and we were aggressive first movers.
And I would believe that the other companies that are also good at driving value will be following us in it.
But we bought the lion's share of the finished lots.
And when we saw the success, we started investment, investing in development, developing lots.
So we just have a head start.
I'm sure they're coming.
Well, the area that we've watched the most closely, that we have less visibility too, are the closings with outside lenders.
Obviously, our internal mortgage company are captive closings, so we have more visibility to that process, and feel confident about that.
But with outside lenders, it's something we watch closely division by division, or they have relationships with outside lenders.
They are working with them to make sure that we have the visibility to hit things on time.
But I think that's where the greater risk is.
But I honestly think, month by month, as everyone in the process gets more used to it, I think it will get smoother.
And any disruptions that may have occurred thus far, I think will be alleviated over the coming months.
Thank you, Kevin.
We appreciate everyone's time today, and look forward to speaking with you again in April.
Again, special thanks to the D.
R.
Horton team.
You've ---+ outstanding first quarter, outstanding start to the year.
| 2016_DHI |
2016 | LL | LL
#Well certainly the core of this Company and its past has been promotions.
We have driven traffic and it's still proven today to drive traffic through promotional ---+ through promotions and promotional pricing.
As we continue to get away from some of the negative impacts, we certainly hope that changes over time.
But we are focused on and we're constantly looking at our marketing message.
But in the past 18 months, given the pressure that has been put on our brand and our reputation, we've had to make sure that the customer has a reason to come into or look at our stores.
It's been pricing.
Certainly, we hope to get away from that.
<UNK>'s here.
He's got ---+ he can give you just some brief color on how we're thinking about that.
Yes, is the ---+ is a quick answer to that.
But we're going to be methodical about it.
You're not going to see us blitz the market with it.
Again, it goes back to, we've got to earn that respect to go along with the words that were saying.
So you're not going to see it change overnight.
You're going to see it evolve.
Remind me of which charges your referring to, just to be sure ---+
Yes.
So at the end of the day, we have highlighted those items as being tax-deductible.
Yes.
We've provided for you a couple numbers that we did when we talked about in my remarks, excluding the cost of consolidation of certain laminate products, that was about $1.6 million.
Then ---+ that's highlighted in the Q.
Then the indoor air quality testing program was a little south of $3 million.
I think roughly $2.9 million, in the quarter.
Those are the numbers that we're referring to that we are adding back, if you will, to get to this ---+ the $34.5 million gross margin that I referenced in my remarks.
I was going to ask you, what the second part of your question.
I apologize.
We have not added those back.
We believe that our ability to source product from anywhere in the world will ultimately help the Company obtain a gross margin that we're looking for.
So we expect to use that as a competitive advantage in being able to buy from where we want in the future.
They are unrelated.
We are required to report that only when it's considered probable that we would receive those insurance proceeds.
So it's unrelated to any of the other legal issues that are out there with the insurance carriers.
Thank you.
Yes.
Thank you all for joining us.
Thank all the Lumber Liquidators' team for your hard work.
As an aside, in regards to my health, I'm feeling great.
My treatment plan is on track.
I remain actively involved in the business and remain confident in our ability of our management team to drive Lumber Liquidators back to growth and profitability.
Thanks again for joining us this morning.
| 2016_LL |
2016 | HT | HT
#We are always looking at opportunities really all across the country.
And we do spend a lot of time on some of the other higher-growth MSAs in the country, like we've looked at a lot of opportunities in Seattle, for example, or a handful of other markets around the country.
But to date, we're finding enough runway in our core six markets.
And in those core six markets, we have significant portfolios already, which give us unique market insight, give us truly more operating leverage to bring to bear on these assets, and so real advantage on the buy side as well as on the execution site.
And so we have tended to focus on these markets where we can underwrite more clearly, and we have real conviction about various submarkets in these markets.
Now, you don't want to ---+ it's hard to fight a declining market, and so you've seen us put most of our investment dollars across the last few years in markets that we expect to have above-average market growth in the coming years ---+ California, Washington and Boston ---+ while we have been less acquisitive in Miami or New York.
But that said, we want to be careful not to be chasing lagging indicators.
And there are opportunities to create value in even challenging markets.
Assets often get mispriced when investor sentiment is the lowest.
And so you do have to take your steps before the turn, like we did in Washington, DC.
And so we're focused on our six markets.
We're open-minded to other MSAs.
But to date, we've found enough strong opportunities for the amount that we're acquiring, which is really ---+ it sounds like a lot, but there are a handful of assets in markets we know very, very well.
And we're comfortable with that approach for now.
Thank you.
No more closing remarks.
But we well ---+ <UNK>, Ash and I will all be here in the office the rest of the day and look forward to any further follow-ups.
Thank you all for your time.
| 2016_HT |
2017 | GOV | GOV
#Thank you, <UNK>.
Government Properties Income Trust continued to drive leasing results during the fourth-quarter of 2016, completing approximately 387,000 square feet of new and renewal leases for a 4.3% average rollup in rent.
We also acquired three properties for $131.3 million since the end of the third quarter.
As of December 31, GOV owns 73 properties containing approximately 11.4 million square feet that were located in 31 states and the District of Columbia.
Occupancy on both a consolidated and same property basis was 95.1%, which on a year-over-year comparison, is a 60 basis point increase in consolidated occupancy and a 30 basis point increase in same property occupancy.
The weighted average lease term based upon annualized rent was 4.8 years as of December 31.
The US government remains our largest tenant, and in aggregate our government tenants contributed 87.9% of our annualized rent at year-end.
Now let's review our leasing activity.
As I previously mentioned, we completed new and renewal leases totaling approximately 387,000 square feet for a 4.3% average rollup in rent; a weighted average lease term of 3.3 years; and leasing concessions and capital commitments of $2.70 per square foot per lease year.
Leasing activity with government tenants was almost 344,000 square feet, for an average rollup in rent of 5.7%; a weighted average lease term of 3.1 years; and leasing concessions and capital commitments of $2 per square foot per lease year.
During the full year, GOV completed 61 new and renewal leases for 1.6 million square feet that resulted in a 6.4% average rollup in rent.
We also renewed 92% of our expiring square feet during the year, an outstanding tenant retention rate.
Now let's turn to acquisitions.
Since the end of the third quarter, we acquired three properties containing 562,000 square feet, for $131.3 million or $234 per square foot excluding acquisition costs.
These acquisitions had a weighted average occupancy of 98.5%, a weighted average lease term of 6.5 years, and a weighted average acquisition yield of 8.3%.
Our largest acquisition was for a property in northern Virginia leased to three government contractors.
Considering the new administration's focus on reducing government employment and increasing defense spending, we believe the need for government contractors to lease space is likely to expand.
Coupled with the limited supply of attractive acquisition opportunities for government leased properties, GOV has added well-located and strategic properties leased to our government contractors to our acquisition criteria.
Now let's review our acquisition detail.
In December, we acquired an office property in Rancho Cordova, California containing 83,000 square for $13.9 million or $168 per square foot.
The property is 100% leased with the state of California as the majority tenant for a weighted average lease term of 7.2 years and an acquisition yield of 9.1%.
Also in December, we acquired a three building property in Chantilly, Virginia containing 409,000 square feet for $104.2 million, or $255 per square foot.
The property is located directly across from the entrance to the National Reconnaissance office and is 98% leased to three government contractors for a weighted average lease term of 6.1 years, and the acquisition yield was 8.2%.
In January, we acquired one building in Manassas, Virginia containing 69,000 square feet for $13.2 million or $191 per square foot.
The property is 100% leased to Prince William County, a AAA rated municipality, for a lease term of 9.1 years, and the acquisition yield was 8.6%.
Now let's review our lease expirations for the next 24 months.
As of December 31, we have leases contributing approximately 20.8% of GOV's annualized rent, and covering approximately 2.1 million square feet that are subject to expiration.
Based on our latest tenant discussions, we currently expect tenants contributing 2.6% of annualized rent to vacate during the next 24 months, up from 1.22% in the previous quarter.
Reconciling the two quarters, tenants contributing approximately $360,000, or 0.1% of annualized rent, vacated properties during the fourth quarter as expected, while we added tenants contributing approximately $4.3 million, or 1.57% of annualized rent, to the vacate list this quarter.
The vast majority of the tenants added to the vacate list were tenants moved from the previous quarter's list of at risk tenants.
The tenants we've identified to be at risk of downsizing or vacating decreased from 3.62% last quarter, to 0.82% this quarter.
The decrease is largely the result of moving the Department of Justice, at 20 Mass.
Avenue, from at risk to vacate and removing the National Institutes of Health from at risk, because we are actively negotiating the extension of its lease.
There were no new at risk tenants added to the list this quarter.
As a reminder, these figures are the best information we have available today based upon our dialog with tenants.
As negotiation with tenants evolve, we expect our disclosures to evolve as well.
Both tenant retentions and attracting new tenants to our buildings remain significant areas of focus for GOV.
As I previously mentioned, our tenant retention rate for the full year was 92% on 1.6 million square feet of expirations.
We are proud of these results and believe they compare exceedingly well to our suburban office peer group.
I'll now turn the call over to <UNK> <UNK> to review financial results.
Thanks, <UNK>.
I'll begin with a review of our property level performance for the 2016 fourth quarter.
When compared to the fourth-quarter last year, GOV's rental income grew by approximately $4.3 million to $66 million.
This change was primarily the result of higher rental income in our same property portfolio, as well as the acquisition of our property in Sacramento, California in the first quarter of 2016.
On a same property basis, our fourth-quarter rental income increased by $1.4 million or 2.3% year over year to $63.1 million.
Cash basis rental income for the 2016 fourth quarter increased $1.9 million or 3.2%.
Consolidated fourth-quarter net operating income, or NOI, increased by $3.2 million or 8.8% year over year to $39.9 million.
Consolidated cash basis NOI for the fourth quarter was up by $3.5 million or 10%, to $39.3 million.
These increases were the result of an improvement in same property net operating income and the effect of our acquisitions.
Our consolidated GAAP and cash NOI margins for the 2016 fourth quarter were both up year over year to 60.5% and 60% respectively.
From a same property perspective, our GAAP NOI increased by $1.5 million, or 4% year over year, to $38.1 million.
And our cash basis NOI increased by $2 million or 5.5% to $37.7 million.
These increases were primarily the result of the previously discussed growth in rental income and our success in controlling operating expenses, which were essentially unchanged versus the prior year.
Our same property GAAP NOI margin was 60.5%, and our same property cash basis NOI margin was 60.1% for the 2016 fourth quarter.
Normalized FFO for the fourth quarter was $41.5 million, which is down from $43.6 million for the 2015 fourth quarter.
This decrease was primarily the result of increased interest expense due to the higher weighted average interest rate on outstanding debt and the decline in the normalized FFO contribution from our SIR investment, partially offset by the increase in property net operating income.
Normalized FFO per share for the 2016 fourth quarter was $0.58, which is down $0.03 or 4.9% from the 2015 fourth quarter.
Adjusted EBITDA increased 6.2% to $49.4 million for the 2016 fourth quarter and includes approximately $12.7 million of cash distributions received from our SIR investment.
We paid a $0.43 per share dividend to shareholders during the fourth quarter, which equates to a normalized FFO payout ratio of 74.1%.
We spent approximately $2.6 million on recurring building improvements and $5.5 million on tenant improvements and leasing costs in the 2016 fourth quarter.
As of year-end, we had approximately $26.5 million of unspent leasing related capital obligations, and have committed to redevelop and expand an existing property at an estimated cost to complete of $15.4 million.
Turning to our balance sheet and liquidity, our adjusted EBITDA to interest expense ratio for the quarter was 3.9 times, and our ratio of debt to gross assets was 51.5% at December 31.
At year-end, we had approximately $590 million of availability under our revolving credit facility.
Operator, that concludes our prepared remarks.
We would like to open it up for questions now.
Sure, Brian, this is <UNK>.
A couple of questions in there.
Let me start with, we are always evaluating a number of potential acquisition opportunities.
So we tend to maintain a pipeline of anywhere from 6 to 10 potential opportunities that we evaluate.
Some work from across the capital perspective, some don't.
It just so happened that we found three in the fourth quarter that work for us.
I think in part, what we've seen is maybe the leveraged buyer having a tad more difficulty making their yields work because financing costs have increased.
We have seen some deals get awarded away from us where the seller came back when the buyer couldn't perform.
I think that will have an effect on cap rates if that continues.
But we haven't seen what I would consider a material change in cap rates.
We just happened, in fourth quarter, to have some opportunities that work for us.
<UNK>, I don't know if you want to hit on leverage at all.
Yes, we finished the year with debt to total gross assets of 51.5%.
While we're comfortable operating the Company with leverage at these levels, I don't see us going significantly higher.
I don't think we would have an appetite for taking leverage any higher than, say 55% debt to total gross book value of assets.
So that probably leaves us a maximum capacity of, call it $150 million to $200 million if we decided to take it up that high.
I read that article in the Wall Street Journal this morning about landlords' inability to push rates.
We had a pretty good success in 2016 pushing rates.
Now, we don't tend to play in some of the gateway markets where construction is ongoing.
So we really haven't seen a lot of competition from new construction for our specific portfolio.
John, that's a great question.
And <UNK> and I are kind of looking at each other right now.
I don't think either one of us remember or have in front of us right now what our vacate and at-risk looked like last year.
We tend to focus on what it was the previous quarter and what it is this quarter.
So we can go back and get our information from a year ago, but I'm sorry, we can't accurately answer your question right now.
What I can say is, is that, if you look at the third quarter of 2016, our total at risk and to-vacate was 4.84% of annualized rent.
We had 0.1% move out during the quarter, and then we kind of reshuffled the deck from one list to the other, and we now have 3.42% of annualized rent subject to either vacate or at risk.
So, my point being, we have significantly less of the two combined today because we've had some tenants that were in the at-risk bucket that we are now negotiating leases with and no longer consider them at risk.
Which I think is possible.
Most of that is DOJ at Mass.
Ave, which would be a second half of 2018.
Yes, I don't know that pricing has moved dramatically.
We have found that with non-US government tenants, our buildings leased to non-US government tenants, so municipalities, states; the yield tends to be a little bit higher and they work better for us.
So if you notice the two government buildings we acquired, one was majority leased to the State of California.
I think they occupy close to 80% of that building, and there's a non-government tenant that occupies the balance.
We have less competition for deals like that.
Same thing with the Prince William County deal.
Because it's a municipality, there just tends to be a little bit less competition.
So we tend to be able to get our pricing on those transactions if the seller really wants to transact.
Yes, I think in terms of the first part of your question, on raising equity, the stock had a decent run in 2016.
It was up around 20%, and as of the close yesterday, we were up another 4% year-to-date in 2017.
But I think we'd still like to see the run that we are on right now in 2017 go a little further before we were interested in issuing common.
6.
2% as of today.
As it relates to SIR ---+ our investment in SIR, nothing has really changed from either management or the board's perspective as that being a core investment to our business.
So it's not something we are contemplating selling right now as a way to raise capital.
Thank you.
Yes, it's a bit of a mixed bag, Mike.
I think I said, probably on our last quarterly call, that because the US government has such a high percentage of leases expiring over the next couple of years, they don't have adequate capacity, GSA doesn't have adequate capacity to really manage adequately long-term expansions on every deal.
So we had a handful of deals that were kicked down the road, so to speak.
Nothing that we are particularly concerned about from a long-term perspective.
It's just helping GSA manage their backlog and work through potential opportunities.
Good question.
I don't know that our acquisition criteria or pricing metrics are really changing much, Mike.
We really are looking for buildings that we think are strategic to the tenant, where we think we can renew them at least once.
And we want it to be accretive to what we believe our long-term weighted average cost to capital is.
So clearly, if we're going to push leverage higher, we need to have pricing that makes sense for that long-term weighted average cost to capital.
I don't ---+ absent selling assets, I don't think there any levers that we can pull to reduce leverage.
So I don't really ---+ absent an equity offering, I don't see that happening.
I think we'd like to be back down around 45% debt to total gross assets at some point over time.
That's not going to happen right away.
But long-term we'd like to operate to where we get leverage down to, say 45%, create acquisition capacity, ride it back up to 50%.
We're comfortable operating longer-term in the 45% to 50% debt to gross assets.
Yes.
Thank you for joining us this morning.
We look forward to updating you on our first-quarter call in April.
Operator, that concludes this call.
| 2017_GOV |
2017 | SSD | SSD
#Thanks, <UNK>.
I'd like to begin by starting and congratulating <UNK> on his fantastic career at Simpson.
<UNK> joined the Company in 1978 and was instrumental in shaping and growing our business, including taking the company public in 1994.
He also greatly influenced our company culture, what we fondly call our secret sauce.
Barc often credited <UNK> for much of the Company's success and was quick to point out his many contributions and leadership.
<UNK> served as President for a number of years and in 1994 became CEO.
Since 2012 <UNK> has served on the Board of Directors as Chairman and most recently as Vice Chairman.
Thanks, <UNK>, we certainly appreciate all your no equal service to Simpson Strong-Tie.
In January we acquired CG Visions, an established Indiana based company providing BIM, technology services, and consultation to the U.S. residential building industry.
BIM stands for building information modeling.
This acquisition enabled Simpson Strong-Tie to build closer partnerships with builders by offering software and services to help them control their costs and increase efficiencies at all stages of the home building process, including design, estimation, selling, and construction.
CG Visions provides to a number of the top 100 U.S. mid-size to large production builders.
They provide services and consultation using open industry BIM platforms such as AutoCAD, REVIT and VERTEX BD.
They have also developed multiple software tools that simplify and enhance these platforms.
Additionally, we will look for opportunities to incorporate our products into these BIM packages and apply CG Visions' expertise to our existing and future software initiative.
We also acquired Gunnebo Fasteners AB, one of Europe's leading manufacturers of fastening solutions.
Headquartered in Gunnebo, Sweden.
Founded in 1764, Gunnebo Fastening Systems has specialized in design and manufacturing unique and innovative fastening solutions for structural application and corrosive environments.
Gunnebo Fastening Systems provides Simpson Strong-Tie with a complete line of European approved.
CE marked structural fasteners, unique fastening dimensioning software for wood applications, and Gunnebo teams' in-depth expertise in product development and testing.
As well as proficiency in fastener manufacturing, surface treatment, and painting.
The geographic footprint of Gunnebo and its great brand recognition enables us to develop and extend distribution in other Nordic countries.
We are continuing work on our manufacturing efficiency program and our SAP rollout and will give updates on these projects as the year progresses.
Truss sales, although small, were up 16% over 2015.
Our truss specialists continued to represent and ---+ our truss design and manufacturing software and are working on converting additional customers in 2017.
As a reminder our current future set allows us the approach about one third of the U.S. market.
I'd now like to turn the call over to <UNK> who shares some additional financial information.
Thanks, <UNK>.
The gross margin on wood increased to 48% up from 45% last Q4 and the concrete products increased to 32% up from 29% last Q4, both on increased sales.
The wood product gross margin also benefited from the price increase I mentioned earlier.
Those factors led to a Q4 2016 consolidated gross margin of 47%, up from Q4 last year of 45%.
As noted in the press release, we believe the estimated consolidated gross margin will be in the 46.5% to 47.5% range for 2017.
Total operating expenses of R&D, engineering, selling and ADMIN, as a percent of sales, were up about 160 basis points in the quarter compared to last year as the company had increased legal and professional fees, as the company works to deliver on its long-term strategic initiatives, as well as the other items noted in the press release.
Also cash profit sharing on higher operating income and other personnel costs contributed.
Regarding taxes, the tax rate of 33% for this Q4 is down from 34% last Q4 primarily related to lower foreign losses and a tax law change in the U.S. related to foreign currency translation of foreign branches.
Those were offset by the R&D tax credit, which was made permanent at the end of 2015, but was recognized throughout the quarters of 2016.
We believe the annual effective of tax rate for 2017 will be between 36% and 37% based on current information.
Q4 2016 CapEx was $12.1 million, primarily for improvement from the new chemical facility that we announced last year, as well as our Texas facility expansion.
We've also invested in manufacturing equipment and software development.
Total 2016 CapEx is approximately $42 million.
For 2017, depreciation and amortization expense was expected to be between $30 million and $32 million.
Depreciation is at $25 million to $27 million.
2017 CapEx is expected to be in the range of $50 million to $55 million and includes finishing the two facilities noted earlier and assumes all projects are completed by the year 2017.
Before we turn it over to questions, I'd like to remind you that if you'd like further information, please contact <UNK> at the phone number listed on the press release.
Also look for our annual report on form 10-K to be filed at the end of February.
We'd like to now open it up to your questions.
Hi, Dan, it's <UNK>.
As we noted, we had spent some professional fees in relation to the acquisitions of due diligence and attorneys and other advisors.
Those are deal-specific.
But as we've noted and we've got a strategic initiative to grow in certain areas, so although I can't predict if and when those will repeat, I would expect that as we continue to look for those opportunities that we would have some of those.
As we noted, we had some software project write-offs in the year.
I wouldn't expect those to repeat.
And we've done some work around shareholder engagement and some of the efforts that resulted from that.
So working with advisors on compensation programs, governance, and, you know, I don't know how much of that would repeat.
But hard to predict.
Decreases of $4.2 million and I don't have a precise number on the shareholder engagement numbers.
Yes.
Why don't you take the revenue ---+.
Yes.
Let me give you a ---+ while <UNK> is looking up the integration.
So the interesting thing about Gunnebo, I think if you looked at them, they got the got the same product line that we currently have at Simpson.
They are a manufacturer of nails and screws.
Currently they buy their connector line from one of our competitors in Sweden.
Sweden and Norway are interesting because they build with wood a residential house, very similar to how we build in the U.S. So it's a great market for more use of our connectors and our fasteners and the Gunnebo name, obviously, is very well-known in the Swedish and Norway markets.
So we are looking to be able to take their expertise in fasteners and bring that fasteners into France and Germany, the UK and our other European locations while taking our connector line and really expanding that connector business in Sweden and Norway.
Certainly there is some work to do on the integration.
We have not only our European Director, but also our lead person of fasteners helping out on this integration and we think within a couple years, two to three years, that we'll see some pretty positive results from that acquisition, again, expanding our connector line in Sweden and Norway, which we have a very small percentage of today and also expanding that fastener line through our sets through the rest of Europe.
And, Dan, this is <UNK>, on the integration costs, I would say for 2017, it would be about $1 million, $2 million.
We don't have those yet.
As you saw in the press release, we had some management supplied reports of some cooperating income.
But with the purchase accounting and the amortization of intangibles or the like, too early to tell at this point.
There will be some expenses associated with purchase accounting acquired intangible assets.
But we don't have those yet.
No.
On CG Visions, it's really their technical expertise with our relationships that we currently have with all those builders, both large and mid-size builders.
So it's really working on that introduction and, of course, getting our products into some of those BIM models.
But we don't see a lot of additional costs associated with that.
Good morning, <UNK>.
Well, I think a couple interesting points, you know, Q4 we did have a price increase that went into effect December first and that tends to accelerate a little bit of the purchases as some of our customers sort of beat that price increase.
As we look at first quarter, we certainly had a very dry first quarter and as it's pouring down rain here currently, certainly I think January was one of the wettest months, at least in the California history in quite a long time.
So I think it's going to be a difficult, as you mentioned last year was a fairly mild winter, the grounds are fairly saturated here, at least on the west coast and unless you've got your foundations in, you would have a very difficult time right now even trying to dig for a foundation.
So I think your point is very accurate that it's going to be a pretty tough comparison in Q1 versus last year's Q1.
Yes.
The impact in Q4 was $2 million on the price increase.
We always try and put the price increase, obviously, to help us offset the impact of the increase steel.
But as you can imagine, it's kind of a staggered process on how those increases are accepted.
So we'll get a little bit better feel on how that filters out here probably in Q1.
And I think as you see in the reports, we still have steel I would say kind of unstable as we look at what's going on in the steel industry.
So we watch it very carefully, but we do put in what we think will cover the steel increase and again, it's staggered the way those price increases are accepted.
Yes, I think we're in good shape on all of our business units to be able to take advantage of increased revenue with not additional need for both either people or code reports or any of the other locations that happen from an operating expense.
So I think we would anticipate that we should not be adding operating expenses to cover additional sales.
Hi, <UNK>, it's <UNK>.
So no, I wouldn't expect that to continue in future quarters.
We had a couple of projects that we had been working on over the last couple of years and decided to and basically discontinue those projects and write off the capitalized portion of the software development, the internal software development or external software development cost.
So I wouldn't expect those to recur.
Thanks, <UNK>.
Thanks, everybody.
Appreciate your time.
Thank you.
| 2017_SSD |
2016 | CNSL | CNSL
#Thank you, Nicole, and good morning, everyone.
We appreciate you joining us today for our fourth quarter earnings call.
At the end of the prepared remarks, we will open the call up for questions.
Joining me on the call today are <UNK> <UNK>, President and Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer.
Please review the safe harbor provisions in our press release and in our SEC filings for information about forward-looking statements and related risk factors.
This call may contain forward-looking statements within the meaning of the federal securities laws.
Such forward-looking statements reflect, among other things, Management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements.
In addition, today's discussion will include certain non-GAAP financial measures.
Our earnings release for this quarter's results has been posted to the Investor Relations section of our website, contains reconciliations of these measures to their nearest GAAP equivalent.
I will now turn the call over to <UNK> to provide an overview of our fourth quarter results.
<UNK> will then provide a more detailed review of the financials.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
I appreciate you joining us today.
I will provide some highlights for both the fourth quarter and the full year, and then turn it over to <UNK> for a more detailed review of the financials.
We capped off 2015 with a solid quarter of financial and operating results.
We continued our strategy of extending our fiber network and maximizing commercial and carrier revenue growth while producing consistent cash flows supporting our dividend.
Overall, revenue was $188 million for the quarter and $776 million for the year, while adjusted EBITDA was $79 million for the quarter and $329 million for the year.
For 2015, we invested $134 million in capital into the business for growth and integration while returning $78 million to our shareholders in dividends, resulting in a payout ratio of 67%.
Now, let me highlight some of our accomplishments in both the quarter and the year.
In 2015, we had a record year of new fiber to the tower sales with 345 new towers signed to contract and 43 coming in the fourth quarter.
This significant growth gave us the opportunity to make fiber expansion investments that provide long-term benefits in other areas of the business.
The success of our fiber investments is also reflected in the growth of our commercial and carrier revenues, which increased at 3.8% for the year.
This growth was led by a 21% increase in metro Ethernet circuits and a 17% increase in hosted cloud voice lines.
Metro Ethernet continues to be the lead product for our commercial accounts, and we have expanded our cloud service offerings supporting a full suite of advanced solutions and our consultative sales strategy.
Also, during the quarter we added 3800 net data connections, resulting in strong growth for the year with a total of 12,600 adds.
Both our commercial and our consumer data products are very competitive.
Our broadband speeds continue to increase, and consumers are choosing higher bandwidth offers.
We have just under 800,000 consumer marketable homes, with an 89% of those able to receive 20-meg speed or more, and 42% have access to 100-meg or greater.
Next, with respect to Enventis, one of our key initiatives in 2015 was, of course, integrating the acquisition and achieving our synergy targets.
We made great progress in combining the companies throughout the year while increasing our synergy target to $17 million from the original $14 million.
We will achieve the $17 million target in the first half of 2016, which is six months ahead of the original two-year plan.
The Enventis transaction is another example of our successful track record in making good acquisitions and completing smooth integrations.
iginal $14 million.
We will achieve the $17 million target in the first half of 2016, which is six months ahead of the o the o Another important accomplishment in 2015 was the refinancing of our 10-7/8% bonds.
In June, we raised $300 million, an add-on to our 6.5% bonds to repay the outstanding principal amount of the 10-7/8% bonds as well as a portion of our revolver.
In total, this netted approximately $6 million in annual cash interest savings.
So in summary, we ended the year with a solid quarter, reflecting the consistency of our results and the success of our strategy.
2015 was an exceptional year for Consolidated, and I am extremely proud of our progress.
We have the right team, the right capital structure and the right strategy, all of which positions us well for the future.
And with that, I'll turn the call over to <UNK> for the financial review.
<UNK>.
Thanks, <UNK>.
Good morning, everyone.
This morning, I will review our financial results for the quarter compared to the pro forma results for the same quarter last year.
I'll follow that by outlining our 2016 guidance.
So, starting with revenues, operating revenue for the fourth quarter was $188.2 million, as compared to $192.6 million last year.
During the quarter, we sold our small billing support services company that we acquired as part of the Enventis acquisition.
Excluding the $1 million decline in revenues due to this sale and the $1 million decline from our low margin equipment sales and service business, total revenues declined by $2.5 million compared to the same period last year.
Growth in our strategic revenues were offset by declines in legacy voice, network access and the first full quarter of subsidy step-downs for the Connect America Fund.
Total operating expenses, exclusive of depreciation and amortization, were $121.8 million, compared to $121.9 million for the same quarter last year.
Cost reductions through the Enventis synergy achievement were offset by increases in video programming expenses.
Net interest expense for the quarter was $19.3 million, which represented a $3 million improvement to the fourth quarter last year.
This improvement was tied to the successful refinancing redemption of our 10-7/8% senior notes that we executed in June.
Other income net was $9.4 million, compared to $8.4 million for the same period last year.
Cash distributions from our Verizon Wireless partnerships in the quarter were $11.2 million, which compares to $9.2 million for the fourth quarter of 2014.
Weighing all these factors and adjusting for certain items as outlined in the table in our press release, adjusted net income was $8.1 million and adjusted net income per share was $0.16.
This compares to $8 million and $0.16 per share, respectively, for the same period last year.
Adjusted EBITDA was $79.4 million in the quarter, compared to $80.6 million for the fourth quarter last year.
Capital expenditures for the quarter were $33.8 million.
From a liquidity standpoint, we ended the quarter with approximately $15.9 million in cash and $65 million available in our revolver.
For the quarter, our total net leverage ratio, as calculated in our earnings release, was 4.2 times.
Cash available to pay dividends was $27.1 million, resulting in a dividend payout ratio of 72.2% for the quarter and 67.3% for the year.
Now, let me provide our 2016 guidance.
Capital expenditures are expected to be in the range of $125 million to $130 million.
Cash interest costs are expected to be in the range of $73 million to $75 million.
And finally, cash income taxes are expected to be in the range of $1 million to $3 million.
With respect to our dividend, our Board of Directors has declared the next quarterly dividend of approximately $0.39 per common share payable May 2, 2016, to shareholders of record on April 15, 2016.
This will represent our 43rd consecutive quarterly dividend.
With that, I'll now turn the call back over to <UNK> for closing remarks.
Thanks, <UNK>.
So we had another solid quarter to close out 2015.
We achieved a lot throughout the year and delivered on our strategic initiatives.
We continued our strategy on success-based fiber projects, with $134 million invested in capital, and we returned $78 million to our shareholders through the dividend.
The Company is well positioned for the future.
So with that, I'd like to open it up for questions.
Nicole.
Hey, <UNK>, this is <UNK>.
I'll take the first part of your question, and <UNK> will take the second part.
So thanks for the questions.
With respect to the wireless distribution, it's a little bit different.
I think what you were referring to is maybe in Los Angeles, where US Cellular had a huge spectrum buy that got allocated down to the partnership and was a mega transaction, and that TDS maybe had a little problem with some of their distributions.
We're not expecting that to happen as Verizon participates.
I mean, this is ---+ again, for the number of years that we've owned those or been involved in those partnerships as they've gone to the various options, it's never really been ---+ just maybe one small partnership that got allocated to us.
And I guess one thing to think about is like in the ---+ even if it was in the Houston market, we only own like 2% of the whole partnership, so, again, based on where that spectrum might be purchased, we think it would have a de minimis impact to us on the overall partnership distributions.
Yes, with regards to the Kansas City offerings, broadband offerings, we still, <UNK>, only overlap Google in about 2500 of our homes, and we respect ---+ we expect and respect that that may change over time, as they've announced they're working on launching in other markets.
But when you look at our footprint there, the investments we've made allow us to offer a competitive-gig product to over 50% of our base there.
We differentiate ourselves by providing a consultative approach to marketing our product, so we help our customers use bandwidth versus some of the lower touch models that they can get other places, and we're seeing a growth in the gig product, although I would also tell you we offer other options that allow customers to spend less per month if they want on Internet.
And the one final thing I'd add there is that while the consumer market gets a lot of attention in KC, Kansas City, because of Google, we have a very strong track record of growth there with our commercial metro Ethernet service.
It's a very good performing market on that customer focus.
Let me start first with the dark fiber piece.
We don't lead with dark fiber as a product in our wholesale or commercial areas of focus, although on the wireless backhaul side, especially with some small sale opportunities we've pursued, we do incorporate it in an overall package.
But unlike some of the others in that segment of the industry, that isn't a lead product for us.
It will be a component to secure a deal.
With respect to ---+ what was the rest of the question, <UNK>.
I tried to get it all.
I think you're seeing it in our revenue line already.
It's a constant effort, and what we have done intentionally is simplified our strategy around leveraging the fiber assets across all three customer groups of consumer, commercial and carrier, with commercial and carrier being the most significant growth and profitable growth component for us.
So we have, every two weeks, a capital committee that meets.
We have a really good track record in the last few years of organic extensions of our network, with a focus on a minimum of a three-year payback or 25% IRR, and that serves us very, very well.
So with the downward pressures, you've seen us keep the revenue line relatively flat, and we'll continue to balance the capital investment when we see opportunities for good return and keep our cash flow in a position that also satisfies our interest in returning value to shareholders through the dividend.
Sure.
I think the way to think about CapEx is we continue to see a relatively high percentage of our CapEx, roughly two-thirds, that go to success-based initiatives.
We still spend more in set top boxes on the consumer side than ---+ like our compadres in the industry than we probably want to, but overall our growth CapEx on the commercial side continues to be a more significant part of our spend.
We don't give a lot of detail in terms of exact dollars, but I think the way to think about it is roughly ---+ and it's a growing percentage ---+ half of our success-based CapEx is going to the commercial and the carrier areas, and it's continued to grow as we emphasize those network expansion opportunities.
Well, we're not giving prospective guidance on that, but let me do it this way and talk about what we've accomplished 2014 to 2015, and I think it might be representative.
We've got roughly 89% of our market that can get the 20-meg product, and in terms of the 100-meg product in actual homes past, we have roughly 42% of our addressable market that can take that product and receive it.
That's up from 31% in 2014, so you can see we've continued to expand our capability and backbone network ability to support those capacity adds.
Well, <UNK>, I appreciate the comment.
That's something that we'll continue to evaluate.
<UNK> mentioned that we have the right capital structure.
We'll continue to be opportunistic on refinancing and looking at opportunities, whether it be on the bond or credit facility, so we'll let you know when we do something.
And we have the capacity to do it within our credit facility, so we'll continue to be opportunistic.
We do.
<UNK>, thanks for the question.
Well, the way that we look at all three of our customer group areas of focus is we're ---+ our strategy starts with leveraging the common assets and making sense out of technology for our customers.
So if someone wants to buy just dark fiber from us, we'll consider it if it expands our capability to serve another one of the three customer groups, but it isn't a lead product because the many service relationships for us are very good EBITDA margins.
They're a long-term, sustainable revenue source, and dark fiber usually leads to a bypass, and so it's a balancing act of making sure that we're focusing our energies in places that create a longer revenue return opportunity for us.
I think we're seeing the sales force and the engine we've been building there really getting traction.
We've got roughly 85 quota-bearing reps and then the support resources that are aligned from an incentive perspective, including sales engineers, managers and such that total in the 100 to 120 range depending on which you include.
But the overall ramp is probably in its last stages in terms of the growth.
There's always a bit of turnover that happens early in an expansion situation, but I think that's starting to stabilize, and so we feel real good about the effectiveness of that group, and you're seeing it reflected in our capital investments because they're bringing deals that are attractive from an on net expansion perspective.
Yes, I think it's a continuation of that strategy.
We continue to focus the consumer marketing efforts on the broadband pipe and increasing RPU, and we've seen that result.
The video product is going to be part of our bundle.
We're de-emphasizing the broadcast product and emphasizing the over the top to capitalize on making bandwidth more valuable to our end users.
That's demonstrated by the positive response to our 100-meg and 1-gig launches.
So think more of that strategy you'll see play out in our results this year.
Well, I guess in terms of the ---+ if you think about run rate for Q4 going into 2016, I guess the way I would think about it on the subsidies line, that ---+ as we mentioned in the prepared remarks, that subsidy line does represent the first full quarter of the transition to Connect America Fund, and we are ---+ based on the quality of the network already and the high speeds we have in the network, we are ---+ we'll be backing up on CAT 2 funding.
So just as we've talked about this in the past, CAT 2, on an annual basis, we will lose roughly $5 million a year.
I think it's about $1.2 million a quarter, so that is sort of factored in ---+ that run rate is factored into Q4.
The other thing we have going on is the ---+ which is very adequately disclosed in our 10-K, so I'd refer you to that, too, for additional information, <UNK>, but we also have kind of the continuation of the Texas high cost fund kind of going away, so we'll probably be losing $1.2 million for that next year.
So I think ---+ that's what I think about subsidies.
And on the access number, again, it's a combination of switch and special access, and I think kind of looking at sort of the run rate year over year, you're probably ---+ I think you can use sort of the last couple years as a predictor for 2016.
Yes, thanks, <UNK>.
Let me start with the metered point first.
We're going to watch that closely.
We've got the technical capability to introduce that, but I must say that we've really worked hard to stay in front of the customer demand and have managed our backbone network as well as continued to upgrade speeds, to your earlier point, both in an offensive as well as a demand response move.
And so when I look at metered pricing as a strategy, that's to control usage as well as capitalize on some margin opportunities, and with our approach and marketing strategy to make sense out of technology for our customers and try and simplify those decisions, metered pricing makes that a little more complicated, and so we're not going to be a leader in that.
We're going to watch it closely and seize the opportunity if it makes sense for our customers and our shareholders, but at this stage, we're really focused on what the customer demand is and how we remain their first choice when it comes to broadband services.
Yes, to answer the last part of that first, fiber assets are going to be a priority when we look at opportunities for acquisitions.
I think we are in a good position on the tail end of the Enventis integration, and so we're certainly open to opportunities and look at them all the time.
The capital markets have to be receptive to that, and you've seen some volatility in the high-yield markets, obviously, but we've got a flexible capital structure, as <UNK> mentioned earlier, and we think about that capital structure in the context of M&A opportunities.
So obviously I can't say anything forward-looking there, but we're in a good position to maximize opportunities if we see something that makes sense.
I'll take the first two, and then <UNK> can handle the billing system sale.
With regards to the strategy, I'll just remind those that are familiar with it and maybe re-emphasize it for those that might not be.
We're focused on a long-term, sustainable business that provides value back to our shareholders, and it starts with our organic strategy, and then we've done some selective merger and acquisitions ---+ or some acquisitions that accelerated that organic strategy, and it's an extension of our network, and doing it based on the demand for broadband services and layering on other services that make that sticky, so that isn't changing.
We've, with the last two acquisitions, significantly upgraded our infrastructure in terms of capability for servicing the customer, positioned us well for self-serve, which you can see in our portals for both the consumer and the commercial customers, and we're adding value to each of those portals for those customers so that customers can deal with us in the most efficient way they choose.
So that's going to continue, and internally, we've talked about it in our all-employee meetings, is to finish long-term projects that we've started.
So there are always going to be tweaks around the edges on our strategy as the market conditions require, but we feel really good that our strategy is working.
We've consistently paid our dividend for 43 quarters now, and while we're a constantly learning organization, we feel pretty good about our plan and the alignment of our employees around it.
<UNK>, this is <UNK>.
On the question about the revenue run rate for the business that we sold, yes, that would be a full run rate.
It's basically $4 million a year.
The transaction happened in early fourth quarter.
So that's the way to think about it.
Yes.
More specifically on that ---+ and I generally did ---+ we're going to be tweaking pricing as it makes sense.
On the consumer side, we've probably increased, like our compadres in the industry have, the video prices as content costs have gone up.
And I'll remind you we launched that product in 2003 and 2004, so we're very mature in the video offering and have a pretty good penetration there.
It's part of our retention strategy.
And so for those that are launching in it at this stage because the technology has stabilized, I hope we've paved the road for them to not have to go through the pains that we did in the mid-2000s, but it's a mature product for us, and so de-emphasizing it is a natural part of our evolution.
And so pricing tweaks will occur as market will tolerate and new service offerings can support in terms of price increases, and we're seeing the positive impacts of speed increases affecting our consumer RPU, which is up almost 10% over last year.
Thanks, Nicole, and thank you all again for joining us today for your continued ---+ and for your continued interest and support of our Company.
We hope you will join us again next quarter, and we thank you all, and have a great day.
| 2016_CNSL |
2016 | ESE | ESE
#Good day and welcome to the ESCO first quarter 2016 conference call.
Today's call is being recorded.
With us today are <UNK> <UNK>, Chairman and Chief Executive Officer, <UNK> <UNK>, <UNK>e President and Chief Financial Officer.
And now, to present the forward-looking statements, I would like to turn the call over to <UNK> <UNK>, Director of Investor Relations.
Please go ahead.
Thanks, <UNK> and good afternoon.
Before I give my perspective on the quarter, I'm going to turn it over to <UNK> for a few financial highlights.
Thanks, <UNK>.
As a reminder, we previously announced certain restructuring actions that are being taken related to our lower margin international operations, primarily in the Test business.
We described and quantified the specific actions in the resulting annual cost savings expected from these actions.
The detailed restructuring costs were excluded from the FY 2016 guidance provided in November and we noted we would be presenting our quarterly and annual operating results for 2016 on an EPS as adjusted basis.
Our restructuring actions are ahead of schedule and are expected to come in below the original budgeted amount.
Our current view indicates the total cost will be slightly under the $9 million we originally projected and we still expect the restructuring to be substantially complete by March 31st.
We're looking forward to the completion of these actions as it eliminates a significant management distraction at the operating unit level and allows us to begin realizing the identified cost savings and operating benefits sooner.
Turning to our results, I'm pleased with our Q1 performance from several perspectives including earnings, cash flow, and entered orders, which each, significantly, exceeded expectations in the quarter.
Starting with earnings, we reported EPS as adjusted of $0.47 a share, which is 24% higher than Q1 of last year and 21% higher or $0.08 above the top end of our November guidance of $0.34 to $0.39.
While all three operating segments came in better than planned, the primary driver of our increased earnings resulted from filtration and Tests outperforming our previous expectations by a considerable margin.
The favorable tax rate contributed almost equally to the EPS results in both Q1 periods.
Our Q1 cash flow was several million dollars ahead of projections and our entered orders, led by the continued strength of our commercial aerospace business and, in particular, the A350 program, came in better than expected, which resulted in a $10 million increase in total company backlog.
I think it's worth repeating here that our strategy and our operating theme, that we've communicated over the past few years, is well-defined and remains clearly in focus throughout the organization.
Through these goals, we will strive to execute on our financial plan, deliver solid earnings results that meet or exceed expectations, position the company for sustainable long-term earnings growth, enhance our focus on returns, and follow our capital allocation plan.
Here are a few highlights from the release to allow you to better understand the underlying results.
Q1 sales increased 10% or $12 million compared to the prior year primarily driven by an $8 million or 17% increase in filtration sales.
Test sales increased by 9% year over year and Doble sales, while increasing only $1 million, we view as a positive given that the 2015 Q1 sales mix created a challenging comp due to an unusually large quantity of our highest margin protection sweep products being delivered this that period.
Regarding EBIT, consistent with the increased sales, both filtration and Tests exceeded our internal earnings targets by a meaningful level and Doble essentially came in on plan for the quarter.
Corporate costs were higher than last year primarily due to the timing and volume of spending on professional fees incurred supporting our M&A activities.
On the balance sheet front, we continue to maintain a very favorable debt level with $30 million of net debt outstanding as of December 31st.
While we remain firmly committed to our capital allocation strategy, which includes share repurchases and dividends, we did not repurchase any shares in Q1.
This was primarily the result of the timing of the M&A activities, which were in process, coupled with management's knowledge of the pending Q1 earnings results prior to this release.
We remain fully committed to our capital allocation strategy and expect to continue to opportunistically repurchase shares in the open market over the balance of 2016 as we continue to be supported by a strong balance sheet.
Our guidance and remaining outlook for 2016, while at this point in the year is unchanged from the November guide amounts for EPS as adjusted in the range of $1.90 to $2.00, has obviously helped our Q1 results.
Getting off to a solid start to the year certainly provides additional comfort in our ability to achieve our full-year goals.
At the start of the year, we provided a somewhat wide range in our EPS guidance for the year.
With the acquisition of Plastique last week, we are currently in the process of finalizing its net EPS accretion, which is impacted by purchase, accounting, and interest.
When completed, we'll determine if the net EPS impact which is at the top end of our range or above it.
Obviously we'll have this finalized by the next earnings call in May.
Regarding our Q2 outlook, we're expecting EPS as adjusted to be in the range of $0.31 to $0.36 a share and, when taken together with the Q1 actuals, our current expectations for the first half of the year are above our original forecast both from an EBIT and EPS perspective.
Compared to Q1, filtration is expected to generate higher EBIT dollars in Q2 driven by its expected increased sales volume throughout the individual operating units.
The timing impact of quarterly sales volume and the related impact at Test and Doble is expected to result in lower contributions in Q2 compared to Q1.
Corporate costs are expected to be lower in Q2 due to lower professional fee spending.
Finally, commenting on our love longer term view, we continue to see meaningful sales, EBIT and EPS growth across the business segments consistent with our previous expectations in earlier communications.
And I'll be happy to address any specific questions when we get to the q&a.
And now I'll turn it back over to <UNK>.
Thanks, <UNK>.
As outlined in the release, and as <UNK> commented, our (inaudible) and Test businesses performed well ahead of expectations and Doble delivered its Q2 financial commitments.
Our strong results, once again, validated one of the benefits of the multi segment business.
As <UNK> mentioned, the aerospace business continued to outperform with the Q1 operating results and the order book coming in stronger than expected.
The key drivers of the continued strength and confidence in our commercial aerospace business, (inaudible) we're well ahead of our near-term order plan led by the nearly $35 million of bookings received on the A350 which continue to run higher than expected.
TEQ performed well in the quarter with sales and EBIT margins up in Q1 compared to prior year.
As TEQ continues to be a solid business with above industry average operating margins.
Additionally, Fremont's first quarter contribution came in ahead of our acquisition forecast.
The addition of Fremont in the first quarter certainly firms up tax outlook for the balance of the year.
The addition of Fremont not only provides a nice book of profitable business but also it addresses and solves (inaudible) issue we're starting to struggle with in TEQ.
As we announced last week, we acquired Plastique to further augment our technical package in business.
This addition now gives us a solid foothold in Europe, more exposure to consumer markets and immediate access to new technology precision both in pulp fiber.
Many of the large global medical customers want or require manufacturing capabilities in both the US and Europe.
And this acquisition addresses that requirement.
Additionally, like many industries, the packaging market is becoming more focused on sustainability and reducing their environmental impact.
TEQ had already developed an eco-friendly plastic packaging solution for its medical products and now with the addition of fiber pack materials offered by Plastique, we're well-positioned to lead the market in this area.
Bottom line, both companies are great additions to TEQ and to ESCO and now together, TEQ has a more sizable, technical packaging platform, which provides a nice return and better positions us to address this growing market.
Doble reported solid operating performance in Q1 with adjusted EBIT margins of 28%.
The Brazil closure is on track and the restructuring activities, we described earlier, are on plan.
Also, a modest slowdown on the hardware side of Doble business, as utilities continue to rationalize their capital budgets.
We continue see additional opportunities in our service and software applications that bode well for our outlook.
I'm pleased with the success Doble is having with their new solutions and offerings, which effectively augment what was already a market leading set of products, services and solutions.
Additionally, we are hopeful that some of the new regulatory standards recently adopted by American [Firm] will open new windows of opportunity for us to assist utilities in their compliance obligations.
The Test business restructure in Europe is going better than anticipated at the start of the year.
We had a tight schedule and a lot of moving parts and our teams, both in the U.S. and in Europe, did a very professional job of working through the challenging process.
As of December, we're out of Germany and we're nearing exit date of the U.K. as we wind down a few remaining projects.
We should start to see the normalized operating margins and (inaudible) beginning in Q3.
Moving on to our outlook for the remainder of 2016, I continue to be excited about the growth prospects we're seeing materialize across the operating segments as well as their potential impact over the balance of the year.
A few items (inaudible) perspective include the ramp-up of the A350 as it transitions from low rate production or LRIP to more meaningful run rate over the balance of the year.
Test backlog today, coupled with the remaining book and ship quantities needed to meet our 2016 goals, are at the strongest level we've seen in several years, at this point in the year.
Additionally, we're pursuing several large chamber projects in Test, which could further solidify our outlook for this year and beyond.
On the cost side, we continue to see the opportunity to beat our EBITDA margin goals once we pull the exit (inaudible).
Lastly, global continues to see solid opportunities across its global utility platform, which bodes well for their future growth.
Regarding additional acquisitions, we continue to be active and we'll continue to be prudent.
Our two recent acquisitions have come with reasonable EBITDA multiples, which are in the mid to upper single digits, which allows us to hit our return goals more quickly.
We anticipate solid accretion from both these acquisitions.
Our M&A strategy remains unchanged.
We'll continue to take a deliberate approach looking for small to medium sized niche players which we can acquire for a reasonable multiple thereby providing EPS accretion immediately and delivering an acceptable ROIC.
We continue to evaluate several opportunities as we work toward supplementing our organic growth.
So, wrapping up, we had a strong first quarter and our outlook for the year remains solid.
Our actions to reduce our cost structure are (inaudible) as expected and we're on track for a strong 2016 as we are well-positioned for profitable growth in all (inaudible) segments.
And our focus remains constant to improve our operational performance and execute on our growth opportunities, both organically and through acquisitions.
I'll now be glad to answer any questions you have.
I know you guys are basically ahead of your expectations on a six-month basis with the last quarter and the current one you're in.
But can you clarify what's going on, what's going to the sequential step down.
I know you have seasonality in Doble with the conference.
Did you pull in some business at all in the quarter.
Yes, there was some of that.
I mean, Obviously the first quarter was very strong and there was some pull in.
That wasn't the majority of it.
There was pull in the first quarter.
As I always say, we've got to take the sales when we can get them so if they were available in the first quarter, obviously, we're going to capture those.
But, as we mentioned, with Doble and with the Test business [pulling], you know, there's always some shifting from quarter to quarter and in addition, in the first quarter, in the Test business, we're finishing a large project in Asia and so that accounted for some of their upsides performance in the first quarter.
So we're not seeing anything that concerns us in the second quarter, we understand it, and then, more importantly, as we look in the second half of the year, that ramp up that we need to make our year, that looks solid.
Got it.
That's very helpful.
And, you know, we've seen a number of companies just with issues with timing or general uncertainty in the aerospace sector, I'm just wondering if you're seeing any of that at all and why wouldn't you be exposed to that kind of volatility.
Yes, interestingly enough, we haven't and I think a lot of it is, with the aerospace business, well, first of all, we're a (inaudible) player and so we're kind of far down in the supply chain in some areas.
But more importantly, you have to look at the actual platforms that we're on and the things that we're on, whether it be to the legacy projects that we're on or some of the new projects that we're on, in particular the A350, we're just not seeing that type of slowdown.
And, you know, I get that question a lot because you hear about it.
But based on the projects that we're on, the platforms that we're on, we've not seen that.
And you also have to remember that we do have the space projects as well, we do some work for the Navy.
So I think everybody wants to paint the aerospace market as Boeing and Airbus.
And while, certainly, they drive the (inaudible) in the long term, (inaudible), big driver in the market.
With our business, there's a lot more customers that we interface with and so I think that's the primary reason we haven't seen that type of effect.
Yes, so, two pieces, I mean, it's certainly something that we're talking with our monitors about and with the right timing that's the right thing to do as far as breaking it out separately.
It certainly is, it's gotten this large, something we have to take a look at.
We have to get our arms a little bit around the overall growth rate.
But certainly, the growth rate in those businesses are probably in the upper single digits, I would say.
And I think we have the opportunity to maybe do a little bit better than that.
When you look at what we've tried to accomplish by having this foothold in Europe, that the products that Plastique has versus what TEQ historically had, similar products certainly but some of the end markets are different.
So our hope is that we can take some of the expertise and some of the customers we have in the U.S. and migrate that to Plastique and vice versa, as well as, you know, with this new technology with pulp fiber.
You know, that's something I think there is an appetite for in the US as well, it's under served now.
So, you know, we've to got to get our arms a little bit more around exactly how that's all going to play out.
But this was not just a one plus one equals two.
We think by combining those businesses and having extra capacity, that we're getting with Fremont, that that gives us a much better platform and should give us, kind of, out-size growth opportunities.
Okay, great.
Just one quick clarification.
<UNK>, did you mean, when you said that after the impact of Plastique, you would probably see either the top end or, maybe, above the range.
Was that before or after the one X acquisition costs and purchase accounting.
That would be after because I used the word net.
Because obviously we're, as we're going through the evaluation of intangibles and all the other stuff that has to get carved out for the pieces that are amortized (inaudible) versus fixed.
So my comment was on a net basis that it would be after the purchase accounting and after the interest expenses where we'll be speaking about it.
But we'll also call out the pieces.
But that's what I was referring to.
And our next question is from the line of <UNK> <UNK> from Stephens.
Your line is now open.
Hi, thanks for taking my question.
On the Test business, I think, <UNK>, you mentioned you have large chamber projects in the pipeline.
Outside of the large chamber piece of the business, can you speak to, kind of, the rest of the Test pipeline and how it looks.
Maybe touch on of some the more economically sensitive areas of the business and how you feel about them.
Yes, I'd say outside of those the rest of the business is performing well.
In fact, we were just down there last week, well, I've been there in the last two weeks.
But we just had our board meeting down last week and had our directors down.
So we had a deep dive with those guys to understand it.
I'd say, overall, the markets that we're addressing are pretty solid.
I mean, there's some ups and downs, (inaudible) the medical market is a little softer.
And some of the others, (inaudible) the wireless is stronger and despite all of the concern about what's going on in China, it has been a really great market for us this year and it looks like for the remainder of the year.
So we've not seen anything that's overly concerning to us for that market.
In fact, you know, the projections that we have out there seem solid.
The good thing is we don't have to get these large projects to make these things happen.
But certainly, it's great to see those because we typically have one large project going through the business at any given time.
And so having the number of opportunities like this, I'd say over, it's not going to have a huge impact on this year.
Because usually these large projects get delivered over a couple of years.
But, certainly, that adds to the potential upside to the business.
But, the underlying business, that's the outside of the medical business, is very solid.
And if you're going to see some of the larger projects convert, when would the expectation be that you see them.
Well typically, those things play out, you know, we may (inaudible) and we may get some impact in the fourth quarter.
But the majority (inaudible) would be in 2017.
Got it.
And, I think, you were speaking to kind of mid-teens EBIT margins for the segment.
Is there a, kind of, a revenue run rate embedded in that type of guidance that you need to be at.
I would say, <UNK>, just to put (inaudible) around it because the margin differentials on each of the product lines, like <UNK> said, with medical or the wireless or the EMC or anything around that, if you were just to peg this as roughly a $43 million to $45 million revenue a quarter, you'd be at that range.
And so, if you look at our seasonality, and we don't want to peg this as annualized, but you can see the leverage you get off of the sales increase.
Historically if our Q4, which has been our strongest quarter, where we're banging around $52 million and $55 million over the past two or three fourth quarters.
You can see the margin gets up at 16% to 18%.
So that's kind of the band, if you think of $44 million or $45 million at the target we're looking at.
At the one off quarters, you get the 50s and whatever, you should get three or four points a margin.
So, hopefully you can work around the sensitivity of that.
A couple of things, I mean, the first response is I'm glad that we have a dominant position in the US, (inaudible) serve in the US market is stronger than what we're seeing in Europe right now and even in Asia.
Having said that, primarily what we do are more services, software, with some hardware sales internationally and that does not seem to be impacting quite as much.
But, certainly, the European market, the industrials, are more challenging than they are in the us.
Okay.
As we look at the remainder of the year, we factored that in to what we think is going to happen with the business.
(Operator Instructions).
And our next question is from the line of <UNK> <UNK> from Canaccord.
Please go ahead.
I'm sorry.
Will you say that again.
For Plastique.
As we layer that in, how should we be thinking about EBIT margins on that business.
Is that, sort of, similar to other packaging businesses and sort of in the 15% range.
Or how should we think about that.
I would say that today, they're a little bit below that.
They're in the teens.
A bit below 15%.
Okay.
That's helpful.
And then on the balance sheet after this deal, you know, I guess where does net debt shake out.
What are you thinking for dry powder as you go after more targets.
I'll address that.
If you remember right before the holidays, we re-upped our credit facility and basically extended it with a five-year duration.
We didn't increase the volume.
So we started out with $450 million under a revolver and we have $250 million under an accordion that could be used for acquisition.
So if you start thinking of that in that total range, I mean, yes, we don't have a $250 million acquisition in the pipeline.
We have plenty of dry powder.
And the other thing is the pricing that we pushed through.
We knocked anywhere from 12 to 25 basis points on the higher end of that borrowing, which is libel based.
So that gives us a lot more flexibility if we need it to get competitive.
So, you know, I think the general ballpark range of what we paid for Plastique is about 30 and we're generating cash this quarter and so you know, if we were to jump ahead to March 31, we're not in an extraordinarily different position than were at December.
And so the dry powder is plenty sufficient to handle what we have in the pipeline.
Okay.
That makes sense.
And just to be clear on the guidance for Q2, there's no step up charges or anything like that in the $0.31 to $0.36.
Step up meaning purchase accounting.
Yes, exactly.
No.
That number there, I would say best way to describe it is that's the operations excluding Plastique because, you know, just we bought it last week and obviously we know the numbers.
But before we lock down, what we want to put in our commitment.
So anything that Plastique flushes through, obviously from a sales perspective and earnings perspective will be a net positive to that depending on the purchase accounting amount.
And just to size that, and if you remember the release from last week, we pegged it at about $35 million on an annual basis.
And so, obviously we'll have that for eight months of the year.
So whatever that pro rata is, as <UNK> described it, you know, kind of a low to mid teens.
So somewhere between 12% and 15% EBIT.
Then with the purchase accounting for a few pennies off that so that's kind of the wrap.
But that is not included in here.
The revenue is not included in there nor is the earnings.
That's the straight up pre-Plastique number.
Perfect.
Just wanted to clarify.
Appreciate it.
Sure.
Nice job, folks.
Thanks.
Our next question is from the line of [<UNK> <UNK>] from [SDH].
Please go ahead.
Hi, <UNK>, actually my question has been answered.
So thank you.
Okay.
Well thank you, everyone.
I look forward to talking to you on our next call.
Thank you.
| 2016_ESE |
2017 | IDA | IDA
#Okay.
Well, it's good to hear from you.
Thanks, <UNK>.
Again, that's something that's still a work in progress.
We would kind of take a look at a number of different options that might be in place, whether it's 2017 with known immeasurables or a forecasted test year ---+ those are all things that we would continue to look at.
<UNK>, I was just going to point out ---+ you know, we talk a lot about this in the sense of ---+ really our major jurisdiction, but we do have ---+ we have two, and it's possible that they would be filed at different times.
At least it's not impossible.
And it's possible that they may have different methodologies when it comes to something like this because Oregon typically [likes to forecast test year].
And that plays into it, too.
So it's hard to just give a definitive single answer.
Well, what our actual earnings were this last year was at ---+ just under 9.5% for Idaho Power, looking at both jurisdictions.
For Idaho, you'd have to say we got at least to 9.5% because we didn't use any tax credits, so it was probably a little stronger than the whatever else was there.
But certainly neither ---+ we've had some better years when we were up around 10%.
We certainly weren't there this year.
Our allowed rate ---+ I don't recall what the Oregon exact number is ---+
Nine-nine in Oregon, and the [unstated] in Idaho was kind of roughly 10.
You have to solve back to it, but that's what was used in ---+ so I would say that for us to achieve numbers that are near those ---+ if you look back over our long history, being within 50 basis points of that isn't bad.
And that's what we have to assess is the items that we would be taking into a case versus what you think you would get in terms of settlement.
You know, that is ---+ the devil's in the details, and that's what is impossible to determine today.
And it all would depend on how they've structured the various items that have been thrown on the table.
You could end up with a lower tax rate and have every single one of those still be there.
It depends on the approach that they take.
And I would say if they take an approach as they have in the past where any accelerated deductions are more like additional depreciation and it's just an accelerated timing, that doesn't affect those deductions at all.
If it's some entirely new approach, you could see a change.
And I guess for us, the final answer is, whatever tax you pay is really what goes into the regulatory model.
So it would depend on whether we're ultimately paying less or more than we are today whether it changes things very much.
This is <UNK>.
We have an active succession-planning process.
And so we continue to look at the future.
And so over the last couple years, we've had a fair number of retirements at the senior level.
And so what we've really been doing right now is continuing to look at that.
We don't have any pending retirements coming up, but you never can project those.
But we just have people ---+ we've kind of moved some people into different spots as we look to the future, the next three, four years down the road sort of thing.
So that's kind of why we made some of the changes.
And a couple of those changes were really to reflect what people were already doing.
Probably the biggest change was when we promoted Adam Richins to his new role and then had Vern Porter kind of change some of his responsibilities.
Those were probably the biggest changes when you look at that.
And it's really related to continuing to plan for the future and making sure we continue to have seamless transitions.
We've had seven officers retire in the last three-plus years, and so we think we've done it fairly seamlessly.
And so we just continue to work hard at that side of things.
So there's nothing other than just the sort of normal course of business things.
And there's nothing imminent that's coming up on any other changes that we're looking at today.
Actually, I'm looking for some stability for a while, actually.
It's kind of a nice thing, you know, with no necessarily pending retirements coming up.
We had a couple last year, but right now we don't have any ---+ with what I know today, nothing pending.
Thank you.
I'm trying to remember which ones I gave you.
The actual return for the year was based on looking at our GAAP ---+ at our year-end earnings.
If you just take Idaho Power, we earned, like 9.47%.
But we do have ---+ in the Idaho jurisdiction, the regulatory stipulation that we're working under supports Idaho jurisdictional earnings up to a 9.5%.
And it looks to year-end equity.
It's not a pure regulatory computation, so it does look at whatever your year-end GAAP equity is.
It's a great question because what will happen is the rates will get set traditionally.
They will be looking at rate base.
They'll be looking at your costs that you're flowing through, the capital you've got invested.
And they will come up with a very typical regulated return that you will develop a rate from.
Then if that decision happens prior to the end of 2019, whatever time there is between then and the end of 2019 reverts back to this settlement mechanism.
And it would look to year-end equity and apply whatever the adjusted return might be to that year-end equity number.
Now post-2019, that would all be up in the air.
You would either revert back to what we've always had historically or would be looking at whether there's any way to negotiate an extension if there's credits left.
Well, I want to thank you all for participating on our call this afternoon and for your continued interest in IDACORP and Idaho Power.
And we hope you all have a great rest of your day.
Thanks for participating.
| 2017_IDA |
2015 | ILG | ILG
#Thanks, <UNK>, and good afternoon to everyone.
Thank you for joining us for today's discussion of ILG's first-quarter 2015 results.
This year began on target, with record first-quarter total consolidated revenue and adjusted EBITDA.
While much of this growth was driven by the inclusion of Hyatt Vacation Ownership, which was acquired last October, we are seeing organic growth across a number of our businesses.
Within the exchange and rental segment, our vacation rental management revenue improved by 2% as we added more mainland contracts.
The Hawaii rental business faced increased headwinds, as the appreciation of the dollar has put a damper on arrivals from Japan to Waikiki and other Oahu destinations.
However, all other islands saw positive RevPAR growth on a same-store basis.
Resorts in the out islands, such as Maui and Kauai, tend to have a longer booking window and are historically less reliant on foreign visitors.
Within exchange, Interval International grew Platinum membership revenue by 18.6%, driven by improved upgrades and renewals of this premium product.
Platinum has been a success story in terms of both revenue and members.
Today, there are over 150,000 Platinum members and revenue from this product has increased at a CAGR of nearly 86% since its introduction in 2011.
Also, the Interval network benefited from improved inventory levels.
As a result, there was an uptick in getaway volume, which contributed to an increase in average revenue per member.
We continue to source additional inventory from new and existing affiliations in a variety of high-demand locations.
In aggregate, the inventory utilization rate increased from last year by 30 basis points to 93%.
The Interval Network expanded by 22 resorts in eight countries during the first quarter.
We successfully restructured Interval International's European operations and are routing more international calls to the larger US-based call center that utilizes a flextime model, including home-based agents.
This allows us to scale call center headcount on an as-needed basis.
The vacation ownership segment saw an overall increase that was driven by the inclusion of the HVO business.
The segment adjusted EBITDA also benefited from organic growth in our US-based independent management businesses.
VRI Europe was most affected by currency fluctuations, but in constant currency this business did see modest improvements.
Segment adjusted EBITDA in constant currency was up 40.7%.
We have made good progress integrating the HVO business, which has recently added a number of key positions to help lead the charge in 2015.
Excluding pass-through revenue related to management contracts, HVO contributed an incremental $13.6 million to this segment's consolidated topline.
Systemwide, net contract sales were $27.2 million.
The average price per transaction was up by about 7% to $40,000.
VPG was $4,216, with 77% of sales dollars coming from new buyers.
In the unconsolidated Maui joint venture, sales grew nearly 25% from last year, as we benefited from the resort opening, more dynamic lead generation programs, and an increase in tour flow.
Last month, the American Resort Development Association bestowed its prestigious Project of Excellence Award to HVO for the Hyatt Ka'anapali Beach Resort.
The honor recognizes a timeshare or mixed-use project built within the United States and the judges consider design, sustainability, and impact on the local community.
The resort also garnered awards in two resort design categories, best site plan and resort architecture.
As we mentioned on our last earnings call, we are starting the process of building and expanding from a solid foundation.
We still have work to do, but we did make progress during the first quarter on all fronts.
We executed on increasing inventory for the Interval Network, ramped up the HVO sales initiatives, and made incremental improvements to both our rental and management businesses.
I will go into more detail on our plans for the rest of the year following <UNK>'s recap of the numbers.
<UNK>, please take us through the financials.
Thank you, <UNK>.
Good afternoon, everyone.
First-quarter 2015 consolidated revenue was $184.6 million, a year-over-year increase of 17.5%.
Excluding pass-throughs, consolidated revenue was up 11.1%.
This increase was driven by the incremental contribution from our recently acquired Hyatt Vacation Ownership business.
As we had anticipated, foreign-exchange fluctuations adversely impacted our results for the quarter.
In constant currency, consolidated revenue was $187.6 million, an increase of 19.5%.
Excluding pass-throughs and in constant currency, revenue was $149.6 million or up 13.4% from last year.
In looking at segments, exchange and rental revenue decreased (sic - see Press Release - "an increase") by 4.3% to $135.6 million.
Excluding pass-throughs, segment revenue was up 3.3%.
While the majority of the improvement in this segment was due to the inclusion of the Hyatt Residence Club, there was about 2% organic growth in rental management revenue.
At quarter-end, the Interval Network membership count was flat with the prior year, with approximately 58% coming from traditional memberships.
The inclusion of HRC wallet share helped to drive a 1.4% increase in membership fee revenue, while transaction revenue was consistent with last year.
Exchange transaction volume was off by 3% versus last year.
However, getaway volume rose by 7% and helped drive an increase in average revenue per member.
In constant currency, average revenue per member was $50.20, an increase of about 2% from last year.
Our vacation rental business had 763,000 available room nights, a 3.8% increase from the same period last year, due primarily to new mainland contracts.
While these new contracts contribute positively to the topline, they generally have lower RevPAR than the Hawaii properties in our system.
As a result, rental management revenue increased 2%, while rental RevPAR was $130.39, a comparative decrease of 5.1%.
Hawaii-only RevPAR increased by 1.7%.
The vacation ownership segment contributed revenue of $48.9 million versus $27 million for the first quarter of 2014.
On a constant-currency basis, total revenue and revenue excluding pass-throughs for this segment would have been $51.4 million and $36.1 million, respectively.
The inclusion of Hyatt Vacation Ownership is the main driver behind the year-to-year growth in the segment topline, with both HVO and our existing management businesses growing the bottom line.
In terms of seasonality, you\
Thanks, <UNK>.
This year, we'll be focused on disciplined investment in the areas that we believe will drive long-term growth.
At a high level, these include increased efficiencies and new product development in the exchange and rental segment and expansion of sales in the vacation ownership business.
In addition to making good headway improving inventory volume and utilization, Interval International is seeing early success in a new initiative that partners with the HOAs in the network to enroll owners that have purchased resales or reactivate owners whose memberships have lapsed.
This quarter, we are rolling out similar programs with TPI and VRI managed properties.
Our rental companies have established a preferred vendor program with a leading hotel procurement provider.
This allows Aston and Aqua to pass cost savings directly to their clients.
We are hoping to expand this program to the US-based vacation ownership management business and Interval International clients in order to provide additional benefits to these constituents.
These are just two examples of how our operating companies are collaborating to the benefit of our clients, members, and ultimately our investors.
At HVO, the Maui project is showing improvement in net contract sales, average transaction price, and number of tours.
At the consolidated locations, we have been busy recruiting key personnel and securing quality lead generation locations.
We're optimistic about the future of our industry.
Several prominent Interval affiliated developers have new projects in progress.
Preliminary data from ARDA indicates that US developer sentiment has improved considerably and that new construction should be increasing.
Last year, we demonstrated that we can build a foundation for growth and return 43% of our free cash flow to shareholders.
We believe that the strength of our consolidated business model will generate ongoing cash that can be methodically deployed to produce shareholder returns.
The remainder of 2015 will require continued execution, but we believe we are on target to deliver in line with our expectations as we further expand ILG's role in nontraditional lodging.
Operator, please open the call for questions.
<UNK>, before I answer your question, I may have misspoke early in my remarks.
Exchange and rental revenue increased by 4.3% to $135.6 million, so I just ---+ I may have said decreased.
It should be increased.
Right.
Well, as you saw in the first quarter, we did have some increase in stuff, and we are comfortable, based on where we are at, to go ahead and increase that guidance.
Sure.
In one of my remarks, I indicated we had improved cash flow from receipts ---+
---+ primarily related to HVO.
There were payments that didn't occur that occurred in the previous year related to contracts and one wide one was a timing difference, which won't have any impact on the full year.
And then, we also ---+ and then, I also indicated that in spite of the FX and the interest payments, interest will have an impact as related to the bonds.
I think your second question ---+ go ahead.
On the refi between floating and fixed, the bonds are fixed at 5-5/8%, and we thought that it was a really good time to take advantage of historically low interest rates.
I think it is ---+ in the last probably 18 months, we have done the acquisitions for HVO, for [VRIE], and for Aqua.
So, in connection with that, we run off our revolver rather high, towards the top of that, and when you look at the historically low interest rates, being able to take advantage of that on an unsecured basis, it just seemed like a very prudent thing to do.
Yes, we are continuing to do the analysis of the two properties in buildout.
That is ongoing and we should be getting to plans within the next few months of exactly what we're going to do there.
In terms of the pipeline, we continue to work the pipeline both domestically and internationally to process and, again, we have to build that pipeline ourselves this year and it's a priority.
Yes, it 77% of the revenue from those sales.
It's slightly less than that in terms of total owners that buy.
It is driven primarily by the sales in Maui, which are very much first-generation buyers.
That's basically how the tours are developed.
In terms of the future, clearly we hope that we will be able to sell more interest to our customers moving forward, but right now, the way we are constructed, it is pretty much directed primarily at new buyers.
And then, the accounting lumpiness, the purchase accounting stuff should pretty much wash out towards the end of the year, the end of the calendar 2015.
But that's the ---+ purchase accounting stuff lumpiness, as you know in the sales business, you could potentially have lumpiness in a sales model.
We have all constructed inventory that we are selling today, so you're not going to have a percentage of completion issue from a lumpiness perspective.
RevPAR in the aggregate is down because of the inclusion of the mainland contracts, which are lower RevPAR just by definition.
In addition to that, the Waikiki properties struggled with the strength of the dollar and the Japanese visitor, while the out islands RevPAR was up.
But overall, Hawaii RevPAR year to year was up 1.7%.
No, we're seeing it ---+ Steve, we are seeing healthy increases in RevPAR now, and it's Waikiki, which caters to the Japanese and more the international visitor, is where the issue has been.
Maui has been very strong.
Steve, are you comfortable with the purchase accounting question.
Thanks.
I want to thank you for your questions and participation on today's call.
We appreciate your continued interest in ILG.
Operator, please conclude the call.
| 2015_ILG |
2018 | KIRK | KIRK
#Thanks, <UNK>.
It's a pleasure to be here with you this morning.
For those I have yet to meet, let me start with a quick introduction.
I was Kirkland's Chief Operating Officer since November of 2016 before being named Acting CEO this year.
I've spent the majority of my career in the home d\xe9cor sector and a wide variety of merchandising, operations and senior leadership roles, most notably at Michael's Stores.
I came to Kirkland's because I saw an incredible opportunity to grow the brand.
I believe we are very well positioned to exploit trend-right style and value as an omni-channel specialty retailer of home d\xe9cor.
I have just as much conviction about our ability to execute on that opportunity as I did when I joined the company, and I look forward to updating you on our progress.
On our fourth quarter call, we outlined a solid plan for 2018 that incorporated a number of initiatives to grow revenue and improve our overall operating efficiency.
I'm pleased with our performance to start 2018.
I'll spend some time this morning updating you on where we're seeing success and where we still need to make more improvement.
In short, we are realizing progress on fundamentals, while setting the stage for the future.
We achieved record sales in the quarter with positive comparable store sales, while growing merchandise margin.
Overall, the results demonstrate that we're delivering a better customer experience with new and exciting products, supported by improved clarity across our merchandise presentations on the back of improved operational efficiency.
At the same time, we're making strides to improve financial performance as we strengthen our omni-channel platform and control operating costs.
We've accomplished some of the underlying initiatives over the past year, yet, we still have more work to do.
I'm extremely proud of the way our team has come together in a recent transition, and I'm confident that we're on the right path to achieve our targets and grow the long-term value of the business.
Total sales increased 7% in the quarter with EBITDA increasing.
Our store performance has improved in both existing and new stores, and we maintained a strong pace of growth in e-commerce.
We're very pleased with our furniture performance, which was up 7% over last year.
Strength in the category was driven by planned changes to the product mix.
Fragrance had a similarly strong performance as the customer is responding to a reset of our jar wax to a higher quality product and assortment.
Customers are freshening their homes with seasonally appropriate and trend-right pillows and throws.
These micro categories grew over 16% in the first quarter.
We realized significant double-digit sales in floral as we reset the category to a lifestyle theme, and it's working.
We've identified some opportunities to spur our momentum in the fall and holiday quarters.
For example, we're making significant adjustments to our product mix in art, and we're addressing mirrors with a revitalized basics program.
We're also planning some deeper investments in categories to support our fall and holiday business.
This will include a more thematic approach to gifting with special product sets and in-store features.
These types of category refinements are driving stronger conversion in ticket, and we feel great about the direction our merchandise team is headed.
Financial performance in the quarter benefited from solid traction on initiatives to control costs and increase operating efficiency.
We're employing better analytics to augment our forecasting and marketing initiatives and that's allowing us to optimize our couponing and promotional activity in a surgical and strategic way.
Brick-and-mortar product margin improved versus the year-ago quarter, and we were able to offset headwinds from an increase in direct shipping for an overall gain in the merchandise margin.
Expenses remained well controlled.
We leveraged overall operating expenses, and we are addressing supply chain cost pressure with better truck utilization and streamlined routing.
We finished the quarter in a strong capital position with $58 million in cash and no borrowings outstanding.
We intend to maintain a conservative capital structure, and we have ample flexibility to make investments to achieve our strategic goals and return excess cash to our shareholders.
As mentioned in our fourth quarter earnings call, we're making investments to accelerate high return projects that can improve the customer experience, support growth and increase efficiency.
These include an upgrade to Buy Online, Pickup in Store to support our e-commerce business and investments focused on customer retention and new customer acquisition.
Sales growth at kirklands.com accelerated 39% in the quarter against a 32% gain in the prior year.
The channel was a key driver for comparable store sales.
E-commerce expenses leveraged on the larger sales base and continued expansion of direct shipping from vendors is aiding overall profitability.
We're on track with plans to rollout BOPUS this year, and we'll continue to expand vendor direct shipping, improve the assortment and enhance the mobile experience.
In marketing, I'm pleased to announce we've relaunched our loyalty program.
This is a new and improved program designed to deliver greater customer value and drive better margin as a byproduct.
We've also shifted some dollars into new customer acquisition and this includes added spend on digital, where we've introduced a new influencer program to foster and support inspiration.
As an example, we utilized social media to launch our first licensed product, the Trisha Yearwood collection.
We received positive reviews, strong sales of the featured products and touched new customers.
We've got an additional licensed collection in the pipeline for 2018.
As you know, we've slowed our store growth as we focus on enhancing our omni-channel strategy.
We're in the preliminary stages of an initiative to transform the in-store experience to better support our omni-channel platform and showcase our merchandising focus.
We've kicked off an exciting new initiative as we align with the top retail design agency to stand up a best-in-class test store this year with the objectives of creating cohesive product stories, simpler customer navigation, theater to our stores and highlight our omni-channel opportunities.
These are just some of the examples of how we're staying disciplined and keeping the ball moving forward.
I feel great about Kirkland's progress on the fundamentals and the strategy we're pursuing to profitably grow our share of the home d\xe9cor market.
The teams are approaching the business with greater discipline and better data and that's starting to drive the sales with a commensurate improvement in the margin.
I am proud of the way our team is coming together and optimistic about the prospects to continue to improve financial performance and the opportunity to drive long-term value for our shareholders.
With that, I'll turn it over to Nicole to discuss the financials for the quarter.
Thank you, Mike.
Net sales for the first quarter increased approximately 7% compared to the same period in the prior year, despite significant weather impact.
Consolidated comparable store sales increased 1.4%, which included a 39% increase in e-commerce revenue.
In our brick-and-mortar stores, we continued to see a higher average ticket and positive conversions offset negative traffic during the quarter.
We opened 10 new stores and closed 3, ending the quarter with 425 stores, which is a net year-over-year gain of 24 stores or 6%.
We are projecting to open an additional 10 to 15 new stores in fiscal 2018, with roughly half of those in each of Q2 and Q3.
With only a few months of sales, the 2018 new stores are outperforming our expectations.
E-commerce generated $17.3 million in revenue during the quarter, accounting for approximately 12% of total revenue.
This increase was driven by a combination of increases in website traffic and conversion.
Our third-party drop-ship initiative accounted for 24% of our e-commerce revenue in Q1 compared to about half of that in Q1 2017.
Moving on to margin.
Gross profit margin in Q1 decreased 50 basis points from the prior year to 31.8%.
As a reminder, both the current and prior periods have been adjusted to include depreciation related to store and distribution center assets.
Looking at the margin components, merchandise margin increased 35 basis points to 56%.
Merchandise margin includes the direct cost of merchandise as well as product shrink, damages and inbound freight.
Product margin continued to benefit from a higher IMU and more strategic promotional activity, which offset pressure from inbound freight.
Outbound freight costs, which include e-commerce shipping, increased 65 basis points as a percentage of net sales, which was largely driven by an increase in e-commerce penetration.
Store occupancy costs deleveraged 15 basis points as a percent of sales compared to the prior year quarter.
And finally, central distribution costs deleveraged 5 basis points to the prior year as a percent of sales.
Moving on to operating expenses.
Operating expense for the first quarter was 31.7% of sales, which was down approximately 110 basis points to last year.
Store operating expenses remained relatively flat to the prior year as a percentage of store sales.
E-commerce expenses leveraged 160 basis points as a percent of e-commerce sales.
And corporate expenses, excluding the CEO transition charges, decreased $1 million or 130 basis points year-over-year, primarily due to a reduction in corporate salaries and stock compensation expense.
Year-over-year, we had an increase in EBITDA of $1.3 million or $2.4 million adjusted for CEO transition costs, getting us to $6.5 million for the quarter.
Depreciation and amortization remained relatively flat to the prior year as a percent of sale.
The tax benefit for the quarter was approximately $500,000, which included $135,000 benefit from hurricane employment credits.
Excluding this discrete item, the tax rate for the quarter was 24.4% of the pretax loss and that's compared to 36.3% in the prior year period.
The lower rate in 2018 is due primarily to changes included in the Tax and Jobs Act of 2017.
We ended the quarter with a net loss of $0.06 or flat adjusting for the CEO transition charges, and that's compared to a loss of $0.09 in the prior year quarter.
We will continue to work to improve our performance in the first half of the year, so we were happy to have the first year-over-year improvement in profitability since 2015.
And moving to the balance sheet and the cash flow statement.
At the end of the quarter, we had $58.2 million of cash on hand and no long-term debt or borrowings were outstanding under our revolving line of credit.
Inventories at the end of Q1 were $83.2 million, which was an increase of approximately 15% over Q1 last year.
Most of this increase is due to growth in total sales year-over-year with some additional timing impacts.
Our per store inventory increased just over 1% compared to the prior year.
Year-to-date fiscal 2018 cash used in operations was $8 million, which reflects our operating performance and changes in working capital.
Capital expenditures for Q1 were $11.1 million compared to $5.6 million in the prior year quarter.
We expect similar annual capital expenditures to the prior year.
Of the $11.1 million, 60% related to new stores and existing store improvements and the remainder to e-commerce, supply chain and other system investments.
During the first quarter, we repurchased approximately 316,000 shares at an average cost of $9.42.
To date, we have repurchased 420,000 shares at an average cost of $9.83 under our current share repurchase authorization, which leaves just under $6 million available.
We are reaffirming our 2018 outlook provided on March 16, 2018, which includes annual diluted earnings per share in the range of $0.50 to $0.60, and that's inclusive of the CEO transition charges.
We expect to ---+ we continue to expect earnings improvement in each quarter relative to fiscal 2017 with the exception of Q2, which included favorable adjustments in the prior year.
Related to our Q2 outlook, the second quarter of 2017 included favorable onetime adjustments of $0.10 related primarily to favorable shrink results and an adjustment to capitalize a month of extra lease charges.
Excluding those adjustments, we expect the second quarter of 2018 to be roughly in line with prior year results.
Thank you.
And we are now ready for questions.
Well, thank you, Brad.
We feel very good about our positioning through the year in that, we ---+ what we are doing, right now, is a blend of foundational and fundamental work and positioning the company for the future.
So we're going to continue our best practices for merchandise process.
We're going to continue improved analytics and leveraging data and continue to build out effective marketing channels for new customer acquisition.
Meanwhile, we're focusing on customer service in store.
We've contracted a third party to measure customer satisfaction.
And that gives something tangible for the store teams to shoot for.
And then from there, we springboard the business as we look to stand up a next-generation store and bring online BOPUS.
Yes, I still think ---+ I feel good about the guidance that we have in place, where we will be putting up between 1%, 2% comp sales for the year, and I feel like we can achieve that through the year.
Yes, I'll take that one.
So I think for Q1, and it varies a little bit by quarter.
The e-commerce business is equally in the first quarter or more profitable than our store business.
And in addition to that, I would say there are several opportunities in both stores and e-comm to work to improve the profitability.
BOPUS is going to be one of the larger items for e-commerce that will start in the back half of this year, but also as we just dig further into those businesses, we do believe there's further opportunity in both for improved profitability.
Yes.
Well, first of all, <UNK>, I really credit the team.
I'm just really pleased how the overall team has just galvanized around our vision.
In terms of some of the strategic things that we have on tap, as I mentioned, we're going to be standing up a next-generation store, we're internally calling it Janus, which is Greek for god of new beginnings.
We'll have that up by Q4.
This will be a rapid test and learn store.
It's a great way to ring out a store of the future by doing it with live customers.
We'll have a financial person as part of that team because what you want to make sure of, whatever you build for the future is ---+ has the ability to hurdle whatever financial costs go into it.
On the e-commerce side, we will be standing up Buy Online, Pickup in Stores, we previously mentioned.
We'll have that up by fourth quarter, and we will monitor that very closely to determine how quickly we expand on that for the balance of the year and going into 2019.
You asked about merchandising.
And what I'll say about merchandising, there's been a number of things put in place for merchandising.
For one, in 2017, we converted our buying team to omni-channel buyers.
We put in place a more defined planning process and structure that leads up to where the team is walking all merchandise presentations before they hit the floor.
And I continue to be impressed how the buyers are developing and raising their game in terms of business acumen.
And last year, we did a full-on category rationalization and reduced the overall assortment by about ---+ and SKU count ---+ by about almost 20%.
All of that is beginning to bear fruit in 2018.
And what we want to do, as we've now kind of focused in on the micro categories, is now pull that up and make sure that we are getting credit in store for the key stories that we want to tell.
So as an example, I'll take floral as an example.
This is where we reimagined the category, and we created this retro New York street floral market cart, and we represented it in a fantastic way, and the sales took off on that.
We even have customers asking if they could buy the cart that goes with it.
Well, that's theater and that's what we're trying to do is make sure that we are telling our store ---+ getting credit for the stories that we're telling and bringing those to life.
We still have a lot of more ---+ lot more work to do in the store as it pertains to that aspect of merchandising.
And meanwhile, we continue to hit some of the underperforming categories, and I'm pleased with that progress as well.
Sure.
So we have initiated a direct sourcing initiative, and we have identified already items that we will be bringing direct from factory, where we're already getting a cost reduction on those items.
Some of those will be starting to flow in Q4.
And with that, what we have effectively done is we've stood up the initiative, and we have aligned with our partners with that, and we're proving the concept and proving the logistics of this is what we're really doing in Q4.
We really see more of the impact of direct sourcing to be 2019, 2020 and beyond.
So it is early in the process.
We are in the very early process of relooking at our overall branding.
And with that, we will be introducing some of those elements into this next-generation store.
But also in marketing, one of the things that we did was we have revamped our loyalty program, and we rolled that out in April of this year, at the end of Q1.
So what we did was a consumer insight study.
And what we found is that many of the customers didn't even know that they were part of the loyalty program, many customers didn't understand the mechanics of it.
So effectively, they were telling us that they were not giving us credit for the program.
In addition, this was a program that was points based, meaning the customer redeems a $10 award certificate at the time of purchase.
So we were basically just marking down transactions that they were already planning to make and plus it was stackable.
So we moved to a program that's more surprise and delight.
Over time, we will evolve the program to more of a robust CRM, and therefore, increasing the value and increasing the margin.
On the direct sourcing side, I would say a couple of things.
A, we're still very early in it.
We are seeing cost improvements that are better than 10% on some of the merchandise that we have begun to initially source.
And as we get deeper into the categories, we'll have to see if that holds or if it's something different than that.
But the early prognosis of it still looks very good.
I think the other part I would comment on direct sourcing is that when you look at our overall assortment, approximately 30% of our assortment is product that we repurchase and those would be the first products that we would be targeting because we are a high-fashion business, and we're turning over products.
And so those products would be less affected by direct sourcing, but we're really angling for more of the core products.
It is certainly helping.
So what we had done is we have built, albeit some very simple analytical tools that were not in place before, which allows us to predict margin based on the lineup of offers that we have planned.
And therefore, we can go in, and we can modulate the promotional cadence accordingly.
And that is clearly a win for us, and it's something that many best-in-class retailers already have.
But we also think we can take it to another level.
Yes.
So it's difficult to estimate exactly, but roughly 1/3 of our regions were directly impacted, meaning stores in those regions were closed for all or portion of the day.
So as we looked at that and the indirect impact that was also felt throughout the rest of the chain, rough estimate, 50 to 100 basis points of comp of weather impact in the quarter.
<UNK>, what we did last year was we took a step back and a deep dive into our real estate selection process.
We did a quantifiable review of the different triggers of success and then the common threads where stores were underperforming.
We analyzed some of these factors through controlled groups.
We reviewed many different attributes; market types, cotenancy, position in the center, et cetera.
We also looked at how we operationalize new stores, how we hire, how we train.
So I don't think we have it all figured out.
We are more dialed in, and we're pleased with our early 2018 class performance.
And the other point I would make too, as we are slowing our store growth, this allows us to be more selective as we are pushing more of our capital toward e-commerce and high ROI initiatives.
Yes, sure.
We are ---+ we certainly look at that channel of business.
So when you ---+ that ---+ the ability to third-party, which is about 20% of that e-commerce business today, what it does is it helps us expand our assortment, while, at the same time, putting the logistics on someone else's back.
So when you're a smaller specialty retailer, this effectively becomes an extended isle for us, and I think a part of our strategy going forward.
So a good part of that business is accretive to the overall e-commerce business.
And ---+ but managing it all under one umbrella so that it make sense is going to be the key.
Absolutely.
So I think, we saw cost control ---+ improved cost control across multiple areas of the P&L.
But you're correct.
On the operating expense line, we were seeing significant leverage in e-commerce as a lot of those costs are fixed or somewhat fixed.
Also, corporate expenses were down year-over-year and that, in part, was due to the restructuring in Q4.
But in part, again, was due to cost control and just looking at all of the lines and the opportunities that exist and just overall improved management from our teams.
Just want to simply thank our team for a very good start to the year.
And I'm looking forward to updating everyone on our progress as we continue through our march in 2018.
| 2018_KIRK |
2016 | BID | BID
#Great, thank you, Liz.
Good morning and thank you for joining us today.
With me here are Tad <UNK>, Sotheby's President and Chief Executive Officer, and Mike <UNK>, Chief Financial Officer.
GAAP refers to Generally Accepted Accounting Principles in the United States of America.
In this earnings call, financial measures are presented in accordance with GAAP and also on an adjusted non-GAAP basis.
An explanation of the non-GAAP financial measures used in this earnings call, as well as reconciliations to the comparable GAAP amounts, are provided in the Company's Form 10-Q for the period ended March 31, 2016.
Also, during the course of this call, the Company may make projections or other forward-looking statements regarding future events or the future financial performance of the Company.
We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties resulting in the possibility that the actual events or performance will differ materially from such predictions.
We refer you to the documents the company files periodically with the Securities and Exchange Commission, specifically the Company's most recently filed Form 10-Q and 10-K.
These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements.
Please see our Investors webpage for a transcript of our prepared remarks.
Now I will turn the call over to Tad.
Good morning, thank you for joining us and for your interest in Sotheby's.
I'm delighted to be here today with Sotheby's new Chief Financial Officer, Mike <UNK>, who joined us at the end of March.
I would like to thank our esteemed Director, Dennis Weibling, for so ably guiding us in that role on an interim basis since the end of last year.
I would also like to take a moment to thank Bobby Taubman who elected to retire from the Board.
Bobby brought great insight, wisdom and passion to Sotheby's over his 16 years as a Director and we will miss him and the spirit of his wonderful family.
We would also like to note the passing of our longtime Director, John Angelo earlier this year.
John brought incredible energy and wisdom to Sotheby's and we were fortunate to benefit from his leadership and financial expertise over the past eight years.
Now let me turn to the results for this quarter.
As we said on our last analyst and investor call, we generated a significant loss in this quarter, mainly attributable to two factors.
First, at the end of 2015, it was clear that the significant market growth experienced in 2014 and the first part of 2015 had slowed somewhat.
Consequently, we experienced a 35% decrease in net auction sales during the quarter when compared to the exceptionally strong quarter of a year ago.
This was most acutely felt in the London auctions of Impressionist, Modern and Contemporary art in February, but it was consistent with all other signs in the marketplace for this period.
Second, we returned to our normal pattern of quarterly seasonality.
As a reminder, the auction calendar and our business are highly seasonal, with the majority of our most significant sales occurring in the second and fourth quarters.
At the same time, our expenses are more evenly spread over the year, which then generally leads to losses in the first and third quarters, and income in the second and fourth quarters.
To underscore this more fully, over the past 25 years, we've generated a loss 22 times in the first quarter.
Despite an overall decline in auction sales during the quarter, there were a number of bright spots, affirming that the appetite for great works of art remain unabated.
For example, in New York in January we had our best Old Master results in five years and our star lot, a Baroque masterpiece by the artist Gentileschi, was purchased by the J.
Paul Getty Museum in Los Angeles for a record $30.5 million.
In London in February, six bidders fought for a stunning portrait by Lucian Freud, sending the final price to $23.2 million, well above expectations.
Similarly, a sculpture by Auguste Rodin set a new benchmark for the artist at auction when it sold for $16.7 million, above the $11 million high estimate.
Our Asia Week sales in New York were also solid, and I will elaborate on Asia and our recent Hong Kong sales in a moment.
Turning now to what we are experiencing so far in the second quarter of 2016.
Our sales in Hong Kong in early April were much-anticipated both for the quality of works we assembled and the intelligence those results would provide about the mindset of collectors in Asia.
The series totaled $405 million, exceeding our expectations and representing a 17% increase on the same sales a year ago.
One particular highlight was a 50-minute bidding battle for a masterpiece by one of the most celebrated masters of Chinese painting, Zhang Daqian, which finally sold for $34.7 million, more than four times the high estimate of $8.3 million and a new auction record for the artist.
Bidders form greater China were active and focused on computing for works of outstanding quality they felt were priced well.
At the end of April in London, we presented Orientalist and Middle Eastern Week ---+ a group of five sales celebrating the history of Middle Eastern art ---+ that realized a combined total of $22.6 million.
70% of the 600 lots sold brought prices above their high estimates and eight new artist records were established.
We held two important jewelry sales in April and we have additional major sales taking place in Geneva and London later this season which I will elaborate on in a moment.
The sales thus far have been solid with some outstanding prices including $31.8 million achieved for the De Beers Millennium Jewel 4 in Hong Kong, but our sell-through rights (sic) have been a bit weaker than we have experienced in recent seasons.
Overall however, the results of the jewelry auction market are in line with a year ago and we're looking forward with cautious optimism to our upcoming sales.
Before we turn to a preview of our upcoming sales, let me take a moment to provide updates on two important strategic initiatives: first, our push to engage with our clients and buyers online; and second, an update on the integration of Art Agency, Partners.
On the past calls I've gone into detail about our digital developments, particularly our commitment to expanding and engaging our audience and how we have made progress.
Between our own site and are partner work of Invaluable, and their network of 4,000 auction houses, dealers and galleries, and eBay and their 145 million buyers, Sotheby's has the largest audience of online buyers anywhere in the art world.
We continue to reach and engage new and existing audiences through a variety of tools including our social media network, the largest and fastest-growing in the marketplace; multiple distribution efforts including our Apple TV app, which has contributed to a 187% increase in her video views; and our iPhone app, which we launched in early March and was rated 4.5 stars out of 5 on the app store.
We also recently released an updated iPad app and will continue to improve both products through the summer.
The key point is engagement ---+ clients are spending in excess of 60% more time on our website than our nearest competitor.
And we know that clients who engage with the editorial content and videos we produce are 33% more likely to register to bid.
As of mid-April we have seen a 32% increase in online bidders and a 31% increase in online buyers, leading to a 60% increase in lots sold online.
And we are seeing this interest and engagement across all categories ---+ for instance, at a recent Old Master and British paintings sale in London, 32% of all lots sold by volume went to online bidders.
With respect to Art Agency, Partners, it has been three months since the team from AAP joined Sotheby's and I'm pleased to report that things are going well.
While some employees remain dedicated to advisory services exclusively, others have expanded their roles rather comfortably into Sotheby's core business.
We are working on expanding the advisory business and have a number of potential new clients, some of whom come as a result of the reputation of Art Agency, Partners and their principals and others who have been introduced to the services we provide through Sotheby specialists.
We have begun to take some important steps in developing our framework to expand Sotheby's private sale activities.
Dedicated spaces, staff, and an incentive compensation structure that is transparent and designed to promote collaboration are all among the topics being strategized in this initial phase.
Now let's take a look at some of our upcoming sales.
This season in New York we changed our schedule to offer our major auctions of Impressionist, Modern and Contemporary Art in a single week to capitalize on the evolving taste of collectors and allow for a longer presale exhibition period.
We made some improvements to our galleries, significantly expanding our exhibition space and updating the aesthetic, all the while spending very little capital.
We are now able to show more than 900 works of art simultaneously and seamlessly integrate different categories.
Like our February auctions in London, and reflecting the current market conditions, this week's sale of Impressionist, Modern and Contemporary Art are smaller than a year ago ---+ down 38% at the midpoint of our expected ranges ---+ but we are very pleased with what we have assembled.
The sales are well curated with a lower level of guarantees and we anticipate good results.
Highlights from tonight's sale of Impressionist and Modern Art include two Fauve masterpieces: Andre Derian's 1906 view of the Thames, Les Voiles rouges, and Maurice de Vlaminck's 1905 landscape in Chatou, Sous-bois, which are estimated at $15 million to $20 million and $12 million to $18 million respectively.
Also on offer is a striking Pointillist painting of Saint-Tropez by Paul Signac from 1892, Maisons du port, Saint-Tropez, which is estimated at $8 million to $12 million.
And on Wednesday the evening will be led by a stunning example of Cy Twombly's famed Blackboard series.
The canvas was acquired by the current owner directly from the artist's studio after it was executed in 1968.
The night will also feature Two Studies for a Self-Portrait by Francis Bacon, which carries an estimate of $22 million to $30 million.
Our Magnificent Jewels and Noble Jewels sale in Geneva later this month carries a low estimate of nearly $150 million and features some superb gemstones and signed period jewels, all predominantly from private consignors and fresh to the market.
The sale is led by the Unique Pink, a supremely rare and exceptional fancy vivid pink diamond weighing 15.38 carats, which is estimated at $28 million to $38 million.
We have also been entrusted with the sale of the Lesedi La Rona, an 1,109 carat rough diamond discovered in Botswana last year, which has the potential to yield to the single largest top quality polished diamond in existence.
The sale will be held in London in late June.
On our last earnings call, we said that we did not expect sales levels for the full year 2016 to reach the annual sales levels of 2014 or 2015.
And as of right now our view remains unchanged.
However, as I just outlined, recently we observed a number of positive indicators, most notably our Hong Kong sales series which was up 17% year over year.
Of course, our most significant data points for the second quarter kick off tonight with a number of important auctions to follow in the coming days, so the next two weeks you provide all of us with a lot of good market intelligence.
Until then, we will remain cautiously optimistic.
From an earnings point of view, our quarterly pattern of stronger second and fourth quarter should hold true.
Historically approximately 80% of our yearly sales volume fall in the second and fourth quarters, particularly in light of the fact that our London summer evening Contemporary sale will return to the second quarter this year.
In 2015, the Contemporary evening sale occurred on July 1, at the very start of the third quarter, bringing $137 million in net auction sales for that quarter.
With that I think it makes sense to turn things over to my colleague Mike to provide some context on the numbers from the first quarter.
Mike.
Thank you, Tad.
This morning we are reporting a first-quarter adjusted net loss of $22.3 million and adjusted diluted loss per share of $0.35 compared to adjusted net income of $7.4 million and adjusted earnings per share of $0.11 a year ago.
The adjusted figures exclude charges related to contractual severance agreements, the voluntary separation program, CEO separation and transition costs and restructuring charges.
As Tad has already referenced, and as our recently filed 10-Q reflects, the story behind these financial results is mainly about the lower state of the art market and a return to our normal quarterly seasonal pattern following an unusually strong first quarter in the year ago period to which we are comparing.
In the Agency segment we experienced a 35% decline in net auction sales, a 25% decline in private sales and a loss from our inventory activities.
From publicly available data, we know other players in the market have experienced similar declines in their net auction sales, so clearly we have all faced a softer market for art sales in the first quarter compared to last year.
Completely consistent with this pattern, our Agency segment gross profit was down 42%, or $48.1 million, versus the same period a year ago.
Gross profit takes into account all of our Agency commissions and fees and associated direct costs as well as the impact of inventory activities, so it is highly sensitive to market conditions.
Most tellingly, on a consolidated basis our adjusted operating results declined from quarter to quarter by $48.4 million, thus indicating the decline in Agency segment gross profit accounted for nearly 100% of the swing in results.
In a nutshell, that is the major takeaway of this quarter: lower Agency gross profit driven by softer market conditions.
For those who want to dig deeper into the results for this quarter, I would point you to the following.
On a positive note we experienced an improvement in our auction commission margin, to 15.4% from 15.0% a year ago.
If you exclude the impact of the $22.5 million in net sales from the Taubman Collection in the first quarter, the margin improvement was even greater, from 15.0% last year to 16.2% this year.
While much of this improvement is attributable to a shift in mix towards higher-margin sales, part of this improvement can also be attributed to greater pricing discipline.
Within the detail of our expense breakout, you will see a $5.2 million increase in our salaries and related expenses.
Two factors account for more than 100% of this increase.
First, we incurred $6.1 million in contractual severance agreement charges related to departed senior level executives in Q1; and secondly, we recorded $2.2 million related to the earnout obligations arising from the recent acquisition of Art Agency, Partners that GAAP requires us to record as compensation expense.
To arrive at our adjusted operating loss, we are adding back the effect of the contractual severance agreement charges.
Finally, while our Finance segment experienced a slight decline in gross profit dollars versus last year, this was principally due to the greater leverage we have achieved with the dedicated credit facilities for Sotheby's Financial Services.
The most important metrics for this business, a finance revenue margin of 10% and a trailing 12-month return on equity of 16.3%, illustrate the advantages of our business model and our funding structure.
With respect to the balance sheet, the biggest story of the quarter is the progress we've made on capital allocation with the repurchase of our common stock under the $325 million authorization discussed with you in January.
You might recall that in January, we started buying shares on the open market, and then we continued buying shares through a 10b5-1 program while the trading window was closed late in the quarter through tomorrow.
I am pleased to report that since the beginning of this year we have purchased 8 million shares at an average price of approximately $24 per share for a total investment of $193 million.
This represents 12% of the shares that were outstanding at the end of the year.
The benefits of this buyback are twofold.
First, we believe the purchase of our own stock is currently the best way to deploy cash not needed for reinvestment in the business.
The second benefit is that we will now be reporting our net income on much smaller number of shares outstanding, and all other things being equal, we will experience significant accretion on an EPS basis as a result.
Since we plan to continue making open market purchases once the trading window opens, we thought it best to advise to you that we've recently been advised by an outside investor that they may make purchases of our stock, whether through the open market, privately negotiated transactions, block trades or derivative transactions, to bring their holdings to at least 10% of the shares outstanding.
And they filed the necessary documentation under the Hart-Scott-Rodino Act that would allow them to do so.
Of course, they have no obligation to purchase stock and they could decide for any reason not to do so.
As for our overall liquidity, we closed the quarter with approximately $414 million in cash even after giving effect to the first quarter stock repurchases.
We have been relatively cautious on guarantees as indicated by our current net guarantee exposure of $72 million.
But let me conclude by saying just how pleased I am to be here at Sotheby's and how exciting I think the prospects are for our Company.
Yes, we have the normal ebbs and flows of the art market to deal with, along with its pattern of quarterly seasonality.
But we also have everything we need to succeed in this business in the long-term, starting with the very fine people here.
And I'm confident we are all working on the exact right issues with the appropriate amount of energy and urgency.
So Tad and I are now happy to address your questions.
Okay, let me try to break that into three pieces.
Let me first, if I might, <UNK>, clarify your characterization of my view.
When you said it it leaned a bit toward cautious.
And I think I chose the words cautious optimism.
I have to tell you I am reasonably optimistic.
But I am cautious given the fact that we have limited visibility over the next two weeks.
I observed that two other houses did reasonably well last night.
There has been a lot of interest and enthusiasm for what is going on here, what we have, our sales and things like that.
But the plain fact of the matter is until the hammer comes down we are just not sure.
So, I would say rather than lean to cautious or lean to optimism, I am at a rough balance.
But I would say there were some important signals in what Mike said, particularly about disclosure and we plan to continue making open market purchases.
Because frankly, if we do as we would like to do in the next few weeks, when I said in the prior earnings call we are going to have one or more bad quarters, I think we are going to keep it to one.
So, I am reasonably ---+ I feel good about things.
On the online side, wow, what surprised me.
Well, I am just thrilled with it.
I wouldn't characterize it as surprised.
In terms of the traction we are getting, in terms of the way that the team is executing, in terms of the results that we are getting, in terms of the size and resonance of purchases being made through it, all of it is very encouraging.
And I think we are just beginning to come down the curve on that.
If you think about ---+ our mobile apps really only a month old.
And one of them is only a week old.
So, we have got a lot of opportunity there.
And if you think about the benefits of an electronic on-ramp, as my colleague, <UNK> Goodman, likes to call it, to Sotheby's, which is very low risk as opposed to walking into our business or registering in a phone or something like that, it is a much more embracing and easy way to get in.
So one should expect that the demand curve for our services should expand and that the number of bids per lot should rise over time as we keep adding more and more bidders and getting them more and more comfortable with us, with our brand, with the great stuff that we have and with the opportunity to do and see what we see.
As you look five years into the future, I don't think it has materially changed since what I said in any of the prior calls.
I think what you would see is a greater and more exciting Internet proposition.
You would see significantly more private sales.
You would see a more robust and thoughtful and actually high impact dispersion of our resources around the world with where we are in connection where emerging wealth pockets are.
You would see some interesting growth in jewelry.
I think you would see some interesting growth in the various parts of the middle market, which I think are very attractive.
And I think you would see us doing very well in the high end of the art market.
I think I covered all of them, <UNK>, but I am not sure.
Well, thank you, <UNK>.
That line is of course highly dependent on the mix.
But I would echo Tad's optimism on this line as well.
We have now had two quarters in a row of improvement and I think we are comfortable with the direction that that line is heading as well.
Yes.
<UNK>, let me first talk about salaries and expense structure because I think that is where it tends to be most variable and probably what people were referring to in past discussions.
If you look at our comp expense the total change period to period on a reported basis is $5.2 million, that looks to be up 8%.
But we need to point out there are three items in there which kind of make that a little bit confusing.
First and foremost, that is aligned where the severance ---+ contractual severance agreement obligations are that we believe should appropriately be added back in a non-GAAP context.
That is $6.1 million of the change.
So that accounts for more than 100% of the $5.2 million change.
Also in that line is the earnout for our agency partners, that is another $2.2 million.
That really could conceivably also be added back, but we choose not to because we are characterizing it as compensation expense.
But that is fine; that is a bit of a oddball type expense to be included in there.
And then you will see in the footnotes of our 10-Q, also included in there is $1.2 million of accelerated share-based compensation expense for those same group of people who are departing that account for the $6.1 million in cash severance obligations.
So if you take out those $4.3 million of expenses, our compensation expense is actually down 7% period to period.
A lot of that is because of improvements we have made in the UK with respect to our pension obligations there, and other share-based compensation expenses, again proving the variability of our comp expense.
So, I think the appropriate way to really look at comp expense is that it is down 4% ---+ I'm sorry, 7% period to period.
As for the rest of the G&A, there were three items kind of worth calling out there.
First, our travel and entertainment expense is down $1.5 million, that is a variable type expense you would expect to see happen in slower art markets.
They were offset by two major expense items: one was a $1.3 million increase in the digital initiatives that we think are critical to improving the client experience here, and Tad talked about the benefits of those.
And then a $1.8 million increase in professional fees associated with some litigation and tax matters that we are battling.
We should probably add ---+ <UNK>, you probably know this.
But with the exception of the amortized earn out of the full-year incentive compensation we accrue in the second and fourth quarters, for what it is worth.
I think it is best to wait and see the next couple weeks before saying anything more than what I said on that.
Because really the last big data points we had outside of Hong Kong were way back in early February.
And we have had lots of little medium to small sized sales since from around the world.
But I think the next two weeks is really going to tell a lot.
And I would hesitate to go beyond what I said earlier.
Let's wait and see.
But as I said, I am cautiously optimistic.
Interest level on the lots, number of bidders on the lots, enthusiasm for the lots, visits, visitor counts, how we are seeing our salespeople and how they are seeing their clients, a feedback from the marketplace for the trade, all those things.
None of them are particularly surprising, but that is where we are focused at the moment.
Thank you, <UNK>.
Very near the end.
Let me pause as I think about what I want to say ---+ just give me a moment on it because it is competitively sensitive.
As you think about the private sale process, there are several things one needs to make it work well.
First, one needs insight on where things are and insight on who wants them.
Second, one needs a very, very buttoned up process that is compliant that connects those who have things to those who want them in a way that is client friendly and is transparent but clear and discrete and careful.
Then you need a group of individuals in our organization that have all of those motivations.
And then finally, you need a reward system and then a management system that tracks progress and provides feedback into that process.
We have a terrific team, which is one of those areas, but on some of the other pieces of that value chain we have got a little work to do.
No, we are not going to say anything.
Let me deal with the guarantee part of the question first, <UNK>, and then let me make sure I got the second part clear.
On the guarantee part of the question, guarantees are essentially, as you know, a liability that might turn into a use of cash that we expend to generate profit.
And as such it needs to be thought of as one of many different levers that we are constantly using up and down the balance sheet to maximize the value to shareholders.
At a time when it makes ---+ when there is a fair bit of inflection point in the market and when we have lots of attractive uses for our cash, the combination of those two alone should make one, I think everything else being equal, conservative on guarantees.
They don't scream high value for shareholders when you have those two situations and those are exactly the situations we are in.
And, by the way, we might be in that situation for quite a while.
And so as a consequence, I as a shareholder, but also as a management who works for all of the shareholders, am going to be very conservative and careful on guarantees and continue to be so.
On the second part, I would say that the evolution of the Company is in a very encouraging place.
We have got an extraordinarily talented group of people.
The relationship between the various parts of our business is exciting and I feel very good about it.
If you wanted to ask a more specific question about that second part, <UNK>, I will need it again.
Yes, I am not really connecting the Art Agency, Partners acquisition to anything necessary about guarantees.
But I need to think it through more clearly because there is probably some nuances I am missing.
But the one thing I would certainly say is that the advisory business brings us very close and deeply in touch with the end collector's needs and wants and also sharpens our skills on providing solutions to them.
Because the art market is clearly complex and in a state of interesting and exciting and evolving change.
And having ---+ advising people on that.
And by the way charging for the advice on it means that you have got to be really on your game and really close to it.
And that I think keeps us sharp.
Insofar as that level of raising the bar on the need of solving the problems of end collectors also will color or actually maybe change the way we think about guarantees or changes or structure in some way.
That is a very provocative idea.
I will have to think about it, and I think Mike and the rest of the management team will give it some thought.
It is a bit early to say, because so much of the second quarter sales haven't really happened yet.
So I think we should just wait and see.
We are very pleased with our sales.
We are very pleased with the position we have in Modern Impressionists, Contemporary ---+ we love the evening sale of Contemporary by the way.
We love our jewelry position.
We feel very good about it.
And I think we made the point earlier that we are very, very focused on running the business for the benefit of our clients, and also for the benefit of our shareholders, because that is what our employees want.
And so, I don't think the idea that we would be racing to do risky or low margin vanity deals just to pump up the market share numbers is necessarily on our table right now.
Well, we still have just a little bit north of $130 million available to invest from the previous $325 million authorization.
We are certainly going to be watching the market closely, feel good about the investments we have made to date.
Feel like the two reasons we have done it, namely it is a great use of cash that is not otherwise required to be reinvested in the business.
And then secondly, we like the accretive impact it has on earnings per share.
I would expect us to continue investing up to the remaining authorization.
Mike, thank you.
Jennifer, thank you.
Thank you all for joining us and let's get on with the sales.
Take care.
| 2016_BID |
2015 | DHR | DHR
#Thank you.
Hi, <UNK>.
We continue to be bullish on those markets.
Yes, obviously there's been some volatilities certainly in those markets, certainly in terms of the way they have been trading.
But, and of course, our exposure, as you mention, is largely in the Pall business, as well as across our life science platform and more specifically around AB SCIEX.
Our ---+ specifically, our pharma exposure in life sciences is about probably 20% or 25% of that business specifically goes into that market.
In the case of Pall specifically, it's about one-third of their business is biopharma related.
The growth rates there continued to be very strong throughout the course of the quarter.
These are critical applications that, to some extent, are a bit insulated from the core volume side of what's going on inside of those facilities.
In other words, whether you're making a large volume or a small volume, you're still going to be running that equipment and consuming some of our products.
On the research side, the research investments, while they are shifting around a bit, continue to be relatively good.
So I think, in general, we're staying the course there and we think there's still great opportunity ahead.
Well, I hope we're not looking at 2008, 2009.
Obviously, that was a good period for us.
In that 2008, 2009 period, we acquired almost 20 ---+ brought in almost 20 companies, and not surprisingly, those are among our best returns for the Company.
I don't think we're heading into that, but the environment's getting tougher.
We talked earlier about the IPO market being tough here, and I think that bodes well.
I think that bodes quite well for Newco, given the choppiness in the industrial sector, given a little less competition from private equity.
We've talked about roughly $2 billion of capacity the rest of this year and into next year.
But as we get towards the end of, middle, end of next year, that number's going to jump back up a lot.
So we're not ---+ <UNK> suggested we're not shutting down.
We're still working hard, looking at activities, looking at possibilities both for <UNK>aher and at Newco.
Great, thanks.
Thank you, <UNK>.
Thank you, Dean.
So specific to municipal budgets in the overall municipal water market, it's a growth market, it's interesting, right, because you ---+ we could talk about it as a growth market today; everything is relative.
We haven't historically thought of the North American muni market as a growth market on a relative basis, but today, it really probably is.
To your point, it's growing better than a lot of other markets that are much more challenged.
And I think the way I would describe it, <UNK>, is that in contrast to probably the last three or four years where those budgets were flat or down, largely recovering from a pretty challenging housing market in so many areas around the US, today we would say those budgets are probably growing modestly.
A lot of muni budgets are probably growing maybe in the 2% or 3% range, and that's 2% or 3% better or more than what they were growing probably in the last three or four years.
So there are good opportunities there.
They continue to contribute well to, certainly to Hach Lange, as well as to Trojan.
Specific to your question about Trojan, we have seen the bidding activity up this year, and we've seen overall revenue converting that business, that bidding activity into revenue up this year as well.
So probably one of the better markets where we participate today and clearly with leading position, we believe we're gaining share in water quality.
In the Pall business, Pall does have a position in municipal water.
It is not one of their larger businesses, but we believe there are opportunities there.
And we have the teams at Trojan, as well as at Pall, looking together at where there might be cooperative opportunities.
It could be on certain projects or certain opportunities relative to technology where bringing filtration, as well as ultraviolet treatment together may be a great opportunity for a customer.
It's early days there.
We're just getting into the 100-day strategic plans across those vertical markets, but it is a good position to start with and we'll see what we can do.
<UNK>, they were a little bit under the 3%.
They were 2%, 2.5%, led by both by Gilbarco and Matco.
Thank you, <UNK>.
<UNK>, I don't know if we're looking at a very different dynamic in Q4 of this year versus last year.
We did see a spike in payables at the end of the third quarter.
That sometimes happens when we have a quarter end that's in the following month.
So we actually closed the quarter in October, as opposed to September 29th, September 30th.
That should normalize back in the quarter.
We tend to have pretty good working capital performance as we get toward the end of the year.
That should be another contributor.
So I don't think ---+ I don't see a very different frame than what we had last year.
We're still working through the Pall numbers.
We think there's some meaningful cash flow opportunities there, not only in the working capital side, but also on the CapEx, managing CapEx a little differently there.
But we'll talk about both of those more in time.
I don't remember.
What I'm continuing to say is our expectation is 2016, we still believe it will be the end of the year, but that could change.
And if there is a change, it would be to the positive.
We'll know more here in a couple of months.
Thank you, <UNK>.
<UNK>, thank you.
We're continuing to make progress at Beckman.
We track our customer retention and we track our win rates very closely on a month-to-month basis.
We're confident, as we look at the combination of retention and win rates, that we're adding to our growth position as we look out into 2016 and 2017.
Obviously, some of what we see in retention and adding menu to retained accounts, as well as new customer accounts, don't necessarily manifest themselves in the quarter in which you've won them.
In fact, oftentimes, it may take 6 to 12 months for those to materialize.
So I think we're confident we're continuing to make progress, strengthening the portfolio through new products, continuing to see good growth in the high growth markets, but it's a journey.
We still have work to do.
We're not yet at the growth rates that we would like to see relative to the peer group.
You highlight them well, and we're ---+ but we are making progress and we're confident in the opportunities.
Well, we have publicly named Jim, obviously as a leader, but his entire L1 team, with one exception, has been named.
They are all internal folks.
And a fair number of people at the L2 level, the level below that, have also been named.
We're off to a good start on that front.
Thank you, <UNK>.
Thank you, Eric.
Thanks, everyone, for joining us.
We're around all day for questions.
| 2015_DHR |
2015 | TIF | TIF
#Thank you.
Hello, everyone.
By now I hope you have seen the news release we issued earlier today announcing our third-quarter results.
On today's call, <UNK> and I will review the quarterly results and how they are tied to our growth strategy, and then we will address the outlook for the rest of the year.
Please note before continuing that statements made on this call that are not historical facts are forward-looking statements.
Actual results might differ materially from the expectations projected in those forward-looking statements.
Additional information concerning risk factors that could cause actual results to differ materially is set forth in Tiffany's 10-K, 10-Q, and 8-K reports filed with the Securities and Exchange Commission.
The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
In general, these third-quarter results were mixed.
Sales and margins continued to be negatively affected by the strong US dollar and net earnings came in several cents lower than we expected.
However, worldwide net sales increased 4% on a constant exchange rate basis, despite greater-than-expected softness in the Americas, reflecting strong growth in Japan and modest growth in Europe and the Asia-Pacific regions.
Worldwide net sales declined 2% when reported in dollars on a GAAP basis.
In addition to the strong dollar's affect on translation of foreign sales into US dollars, we continued to experience a negative effect on foreign tourist spending in the US that was only partly offset by higher foreign tourist spending in other regions.
In addition, we took a price increase in the quarter which moved us closer to restoring our global pricing structure to normal levels given the dollar's continued strength.
Gross margin rose in the quarter and SG&A expense growth was modest.
Adding it all up, EPS of $0.70 was down 8% from non-GAAP EPS of $0.76 last year, which had excluded a charge for debt extinguishment.
In other highlights, we introduced new designs in several existing jewelry collections in a range of materials and price points.
We also made good progress with our long-term strategy to optimize our store base with openings, renovations, relocations, and closings.
And in light of recent stock price weakness, purchases under our stock repurchase plan were increased, allowing us to use our strong cash position to return value to shareholders.
So let's now look at regional sales performance.
In the Americas, on a constant exchange rate basis, total sales declined 5% and comparable store sales were down 6% on top of an 11% comp increase in last year's third quarter.
In the quarter we once again saw a substantial decline in sales to foreign tourists in varying degrees by nationality, with pronounced weakness in the New York area as well as in other tourist-related markets on the East and West Coasts of the US and in Hawaii.
Sales to domestic customers were roughly flat to last year, which we can partly attribute to difficult year-over-year comparisons, but also perhaps to continued softness in broader consumer spending trends.
It is also worth mentioning that we are in the process of some major US store renovations, having just completed a magnificent upgrade of our important store on Michigan Avenue in Chicago and now focused on major renovations of our stores on Union Square in San Francisco and on Rodeo Drive in Beverly Hills.
In contrast to the disappointing sales results in the US, we continued to generate solid comp store sales growth in Canada and Latin America in the quarter.
We entered the new market of Chile when we opened a store in Santiago in September and just earlier this month we relocated our Mexico City store within the El Palacio de Hierro Polanco, which is the largest luxury department store in Latin America.
In dollars, total sales in the Americas declined 7%.
Despite strong sales of statement jewelry, there were varying degrees of softness across most other jewelry categories, in stark contrast to last year's strong third quarter.
Let's now turn to results in the Asia-Pacific region, where on a constant exchange rate basis sales increased 6% in total and comp store sales rose 2%, in contrast to a 3% comp decline in last year's third quarter.
Overall, results in this third quarter reflected healthy sales growth in China and Australia, mixed results in other countries, and continued pronounced weakness in Macau and Hong Kong.
During the quarter, we expanded our store base in Asia-Pacific by opening our fourth store in Macau in the Studio City hotel and resort.
Earlier this month we opened two stores: one in China in Beijing SKP, which is formerly known as the Shin Kong Place, which is a major shopping center in China; and the other in Korea in the newly built Pangyo Hyundai department store.
With China in the news so much regarding their economy, stock market, and currency, we're pleased and encouraged that our total sales in China increased by a healthy amount in the third quarter despite volatility and sensitivity to headline macro events.
It is also important to note that we've continued to benefit from spending by Chinese tourists as they travel to other regions.
So to reiterate what we have consistently said, Tiffany remains focused on the long-term growth opportunity to serve Chinese consumers, both locally and globally, and we have not in any way altered our strategies.
When measured in US dollars, total Asia-Pacific sales declined 2% in the quarter, primarily reflecting the negative effect of currency translation.
Japan in the third quarter once again posted strong sales growth in yen.
Total sales rose 34% in yen, driven by strong unit growth and increases in average price across all jewelry categories.
A 24% comp increase in yen was on top of the 6% comp declines in last year's third quarter.
The vast majority of purchases in Japan are made by local customers and overall growth in the quarter was partly driven by higher local customer spending.
Also contributing to the sales growth were higher sales to foreign tourists, particularly Chinese visitors, as I alluded to a moment ago, which may be related to the attractiveness arising from the weaker yen as well as the Chinese shifting some of their travel this year away from Hong Kong and Macau, at least for the moment.
And I should add that a portion of Japan's non-comp sales growth in the quarter was due to the timing of some wholesale sales.
The yen remains substantially weaker than the dollar, but that 34% total sales growth in the quarter in local currency was still a solid 17% when translated into US dollars.
The store count in Japan was unchanged at 56 company-operated locations, but we are enhancing our store base by relocating two department store-based locations this year.
Europe also continued to perform well in the quarter on a constant exchange rate basis due to a combination of higher sales to foreign tourists and to local customers that was geographically broad-based across Continental Europe and in the UK.
On a constant exchange rate basis, total sales increased 9% and comparable store sales rose 6% on top of a 2% comp increase in last year's third quarter.
Engagement jewelry was the strongest category in Europe in the quarter, but most other categories were up as well in local currencies.
And during the quarter as part of our focus on optimizing the existing store base, we relocated and transitioned our one store within Harrod's in London to become two separate boutiques, one within their fine jewelry hall and the other within their luxury jewelry hall.
Earlier this year we had also relocated our store within Selfridges to gain a stronger and expanded presence.
And just earlier this month we were pleased to open our 40th store in Europe, representing our third store in Spain and second in Madrid in the El Corte Ingles department store.
As we've said throughout this year both the euro and pound's weakness against the dollar have stimulated foreign tourist spending in Europe, while perhaps also encouraging some Europeans to shop locally rather than abroad.
However, when translated into US dollars, total third-quarter sales in Europe decreased 2% due to small variations among jewelry categories in unit volume and average price.
Lastly, other sales rose 8% in the quarter on a constant exchange rate basis with comp store sales down 3%.
This smallest of our segments includes comparable store sales in our one store in Russia, which has been a strong performer since opening last year, and our five stores in the United Arab Emirates.
It also includes wholesale diamond sales, which rose in the quarter, as well as some third-party licensing revenue.
One element of our long-term strategy is to proactively engage customers in our stores through more consultative selling.
As I have mentioned, paralleling that is our strategy to optimize our store base through a combination of store openings, renovations, relocations, and closings.
We are on track to increase our company-operated worldwide store base by a net of 12 stores this year, representing a 4% net increase in both our company-operated store base and in worldwide square footage.
The longer-term expectation is to increase worldwide square footage closer to 2% a year.
And of course, we complement our store presence with regular enhancements to our websites in order to reinforce brand and product awareness.
We were also pleased to see an increase in worldwide e-commerce sales on a constant exchange rate basis in the quarter.
All of these initiatives in stores and online support our global strategy to further enhance customers' relationships and experiences with Tiffany.
In terms of a few merchandising highlights as measured in dollars, category trends were pretty similar to recent quarters.
While there was some continued softness in the fine jewelry part of our statement, fine, and solitaire category, we again experienced considerable growth in high-end statement jewelry through our VIP customer events.
The engagement jewelry category performed well in Japan and Europe, but continued to post soft results on a worldwide basis.
The fashion jewelry category continued to have strong growth in gold jewelry, reflecting the success of the Tiffany T collection, although it's worth noting that the year-over-year comparison was negatively affected by strong launch sales in last year's third quarter.
While our strategy for product innovation includes the periodic introduction of entirely new design collections such as Tiffany T, we are equally focused on expanding, refreshing, and reinterpreting existing collections in the interim years.
For example, in order to improve our performance in silver jewelry sales at price points below $500, we recently introduced new designs in our popular Return to Tiffany collection, with more to come next year.
We have seen good initial results, but think we will be better able to evaluate our success in the silver jewelry category after the holiday season.
In other initiatives, Tiffany's Infinity jewelry collection, which incorporates a design, symbolic of continuous connection, energy, and vitality, has been expanded in both silver and gold.
At higher price points we've expanded the beautiful Victoria collection with new designs in platinum and diamonds and the elegant Tiffany Bow collection with designs in gold and diamonds.
All of these collections are being supported with broad print and digital advertising and we have been pleased with initial customer reactions.
Lastly, we continue to be pleased with initial sales of our new CT60 and East West collections of watches that were launched earlier this year, and we have just added some stunning new jewelry watches to the assortment.
As we previously said, we are supporting the watch category with extensive marketing to strengthen awareness of not only the product, but also our brand credibility and heritage.
So that covers the sales highlights showing a wide range of performance and progress by region and product category.
I am now pleased to turn the call over to <UNK>.
Thank you, <UNK>, for that overview.
Before I review the rest of the results, I would like to summarize some of the highlights regarding the third quarter.
Once again, the strong US dollar continued to negatively affect the translation of our results transacting outside the US with a 6% negative effect on worldwide sales and it adversely affected tourist spending in the US.
The operating margin, while benefiting from a high gross margin, continued to experience a lack of SG&A expense leverage.
Earnings per share were down 8% from last year's adjusted EPS and were below our expectation that called for no earnings growth in the quarter.
We lowered our full-year expectation for net earnings, although we significantly increased our free cash flow projection based on effective inventory management.
Lastly, in light of recent stock price weakness, purchases made under our stock repurchase program were increased, using our strong cash position to return value to shareholders.
Now let's look at the rest of the earnings statement.
Gross margin of 60.2% in the third quarter was 70 basis points higher than last year, partly reflecting the favorable effect of product input costs, but also some negative effect from shifts in product mix, especially contrasting the relatively low gross margins of high price point statement jewelry sales, which were strong, with the relatively high gross margins of silver jewelry sales, which were weak.
An increase in the wholesale sales of diamonds also had some negative effect on gross margin.
In addition, we took some price increases of varying degrees in all regions during the third quarter, partly necessitated by the strong US dollar, moving us closer, but not completely, to restoring our worldwide pricing structure to normal levels.
For the full year we continue to expect a modest increase in gross margins.
And as we mentioned three months ago on our last call, gross margin should also benefit further from this year's declining precious metal and diamond costs, but that benefit will take some time to be reflected in gross margin based on the rate of inventory turnover.
Selling, general, and administrative expenses rose only 1% in the quarter, benefiting from the translation effect of the strong dollar and lower variable labor costs that largely offset investments in stores and higher pension costs.
SG&A expense growth was reduced by 5% due to the translation effect of the strong dollar.
In addition, as previously communicated, we had expected that year-over-year growth in marketing would moderate due to heavy spending in last year's second half and that's what happened.
Interest and other expenses net in the quarter came in about equal to last year.
Interest expense itself continued to be lower than the prior year due to our refinancing of long-term debt to lower rates in October of 2014.
However, we also recorded some foreign currency transaction losses in the third quarter.
We continue to project interest in other expenses net at approximately $50 million in 2015.
The third quarter's effective tax rate of 35.5% was in line with last year's third quarter, and we continue to forecast a full-year effective tax rate in 2015 similar to last year's rate of 34.4%.
In terms of our balance sheet, we finished the quarter with cash and short-term investments of $725 million while short-term and long-term debt of just over $1 billion represented 38% of stockholders' equity.
An important part of our financial strategy is to maintain adequate liquidity to invest in growing our business regardless of short-term economic cyclicality.
At the same time, we also regularly consider appropriate opportunities to return cash to shareholders through dividend growth and share repurchases.
During the second quarter we had increased our quarterly dividend by 5%, which represented the 14th dividend increase in the past 13 years.
During the quarter, in light of share price weakness, purchases under our stock repurchase program accelerated as we spent approximately $60 million to repurchase our shares at an average cost of $80 per share.
We have spent $116 million for share repurchases in this year-to-date and at October 31 we had approximately $157 million available for repurchases under our current authorization that runs through March of 2017.
Another one of our financial goals is to keep inventory growth below the rate of sales growth by achieving better productivity in our stores, as well as in our overall supply chain, while also maintaining deep assortments and high availability in our stores.
I am pleased that at October 31 net inventories were 8% below last year.
When excluding the translation effect of the strong US dollar, inventories still declined by 4% compared with the 4% year-to-date increase in worldwide sales on a constant exchange rate basis.
Rounding out our cash flow, capital expenditures were $159 million in the year-to-date versus $153 million a year ago.
We continue to forecast about $260 million for the full year with the focus on stores and new IT systems being implemented over several years, including for global customer relationship management and inventory management.
In terms of our financial forecast, we believe these third-quarter results, combined with volatile external conditions and negative effects from a strong US dollar, justify a downward adjustment to our earnings expectation.
Our company is well positioned for the holiday season with a strong product offering and a holiday advertising campaign that touches on many categories.
However, the macro environment in the near term remains uncertain in the Americas and elsewhere.
Therefore, we now believe it is prudent to forecast full-year EPS 5% to 10% lower than the $4.20 per share last year, excluding charges for debt extinguishment last year and loan impairment in the second quarter of this year.
However, from a cash flow perspective, we are pleased with our progress in managing inventories more efficiently and we are significantly increasing our free cash flow objective by $100 million to now forecast in excess of $500 million for the full year.
In summary, despite a number of challenges that have affected our financial results this year, we are progressing in a number of areas that are all intended to strengthen Tiffany's positioning among the world's most important luxury brands while also enhancing profitability and productivity.
I will now turn the call back to <UNK>.
Thanks, <UNK>.
We hope our review of third-quarter results has been helpful and, of course, please call me with any questions.
A replay of the call is available on our website or by dialing 888-203-1112 in the US or 719-457-0820 outside the US and entering passcode 564803.
Please note on your calendars that we expect to report sales results for the November-December holiday period on January 19 before the market opens.
And, as typical, without a conference call.
Thanks for listening.
| 2015_TIF |
2016 | INGR | INGR
#Let me take that question.
First of all, we don't break out our specialty and core ingredients splits or anything like that and last year as we know we said we were around 25% specialty.
And if you think about our specialty growth, we have commented that they should be in the mid to high single digit type of ranges and I think we are tracking fairly well in the first quarter with those type of components.
In our core ingredients, what you have seen is that as the growth was ---+ as we exited our Port Colborne facility through that sale, what we have seen is the trade up within some of our core ingredients as well which improved our profitability or improved our margins there as well particularly in North America.
So we were very pleased with both the margin improvement in both specialty and core this year and most of the growth is coming out of our specialty ingredients as we move those forward.
The thing I would add is that also recall that those acquisitions that we announced last year, we really did not own first quarter last year so it is not a huge piece but it is certainly important that added to our margin and our specialty mix.
Penford would be potato starch, gluten-free non-GMO and then the Kerr Concentrates again fruit type products also a non-GMO focused on different types of smoothies and frozen novelties.
Penford, you are right.
This was I call it a free quarter because by closing March 11 it wasn't in first quarter, you are right, Kerr is small but of course our organic portfolio, our R&D investment of $40 million, $42 million is going towards developing solutions for our customers with these on-trend investments and capacity that we are bringing on to satisfy this specialty mix certainly will be a factor as we build on our growth algorithm.
Just one other point of clarification as well and I just want to make sure because we have commented on this in the past and sometimes it is good to reiterate some of our comments.
Is when we are looking at the valuations in our core ingredients, our raw material increases and things, effectively we usually price through to keep a constant dollar margin.
And so while we had foreign exchange headwinds in the quarter, we passed most of those through but at a margin level, not at the sales level.
And that has a tendency of improving the margins as a percentage as well.
And so there is a little bit of lift on those margins as a percentage of revenues just from that component as well.
Let me just reiterate a couple of comments that we have stated in the past as well.
When there is a devaluation particularly in our South American region, if you look on chart 9, there is about a 22% price increase there.
Some of that is to offset that devaluation because given the input of both our investments, the raw material being corn which is a US denominated commodity principally and energy costs being principally US denominated to a large extent although there's local issues associated with it, we are pricing through those devaluations to a large extent.
That is one of the things that I think makes our business somewhat unique is we always talk in US dollars, we always maintain it there.
I'm sure in Europe maybe a completely a euro zone where people thinking euros, and raw materials are in euros but to a large extent we actually think in terms of dollars and try to get our pricing back and getting the margins there.
And even in North America, I commented in the script that a large part of our revenue base whether it be in Mexico or Canada is in dollars as well and so therefore, I don't want to say that the earnings would go up dramatically without the devaluation.
The thing we do indicate is that usually is about a three to six month lag before we can get those evaluations passed through in terms of our margin.
And I think that is a very important thing for people to recognize as they evaluate our business which is somewhat unique to some other people who try to restate based off of just constant exchange rates.
Thank you very much for that question.
I think if I look at North America and as you mentioned, it is in fairly good balance in terms of supply demand.
I think the demand is moving fairly well and think there's a lot of growth opportunities even in the core ingredients area and the utilizations in the industry are quite high.
Corn being below $4 means that a substitute type of products whether it be sugar, whether it be soy or anything else or wheat types of starches, are very competitive with our corn refined type of products, can be very competitive in those marketplaces.
So the outlook, assuming that there is ---+I'm always worried about the meteorite that could hit someplace in the business but fundamentally I would say that the industry itself is in a fairly good balanced position.
Maybe I will ask <UNK> to just make a couple of comments.
The other thing I would add is that you know the way that we are set up with our footprint that we are able to redirect our capacity to specialty products and so if you take North America with a growing Mexican economy, the growth in specialty in Mexico driven by the awareness of Mexicans to eat healthy, some obesity taxes.
But even in North America, the consumer is wanting healthy food and ingredients that we can redirect our capacity by adding finishing channels that we talked about a little bit earlier.
So you know you are asking questions about core in the future but I think of the whole system and that our strategy is really to grow the specialty and so our goal is really to satisfy the customers' needs with a portfolio of products and growing specialty continues to be the primary importance and we have the footprint and manufacturing capability to do that.
Obviously we can't comment on what our competitors are thinking in terms of capacity or anything like that in the industry.
But my guess is though if you had it on placement value basis, returns probably wouldn't justify a new facility in the industry or anything like that.
So I just think if the demand is relatively in balance with supply, I don't see any reason that would drive further changes in that type of area.
I guess obviously there is a lot of competition in the specialty area and there is continuing changing trends in the food industry and there is a lot of competing products in this business.
And so therefore, I think that the industry itself is faced with continuing to innovate to continuing to drive new growth opportunities.
I think that is the biggest stress that we are trying to deal with and that is why we continue to invest in our R&D and some of those capabilities for our future so that we can develop products that are on trend.
Sure.
We are one year into Penford probably just over six, seven months for Kerr.
But Penford, the portfolio is terrific in terms of having potato starch as a manufacturer as part of our portfolio.
We are excited about the specialty portfolio.
We are still learning and integrating that and certainly the incremental synergies that we talked about today came from the cost synergies in the areas of supply chain and procurement that we talked about before.
But our focus on potato as gluten-free and non-GMO continues to be an exciting part of the portfolio.
As I've talked about before, there were some biomaterials dilutions that Penford was very focused on like in liquid natural polymers and bio-adhesives and we continue to bring those to market.
So we are excited about the specialty portfolio of Penford.
Kerr, again, it is still early days but we see the whole berry side enhancing our portfolio and so our ability to formulate with starches and take berries and create recipes for our customers is again non-GMO very, very exciting.
The China part of your question, this acquisition that is pending regulatory approval is exciting because this company has been a supplier to our totally focus of specialty food in China.
And so it will enhance our capability to grow that business.
And so again, we are very much focused on the specialty foods side of the business and this will be an enabler to have the capability to have the front end supply side.
And so we are excited about being a more important supplier to food companies in China where they are looking for solutions as an example on the dairy side of the business, starches for dairy that are healthy.
This will enhance our capability to grow that even more with our capacity.
I would say that first of all, the quarter itself I want to reiterate we had Penford lapping this quarter so therefore we were advantaged through that so that was what <UNK> said was a give me type of thing.
The quarter itself had a few one-time benefits in it.
But we do see North America having a very strong year.
I think that the year is basically predicated on North America.
It continues to grow in terms of its specialty business, it continues to execute extremely well on its cost management throughout the segment.
So it is going to be up very solidly this year.
You know, I think for us, <UNK>, one of the things with our network optimization is many of the other participants are actually supplying more into Mexico than we are at this point in time.
If you recall, we have our own local production down in Mexico which is really servicing that marketplace.
And you are right, the exports into Mexico have gone up.
I haven't been tracking it nearly as closely as I used to but they have been up by the USDA numbers and so my expectation is that will continue as well.
Utilization is fairly tight within the industry.
I would say that the only thing that could potentially go away is the mild weather that we had in the first quarter.
There is always a whether issue and a few things like that or energy rates could move around on us.
But fundamentally the fundamentals basically should be the same next year.
We don't give guidance on 2017 yet.
I would say that fundamentally at this point in time, I can't see major changes in the quarters.
And I would say that we talked about the capacity coming on in 2016 in the specialty area and so our expectation is to grow in the specialty area continue along that trajectory for 2016 and 2017.
I think this year we said it would be relatively flat to last year which is in that $25 million to $30 million range of EBIT.
What we have said is it we will return back to a more normalized profitability but we are kind of watching those government policies and how sugar gets exported and things like that to give better timing on that.
It could be pushed a few months as it starts to move forward and then the real issue is does that economy really stabilize for the longer term.
Because I would like to reiterate that it is a very good corn position in terms of raw material sourcing.
It should have a good position against sugar for its HFCS demand and it is really getting the cost under control in terms of the environment there because it is still a heavy inflationary environment.
So I'm not going to predict when exactly that economy will return whether it is 2017 or 2018 at this point in time.
Look, we have some great competitors but we have a great R&D portfolio with technology and people and know-how with many years of experience and great customer relationships that have been built up over many years.
And so as Ingredion combination of corn products, national starch, we have become even more important to our customers working on different challenges that they have brought to us.
So we use our R&D know-how and capability to develop those solutions and work closely with our customers that competitors do something where they have expertise but we are the texture leader and have many years of experience in that area.
And now that we are broadening our portfolio with other raw materials to solve the problem, we have been in non-GMO for 10 years.
We have capability to modify starch with key [set of] enzymes.
That type of technology and know-how is very valuable to address the consumer trends like clean labels.
We continue to build on that.
I will start with M&A and then I will turn over the share count to <UNK>.
Look, the pipeline continues to be robust and I've talked about this before and I spent a lot of time looking and meeting with different candidates and again, we look at M&A around the world, the priority being to broadened the portfolio and what are the features that we could acquire for the right value proposition as we bring it on and we are more important to our customers, we can create these solutions.
And several of these companies, some of them are publicly traded, many of them are divisions of larger companies or privately held so we want to do the right thing in terms of building the relationships over time.
So we continue to work that but again, we have a track record of making them at the right value proposition, valuing people and technology and bringing it into our portfolio even as evidenced today as talking about Penford how it has gone well and we are very methodical about how we analyze the opportunity.
So I am excited.
We have a great balance sheet but we also are patient and want to do the right thing and so while we have done some bolt-ons, this China one for Shandong Huanong is a bolt-on.
There are other bolt-ons that we look at and again, the sweet spot being the $300 million to $500 million.
<UNK>, do want to address the other part of the question.
Just to address the share count, one of the things we look at all the time is how we buy back tat dilution over a period of time where executives get share compensation and we monetize it.
And it is a timing item where it obviously depends on the days outstanding and all those type of areas so there may be a little bit of creep in one year and we will make up for the following year or at the appropriate time.
I do think that we continue to look at shareholder friendly ways to return money to our shareholders and that is one of the reasons I commented also on the dividend policy as we continue to look at say as our earnings grow, we should be looking at those annual increases of our dividend to reflect that payout ratio as well.
And so we are very comfortable with our cash flows at this point in time and so we anticipate that as we look into the future we will continue to look to keep that dividend payout ratio very solid.
Let me start with the synergy question and we are actually ---+ what we are seeing is we are getting up to that $25 million run rate of synergies compared to the prior year.
So it will depend on when we recognize them last year in terms of the comp but they will be fully recognized as we move forward at those type of rates.
So you can think of it as a couple of million dollars a month of synergies that we are getting out of there.
In addition, <UNK>, just to remind you that we didn't have the comps for the Penford earnings in the first quarter so the full $47 million won't be delayed ---+ every quarter or anything like that.
And then let me just explain, I do want to address this Port Colborne issue because I think it is important.
When we talked about $8 million, it was really the fixed cost we were taking out of Port Colborne on an annualized basis and we are moving some of the volume obviously where we are shedding and things like that as well.
I think that we are still going to see some of that benefit spread into the other quarters.
What really transpired was is we were able to get the utilization of the other facilities up in that first quarter which will not be repetitive particularly in the second and third quarter.
It may happen again in the fourth quarter depending on supply and demand at that point in time.
So some of that was even additive I would say to the $8 million and that is my we moved our guidance up a little bit because I think when we originally looked at that business, we were thinking about just setting that $8 million and getting the benefit of the fixed cost and really what we found is that the incremental logistics cost and things like that did not set the volume that we were able to run through the facilities.
And so we did get some uptick in terms of that in addition to the $8 million.
So I hope that helps your thoughts there.
<UNK>, first, I would like to highlight the fact that we do talk in terms of absolute dollars versus percentages because sometimes when that denominator comes down, you've got to remember when you're talking about the 11%, we had much higher corn costs and that is principally a pass-through from our perspective.
And so there is some of that component going on as well where your denominator is shrinking.
The other component is that just in general, we were seeing our Mexican market very, very strong in terms of growth opportunities.
The business is staying strong, we continue to look at that network of facilities that we have to say how do we optimize our freight and our production processes within North America to drive costs out.
And so if you hold off the exchange, raw materials constant, the real thing we have is the continual trade up of our product into specialties which is obviously going to continually improve those margins.
So I would say that I don't see any dramatic changes except for that trade up strategy to our margin improvement in North America at this point in time.
I think that is how I would answer that question.
The other thing I would add is if you think about our long-term algorithm of growing specialties to 30% or so, North America, the Western economies are certainly trending and our goal is to be at that number if not more.
South America, while it is growing from a very small base, Europe is a much higher percent and places like China which are smaller are also a higher percent.
So as we become more of a specialty ingredient company, North America's percent specialty is going to grow.
So we feel good about that and having more capabilities to formulate help us do that and then therefore that helps the whole product mix trade up that <UNK> has been talking about.
I would say yes as evidenced by selling the Port Colborne facility.
It is just part of our job to constantly look at those opportunities.
We were successful, we brought on National Starch.
As we talked about some of the synergies, we are moving specks around.
We took a small piece of capacity outside off of Indianapolis a number of years ago.
So we are constantly looking at ways to optimize that absolutely.
In fact, North America was leading and now South America is basically consistent with the factors in the different regions.
I think it is still early.
We continue to hear about local consumption of food.
I think beer is down a little bit though I heard in April, the consumption was okay in food in different products.
So we don't really know politically what the impact will be but we do know for our business in food, that is one of the things we love about the business is that people eat and drink no matter what is happening in the economy.
<UNK>, anything you want to add.
I think the Mayor in Rio de Janeiro has kind of taken control of the Olympics and so that seems like it is progressing very well.
And it is kind of always interesting to me the underlying economy still seems to function and even though it is challenged with headwinds in terms of the individuals who you see the GDP continuing to fall partially because of the energy complex, but the real has strengthened.
I don't know that is because of the fact price of oil went up or because of the political situation, there's a lot of different dynamics working on it.
I do think in the longer-term though that if you look at Brazil, the fundamental population is still very young, it is a very industrious population and we are very optimistic in terms of the longer-term growth view in Brazil and we do think it will return to its growth days, maybe not the go-go days of a few years back but certainly a very growth and high consumption type of marketplace for us.
We see some growth in specialty products in Brazil.
Again, it is small but focus on dairy, even gluten-free and other sweeteners, low-calorie sweeteners are growing there.
So there is a large interest in healthy food.
I would say that is one of the things we are tracking very closely there is we are seeing the original devaluation and a continual devaluation of that currency.
We have also seen inflation particularly driven by the fact that it is one of the few places in the world we have seen energy prices actually rising at the consumer level partially because they are taking off subsidies of the past.
And so there is a lot of dynamics going on in that marketplace.
We continually watch our wages in terms of ---+ where we are having negotiations down there with our unions and things like that.
And so the cost equation in Argentina has not quite equalized where I always think of the valuation and inflation kind of getting back in check.
It is not quite there yet.
I think the policy that Macri is putting in place kind of lead to that movement.
I would like to see it happen faster from my viewpoint but he has made right steps and kind of reconciled to some of the bondholders and things like that.
So the trajectory is right but there will be a lot ---+ that is why we say the volatility in Argentina will still exist for the next little while.
Before we sign off, I will reiterate our confidence in our business model, strategy and long-term outlook.
We remain keenly focused on value creation and delivering that value to shareholders.
That brings our first-quarter 2016 earnings call to a close.
Thanks again for your time today.
| 2016_INGR |
2017 | PNW | PNW
#Thanks <UNK> and thank you all for joining us today
2017 has started off in line with our expectations and we remain well positioned for a very solid year
Before Jim discussed the details of our first quarter results I'll provide a few updates on our recent regulatory and operational developments
I know EPS as a rate review is top of mine from many of you and we continue making good progress with this preceding
On March 1, we announced a settlement which has broad base support
In total 29 interveners signed a settlement agreement including the Arizona corporation commission staff, the residential and utility consumer officer Ruco, members of the local and national solar industry and low income advocates
The settlement provisions contain a number of benefits to our customers, shareholders and the communities we serve
Details of the settlements were outlined in the appendix of our slides today and I'll review some of the highlights with you now
Slide 8 shows the settlements proposed base rate changes, which include a non-fuel, non-depreciation base rate increase of $87.2 million per year excluding the transfer of adjusted balances
Additionally, APS will decrease rates by $53.6 million attributable to reduce fuel and purchase power cost and increase rates by $61 million due to changes in depreciation schedules
The result is a total base rate increase of $94.6 million or an overall 3.3% bill increased
Other elements that underpin the settlement including maintaining our allowed return on equity at 10%, our capital structure and base fuel rate are also listed on the slide
The settlement contains a number of important financial provisions which reduce regulatory lag and better aligned rates with the cost to service
In particular the settlement provides for a cost deferral order for the Ocotillo Modernization project and a cost deferral order plus rate adjustment for the selective catalytic reduction equipment to Four Corners
Also the current property tax deferral continues in the power supply adjuster is expanded to include additional production cost
APS proposed changes to the rate options offered to customers ensuring the price a customer pays more accurately reflects the way that customer uses the electric grid
This one is an important focus of our filing
The settlement includes meaningful changes to modernize rates including shifting the on peak period from 12 noon to 7 pm, to 3 pm to 8 pm in the afternoon and early evening, which is more aligned with actual peak usage by customers
Importantly new distributor generation customers will be required to select a rate option that has time of used rates including the great access to our demand component
APS was the among the first utilities in the nation during it is time of use rates for residential customers back in 1984 today more than half of our customers chose the time of used rate for their service
This settlement will create another first by establishing time of use rates as a standard for all new customers after May 1, 2018, except for our smallest customers
The settlement also contains a self-build Moratorium through January 1, 2022, with certain exceptions
For example the Moratorium excludes investments in new combustion turbines that will placed in service after January 1, 2022. Finally, the settlement includes a three year stay out for the next general rate case application under, this provision APS may file its next general rate case on or after June 1, 2019. Lastly, the APCs formal hearing on the APS rate review began and its currently underway
Looking ahead we anticipate the administrative war judge to issue a recommended order followed by a commissioner vote at an upcoming open meeting
We view the proposed settlement agreement as a further sign of Arizona's constructed regulatory environment
We appreciate the opportunity to continue working with ACC and various stake holders to find solutions that balanced interest of customers, shareholders and the communities we serve
Turning to our operations, Palo Verde Nuclear Generating Station had another successful quarter operating above their 100% capacity factor, a planned refilling outage for Palo Verde unit 2 began on April 8. Additionally, at the Four Corners Power Plant our employees are making solid progress on the installation of selective catalytic reduction equipment and construction activity is ramping up at our Ocotillo Modernization project
This year we are investing more in our distribution systems than ever before
Our focus on modernizing the distribution grid is not a temporary phase, but instead a shift in how reprioritize investments with a greater emphasis on our transmission and distribution business
Over the next few years we expect to invest $1.8 billion in our grid infrastructure enabling a more secure and resilient grid which has greater access to the Western Energy market
On April 10th we filed our 2017 integrated resource plan which includes a 15 year forecast of customer electricity demands and the resources needed to serve our customers reliably in the future
An important point of our forecast is to growing requirement with flexible peeking generation over the planning horizon
By 2025, we expect an additional 1.3 gigawatts of quick start combustion turbine capacity will be needed in order to meet our growing summer peak, as well as supplement the intermittency created by solar resource
Moreover we are witnessing lower average daily prices on the wholesale market which show price spikes and increased volatility during peak periods
This new pricing pattern is a result of access energy supply during the middle of the day, throughout much of the year largely created by an oversupply of solar energy in California
In order to take advantage of the solar supply and payoff the energy savings to our customers we value investments in flexible resources that can quickly shut down to allow the import of market power and then quickly ramp back up when demand and prices spike again later in the day
We expect these market conditions to exist for the foreseeable future and we are positioning our generation investment to be more aligned with these market conditions
Ultimately, this will result in a lower cost to service to our customer, improve reliability for the region and new investment opportunities for our company
This also means that our views is on the value of base load and intermediate generation for our customers are evolving and we will focus our future investments for new generation towards flexible peeking technology like combustion turbines and eventually energy storage which is better optimized for emerging market conditions
Finally, I would like to update you on a change in our executive team
When I became CEO in early 2009, the top of my priority list was to recruit one of the finest legal minds in the electricity industry, Dave Falck to join the company as our general counsel
Fortunately for us Dave accepted the offer and has provided Pinnacle West and me with consistently thoughtful counsel ever since
These are trusted advisors so it is with mixed feelings that I shared Dave's decision to begin the transition into retirement
Dave will become Pinnacle West executive vice president of law through his retirement in the spring at 2018 and will continue to advise the Board of Directors and me on governance matters and industries issues
Dave's transition period allows us to continue our commitments for succession planning and talent development at all levels of our company and I am pleased to announce that Jeff <UNK> has been promoted to Executive Vice President and will assume the role of General Counsel for Pinnacle West and APS in addition to his current responsibilities of leading our public policy organization
Jeff is a skilled lawyer and a thoughtful and respected leader with the deep understanding of our industry
In closing we are delivering on our commitments and continue to be well positioned for a solid year in 2017. We are focused on completing our rate review filing and maintaining operational excellence while positioning Pinnacle West as a sustainable leader for its strategic capital investments
I'll now turn the call over to Jim
I think that's on our expectation
Obviously, any increased renewable spends outside of the $15 million a year in '18, '19 from any return to is not currently on our forecast
So that will be incremental capital
We're drilling [ph] this chapter, ERP is just been filed
So obviously, we're working through ---+ we'll be working through that and there will be I'm sure more discussion on that as we move forward
We've got some storage that we're doing right now that is with the Solar Partners program
I'd say the focus we got right now is storage that's related to power quality, local reliability issues
And we're making sure that we have a good understanding of that
And so that's kind of what [Multiple Speakers] that's what in right now when the discussion started
Well, we agreed to spend a $50 million a year
So we're covering through they know
As currently contemplated, it's not a big capital line, but it is incremental and can recover concurrently, which is from a capital perspective
We don't operate [Multiple Speakers] ---+
I don't know that I would say it's off the table
We're only 14% owner in that plant
So we don't want to speak for [indiscernible] owner-operator
<UNK>, there's a self-build moratorium that's in the case, that you'd have to step through the process if you're going to propose a bill
So typically, that's going to be more in the view of a back step, but one of the changes to that moratorium would be an acquisition, would be different
So that's changed a little bit from the last moratorium
The moratorium that's proposed in the settlement doesn't preclude the acquisitions, but it would affect the self-build
More like the first quarter of '16.
It's going to be the major outage for our Units 4 and 5, practically for the SCR installations
Our fossil planted outage O&M is pretty lumpy
'16 and '17 are elevated because of the impact for the SCRs
So I think you would see, as you get out to '18, '19, more normalized fast O&M
Last one we could have filed June 15, we elected not to file until '16.
<UNK>, Don <UNK> here
Just a couple of facts right here, Metropolitan Phoenix housing permits are at the highest levels they've been since 2007. Maricopa County's the fastest-growing county in the United States in 2016, eclipsing, I believe a county that where Austin, Texas is located
And we've seen not just in the financial services, but beyond State Farm a lot of back-office operations are here, call centers
But also, in biosciences, there's a really booming industry, that brings a lot of jobs and relatively highly paid jobs
We'll get that to you
We have that number
| 2017_PNW |
2015 | CSL | CSL
#Yes, I think Matt, right now, we expect it to hold up certainly through the third quarter.
We get to the fourth quarter, then I think all bets are off.
As volumes start to drop, I'm not sure what will happen with pricing, at that point.
But we think it'll carry us through the third quarter at least.
Yes, I would think so.
It really isn't our record.
I think we were 21% back four or five years ago for a quarter.
We have some big projects that are working that will come to fruition in the second quarter.
Or, I'm sorry, in the second half, not the second quarter.
We didn't have any of those large projects in the first half of the year.
Thanks <UNK>.
Yes, <UNK>, it was almost all in Construction Materials.
Last year I think we took inventory down too low.
And we had two objectives this year, not to have any outages, and I think the business did a great job in preparing in the first and early second quarters, to make sure that we had inventory available.
We've had ongoing conversations within the Company that, is 15% operating or working capital the right number.
And I think that it might be a little bit low.
We might be looking at 17% or 18% long-term; appears to be the optimum level for us to be able to deliver when we need to deliver and not lose any orders because of inventory outages.
And that would be generally across the company.
Well last time we spoke, we were just going off the forecasted spend from our divisions.
And they're just coming in across the board a little bit lower than we had anticipated at the time of our last call, and that's just our updated number.
There's nothing really more to it than that, and I think $80 million to $90 million is a good number for the for the year.
I think there will be efficiencies, in fact, if you look at the margin we generated in the second quarter was the result of some of those efficiencies we got out of Nogales.
We're in one plant rather than four smaller plants, so that's helped us.
It's just been, I guess, a stroke of luck that we brought it on just as volumes ramped up again.
And we would expect that margins would improve as we go through the year.
All right <UNK>.
Well, if you look at the business, keep in mind that ag is down 27%.
It was only off a few percentage points, I think earlier this year, and late last year.
So ag is at a major down turn for us.
And mining, frankly, mining is, <UNK> ---+ was it 15% of total revenue somewhere in that range.
Mining, while it is obviously important to us it is not the biggest segment.
Our biggest segments are ag and construction.
But mining is not doing well.
We don't see anything that would indicate equipment's coming out, it's just that no new equipment's being bought.
And it would tell you that equipment is not being used because not a lot of parts are being bought for the after market.
So I think equipment they have there is not being other utilized like it had been in the past.
Revenue.
Oh we, oh incremental margins.
In the 30%s, mid-30%s I would think, yes.
Yes, I think if you look at the businesses that are generating that, I would see no reason that it shouldn't be.
Well we could certainly do better but there is a significant penalty to prepay.
There is call protection in the public bonds.
We've looked at this.
And when we do the calculations, we don't see a real benefit once you take into account the up front penalty you've got to pay to cover the protection.
You're welcome.
It certainly has helped us from a freight standpoint.
We were shipping TPO to the northeast from Tooele, Utah and Senatobia, Mississippi.
We now have an operation that's only a couple of hours from New York City.
So, it certainly has helped from a freight standpoint.
Also from a delivery.
You now have a situation where you can react more quickly to the needs of the customers up in the northeast that want TPO.
So it's been a real advantage in having that facility there.
<UNK>, not really.
We talked about earlier on in the call with the wetness in Texas early on in the quarter.
But as soon as it dried out we immediately had roofers on roofs and I don't think there is any pent-up demand in Texas because of the wetness.
But that's the only thing.
Thank you.
Thank you.
As we prepare to end the call, I ask you turn to slide 15.
As we began the third quarter, our outlook remained very positive and continues to be very positive.
CCM, CIT, CFT, and CFS have very favorable market conditions going into the second half of the year.
Looking at it by segment, CCM should continue to benefit from strong new non-res construction, a healthy re-roofing market, and lower raw material costs.
Sales should grow mid-to-high single digits and earnings are expected to be highly leveraged in the second half of the year.
Barring any major change in pricing, earnings growth will be reflected in the third and fourth quarter results.
While we had some downward pressure on pricing in the first half, but it was minor.
It had really very little impact on our overall performance in the year.
With the second and first quarters behind us, all indications are that 2015 is going to be a record year at CCM.
At CIT, the second half of the year performance should improve, upon our performance in the first half.
Our Nogales plant is up and running and our aerospace and medical markets continue to be strong.
We're making operational improvements at LHi, and while they are slightly up from 2015 margins, we expect that the impact, really, is going to occur in 2016 and 2017 at LHi.
2015 should be a record year for CIT though.
Sales at Fluid Technologies are expected to grow mid-single digits in the third and fourth quarters.
Unfortunately most of that growth will likely be offset by FX.
In the second half of the year revenue should be approximately $150 million with EBIT earnings in the low teens.
CFT will be contributing to our earnings during the second half of the year as the purchase accounting adjustments are now behind us.
CBF markets will continue to be in the depths of a 4-year recession and will show little life in the back half of the year.
During our first quarter conference call I projected that CBF's revenue would be flat for the year.
I now think that was too optimistic.
We should see sales declines in the second half of the year, similar to what we saw in the first half.
We also seasonally manufacture a product mix in the first half that has favorable margins, compared to the products we manufacture in the second half of the year.
With declining revenues, and less profitable mix, margins should be in the mid single digit range in the third and fourth quarters.
At FoodService we expect to see low single digits revenue growth in the second half with profitability commensurate with the revenue growth.
Sales and profits for the full year should be approximate of 2014.
Corporate expenses will be approximately $58 million for the full year.
DNA will be approximately $131 million and CapEx will be between $80 million and $90 million.
Free cash flow conversion will be approximately 100%, interest expense approximately $34 million, and the planned tax rates should be between 32% and 33%.
We've had record earnings in the first half of the year and frankly, we think this is a good projection for the second half of the year.
We think 2015 is going to be a very good year for us.
That brings the call to a close.
I want to thank you for attending our second quarter 2015 conference call, and look forward to reviewing our third quarter performance with you in October.
| 2015_CSL |
2016 | ULTA | ULTA
#I'll start with the cross channel.
Maybe <UNK> add, if there's anything I miss here.
But cross-channel shopping, is actually a pretty small percent of our shopper base today.
It's only about 6% of our guests or so.
And we love them because the cross-channel shopper is shopping more frequently, and spending more than a single channel shopper by far.
I would say that you can think about digital as the center of pretty much everything now.
Right.
So quite often, maybe somebody's discovering and researching online before they come into the store.
Whether they discover us online or in store first, I'm not sure if I can break that out, but I'd say probably mostly in-store.
Online tends to be very incremental to us as well.
Our guests love the experience of coming to the store.
The whole beauty enthusiast vibe is about trying things and increasingly experiencing services.
And then online, she's buying things that are kind of incremental to perhaps what she had even had time to discover.
We push out lots of emails ---+ not lots, but I mean, a appropriate number of emails to our guests, around new and exclusive and exciting products, and that tends to stimulate some online shopping as well.
So to your premise about, will that be a big area of growth for us in the future.
Absolutely.
Yes, as far as the new distribution center's concerned, again as <UNK> stated, we were very happy with the performance the team put in there, getting it off the ground successfully.
And you'll recall, the third quarter was really the first time we had it in service.
So it was less of a drag on gross profit margin in the fourth quarter, because the building was operating very effectively.
As we look towards 2016, again we'll have headwinds in the first half of the year, because of Greenwood being online.
Wasn't there last year.
It's still going to continue to scale up.
And then, in the second half of the year, we're going to ---+ we'll see more benefits there, as we lap Greenwood, but there we'll be taking online the new Dallas DC.
So you're going to have incremental headwinds there.
So as we look at next year, it's going to be a fairly challenging, I would say from a supply chain contribution perspective.
But we do expect to see merchandise margins continue to expand, so they will be a bit of a help there overall at the gross profit line.
Sure.
Three questions in one.
Okay.
You have the mic, I guess, you've got to run with it.
So mall stores are a small percentage of what we do today, but we have a fair ---+ about 10% of our stores, and we are very selective about when we should open up in malls.
And we're very ---+ I think we understand that model well.
There's certainly markets where that's an excellent piece of real estate.
We have lot of learnings about, even where inside the mall, how to think about where we're positioned, who we're positioned by, where ---+ how the doors open, et cetera.
So we'll continue.
I don't ever expect, it will become any much bigger than it is.
But certainly, we do not reject that, if feel like it's going to give us the kind of return that we need.
So think about that as a small-ish, I guess, opportunity going forward, but part of the mix.
Okay, that's malls.
Number two.
Service margins.
What was it.
I'm sorry, go ahead.
(multiple speakers)
Oh, okay.
Yes, I mean, I would say, we don't break out the margins specifically across the business, because of the labor involved, the margin on service is typically going to be lower than margin on retail products.
That guest though, who is coming to use services is going to be spending 2.5 times more than somebody whose not, so and buying a lots of retail products, coming frequently.
So in total, it's very incremental in terms of profitability to our business model.
[We're closed] out on ASR.
We're very happy to be able to announce that today.
Again, that would typically will begin, as soon as the open window for us occurs, which is early part of next week.
And that size, we would expect to be able to execute that over a course of 30, 45 days, roughly.
Well, we feel very confident that it's a good way to invest money.
We've had experience, again <UNK> mentioned, we crawl, walk, run.
I mean, that's the way we operate here.
So whether it's the new fragrance fixture that we referred to, we already have that installed in a number of stores.
We've monitored the results there, both from a sales and margin perspective, but also from a shrink perspective.
Right.
It's always a 360 degree view.
As far as the boutiques are concerned, again, we've had a long history there with a number of these brand partners.
And we've been able to measure incrementality and halo effect, and all those other things, when these are installed in our stores.
So we're very confident that they're going to produce excellent returns for investors over the long term.
What's not going right.
Finish with your question, <UNK>.
Here's the thing, we're really focused on the future, and where the world is going in the next ---+ I mean, maybe I'll be as bold to say 5 or 10 years, but thinking about what the innovations and/or ways to think about the way the guest expectation is going to continue to evolve and change, about seamless retailing and shopping.
So it's not a problem.
It's a great opportunity for us.
Because if, and I talked about this in the script.
But I've got a team of people and their teams that think in a very integrated guest-centric way and store associate centric way.
So we're thinking a lot about, how do we think about, just continuing to be ahead of the curve as it relates to the competitive environment, and the shopping expectations in the future.
So and there's no one answer to that, I guess.
So it's not like it's ---+ anything is broken.
It's a matter of where do we point ourselves for the future, and I mean that honestly.
I think I'm very, very pleased at how many things are going well.
We're not complacent about that.
We push ourselves very hard.
We are really focused on always improving.
Yes, as far as the CapEx, and long-term guidance implications are concerned, <UNK>, we're very happy with where we are today.
I mean, the business is performing very strong.
We're probably, we're a little bit ahead of where we thought we would be at this point in time.
The boutiques were in our five year guidance.
I mean, they were inherently built in there, but we are pulling them forward.
So there is an acceleration here.
We expect, again those investments, we demonstrated that they paid great dividends for investors over the long-term.
So the CapEx specifically for next year, you can expect it to stay elevated.
This boutique, this strategy we have in place with our brand partners, is a multi-year rollout.
So we're going to touch as many of our comp stores.
And again, that's what that $80 million is basically referring to as our existing store base, so try to touch as many of those over the next couple years as we can.
Yes, thank you, Matt.
No, I'd reiterate what we've said, which is that and you just recapped it, 1,200 stores, full size, kind of prototypical.
We see a very clear sign of sight to that.
We've also said that, beyond that, the small market opportunity probably represents another couple hundred.
We're in the process of refreshing our real estate view, and we're going to start to take a more specific look at the opportunities beyond that, so urban, or downtown, suburban type pieces of real estate.
So I guess, I'd just say, stay tuned on that.
We'll continue to refresh that view.
But I feel very optimistic about our ability to continue to drive market share growth.
So whether it's in terms of square footage or on a comp basis, we have ---+ if you step way back, we have only 5% share of the spending of the beauty enthusiast today in the US.
And it's ---+ beauty is highly fragmented.
You can buy beauty products in thousands and thousands of places across the country.
But we know that we've hit a sweet spot, with a group that's actually frankly, really strong, and growing in terms of the beauty enthusiast segment.
So we're differentiated.
They like us.
So we're never going to get complacent about building out too much, but we certainly don't want to underestimate the possibility here.
So I feel good about the targets that we've communicated.
If that changes, certainly we'll refresh that, but we're continually looking at it.
And the other thing I'd say is that, reiterate, new store productivity very strong, cannibalization, very low, too low to even be material, and it's actually gotten less, which is great.
I'd like to mention that real estate opportunities, very strong out there for us.
And everything we just talked about, as it relates to driving brand awareness of Ulta, only helps every store that we open you now.
And we've got people who kind of know more about the brand than they did a couple years ago.
So I think all those factors are very positive for us.
Yes, I guess, the one thing I would say right off the bat is, we're batting 1,000 here.
I mean, we've got a pretty good run the last few quarters, and you can't always plan for everything to go perfectly every quarter.
So as we look out towards 2016, I mean, the combination of the DCs, we feel very confident now.
We executed very well in Greenwood.
We expect to do as good or better with Dallas coming online next year.
Again, I won't break out basis points of headwinds or tailwinds from each one of those, but directionally we feel very confident that these are going to deliver the kind of benefits that we expected upfront, and that we described back in our Investor Day presentations.
I mentioned merchandise margins a little earlier here.
Again, the core, the mix of the business is very strong in retail.
All these new brands that are coming in, we've got generally very strong terms with our vendors.
Pulling back on some of the broad discounting things, and doing things more direct and focused with our customers are only going to help drive merchandise margins higher in the future.
So net-net, we feel very confident that we're going to deliver at least flattish next year, and we're hoping that we're going to be able to do better, similar to what we did in 2015.
Yes, let me start off with the mix.
So next year, basically new versus existing is consistent, kind of where we've been the last couple years.
It's about 70% existing, 30% new.
The one place we are seeing a bit of a change is in the types of centers.
So new centers versus existing centers, so the last couple years, it's been 80/20 existing, 70/30 existing.
Next year, we see it ticking down a little bit to 60% existing center versus 40% new.
So that's a great sign, to have new developments coming out of the ground.
Yes, Dan.
Yes, I guess, the answer to the first part of the question, yes.
It was, again, it wasn't any one thing, Dan.
It was a total team effort in the fourth quarter, stores, e-commerce team, DCs, merchants, planning, everybody in the corporate support area, just really executed at a very, very high level.
The merchants picked the winners.
The store teams did a great job selling gift cards.
E-commerce mix was better than ever.
Things that we had been telling investors, we were going to improve on, the mix overall was good.
Just improved focus on giving the customer what she wants, right.
So pulling back and being more focused on some of the discounting tactics that we use.
And overall ---+ and the DCs, just ---+ and the work that our teams put in this year, to not only get Greenwood open, but to improve the existing buildings was just beyond what we expected.
So it was just really spectacular performance overall.
Yes, our 53rd week is actually the following year.
It's going to be 2017.
So just to make sure we're consistent there.
Yes, so for 2016 now, are you referencing accelerating.
(multiple speakers)
Yes, that is.
It's consistent.
I think <UNK> mentioned earlier, we're not changing our long-term guidance.
We feel confident in the trajectory of the business.
We think there's a lot of benefits, coming out of these supply chain investments that we're making today.
So merchandise mix going up, supply chain efficiencies kicking in, in a meaningful way in 2017, we feel very confident that we're on target.
I would like to just wrap up which thanking our 26,000 Ulta Beauty associates.
You delivered a fantastic year, and I look forward to continuing our terrific momentum throughout 2016, and thanks to all of you for your interest in Ulta Beauty.
| 2016_ULTA |
2015 | RSG | RSG
#Hello, <UNK>.
Yes, I think what we're saying is that we are lifting guidance because of the favorability that we're seeing right now in our solid waste business.
Where ---+ what I called out before is a 60 basis point increase in margin year-over-year due to the solid waste business.
Keep in mind, also, that if you look at, kind of, our increase in guidance overall.
A good portion of that increase is really due to the solid waste business and that which is primarily yield.
Yes, and it's being offset by a couple of things we called out.
We called out the commodities and we called out some of the headwind from the E&P.
But, you're right.
The core business is operating very well and as we turn around these two very small parts of our business, although, obviously volatile parts of our business, that'll all ---+ that'll call ---+ come in behind it, so.
You're on the right track.
Business is doing really well, <UNK>.
Another way of saying it, right, is if recycling hadn't cratered on us, and E&P hadn't dried up, right.
Our margin's wouldn't have been up 60 basis points.
Right.
So, that's it.
Right.
So, we've said that approximately, what, $2.4 billion of our business is that ---+ again, that 30%, right.
So, it is restricted to some type of index.
And, we've been talking about lately, it's about $800 million of that piece, is the smaller municipal contract.
Generally, residential only.
Call it a five-year contract.
So, that $800 million that's the first piece we've been working on to move to a new index.
We've now moved $150 million of that business ---+ $150 million of the $800 million, to a new index.
That's confirmed.
I'm still working on the balance.
As you would expect, logically, when we tried to change how this occurs to ---+ with our customers and within the market, we would start with smaller contracts.
And, having good success.
The remaining $1.7 billion is larger contracts and franchise agreements that tend to run a lot longer than five years and also include, oftentimes, commercial small container, large container business.
So, we're up to $150 million out of the targeted $800 million.
We're progressing every quarter.
We don't know how far it will go.
We're certainly making strong arguments, and frankly, successful arguments for it, and we'll continue to do it.
Again, the overarching issue here is in these kind of public-private partnerships, they've got be mutually beneficial.
It's unrealistic for our municipal partners to expect us to settle for an index that doesn't adequately cover our inflation.
So, we've got to cover our inflation, net of productivity, on a consistent basis.
That's reasonable.
It's fair.
And, that's one of the reasons we're getting it done.
The fact that there is this water sewer trash index, something we can point to that's been in use now, for what, 15 years or whatever, is helping.
And, so, it's too early to tell how long it's going to take and how far it's going to go.
I can tell you this, we're not going to stop pushing.
And, that's ---+ we'll update you every quarter.
As we go through time.
But, it's certainly helping and we'll certainly show some benefit into next year
Yes, so it's fair.
It's equitable.
And, in some cases, it's helpful for them.
Especially, those municipalities that have their own sewer and water infrastructure, that has been struggling to keep up with the pace of inflation.
Frankly, we weren't the only ones that didn't know that this sewer/water, water/sewer/trash index existed.
So, we're shedding a lot of light on that.
And, so again, progress continues and we ---+ we're hopeful and confident that we'll have another positive update for you as we go through the year.
Well thank you, Gabrielle.
I would like to thank all Republic employees for their hard work, their commitment, and most of all, dedication to operational excellence in creating the Republic way.
Thank you for spending time with us today, everyone.
Have a good evening.
| 2015_RSG |
2018 | MDCO | MDCO
#Thank you, operator.
Good morning, everyone, and welcome to The Medicines Company's Fourth Quarter and Full Year 2017 Financial and Operating Results Conference Call.
I'm joined today by our Chief Executive Officer, <UNK> <UNK>; and our Chief Financial Officer, Bill O'Connor.
Before we begin, I'd like to remind you that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those indicated by those forward-looking statements.
Additional information regarding these risks and uncertainties is discussed under the forward-looking statements legend in our press release issued this morning as well as in our periodic public filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website.
During today's call, we may also refer to certain financial measures that were not prepared in accordance with the U.S. Generally Accepted Accounting Principles.
Please refer to the reconciliation of GAAP to adjusted net income and adjusted EPS in this morning's press release for explanations of the amounts excluded and included to arrive at adjusted net income and adjusted earnings per share.
The press release can be obtained by visiting the Investor Relations section of our website.
With that, I'll now turn the call over to <UNK>.
<UNK>.
Thanks, <UNK>, and good morning to everyone.
During 2017, we met our strategic objectives.
We focused the company on inclisiran, divested our infectious disease business, started pivotal Phase III LDL-C lowering studies in the ORION program for inclisiran, completed inclisiran preclinical studies as planned, established manufacturing process at commercial scale and produced sufficient material to support the development of inclisiran for the initial NDA and MAA submissions and set up the ORION for cardiovascular outcomes trials, among other things.
We reviewed the ORION program for inclisiran in depth on the 23rd of January with investors.
The web link is available at www.themedicinescompany.com.
In summary, atherosclerotic cardiovascular disease patients are underserved and overcharged for PCSK9 monoclonal antibodies.
Adherence is not better than and is potentially worse than statins.
Inclisiran is a new class of lipid-lowering drug based on RNA interference with solid and rapidly accumulating scientific foundations and proof of concept.
Manufacturing dose and dose interval infer low cost of goods and unprecedented pricing flexibility, which we believe can accommodate value benchmarks.
The emerging data from inclisiran show at least equal efficacy, safety and improved dosing versus PCSK9 monoclonal antibodies.
And enrollment in Phase III trials is well ahead of plan with rapid accumulation of safety data now and for the rest of 2018, and the data expected for NDA and MAA submission will be available, we believe, in the second half of 2019.
Inclisiran is designed to address the largest pharma market, LDL-C lowering; and since LDL-C is the unambiguous driver of atherosclerotic cardiovascular disease, we believe the compound can become a product with enormous commercial potential.
We're very committed to our purpose, which is to address that unmet medical need at an affordable price, while maximizing shareholder value.
Going forward, we'll remain focused on the development program, and during the first half of the year, we expect to announce completion of recruitment for ORION-10, the U.S. ASCVD Phase III pivotal, as we did for ORION-9 yesterday and for the ORION-11 European trial on January 25.
We expect the second DSMB review by the end of the first half of the year when all 3,400 patients enrolled in the pivotal studies will have completed their first 30-day follow-up visit.
We'll begin dosing in the ORION-5 homozygous FH pivotal LDL-C lowering trial, which will have a shorter treatment period than the 18 months of the other pivotal studies and will not be on the critical path for NDA submission.
There will be further DSMB reviews going forward as we accrue data and patient numbers in our trials later in 2018 and beyond.
And we will be initiating recruitment in ORION-4, multinational cardiovascular outcomes trials.
ORION-4 will enroll approximately 15,000 patients with established ASCVD on a background of high-intensity statins.
With the baseline LDL-C of around 100 milligrams per deciliter or more and median follow-up of 4 to 5 years, we anticipate the trial can achieve at least 25% relative risk reduction in cardiovascular events and should be positioned to demonstrate a potential cardiovascular mortality benefit.
Our financial results for the fourth quarter demonstrate our continuing focus on progressing the clinical development of inclisiran efficiently and reducing costs in all other areas of the firm aggressively.
We obviously have also got a careful eye on our cash position.
The financial details are provided in this morning's press release, and Bill will summarize them for us now.
Thank you, <UNK>, and good morning, everybody.
Today, I'll focus on a few financial highlights from the fourth quarter.
On January 5, 2018, we closed the sale of our infectious disease business unit to Melinta Therapeutics for a consideration consisting of $215 million of guaranteed cash, approximately 3.3 million shares of Melinta common stock and tiered royalty payments on net sales of Vabomere, Orbactiv and Minocin IV.
Consequent to this divestiture, we have classified the infectious disease business unit as a discontinued operation in our accounts, with the net loss showing as a single-line item on the P&L.
Assets and liabilities associated with the infectious disease business unit are highlighted in the balance sheet as held-for-sale.
I will focus my comments today on results from continuing operations.
Net revenue for the fourth quarter totaled $8.6 million, which includes $4.1 million of royalty revenue from authorized generic sales of Angiomax by Sandoz.
Revenues were down 51% year-over-year, driven mainly by the loss of exclusivity in 2015 for Angiomax and further increased generic competition.
Operating expenses were $168.7 million for the quarter versus $88.3 million last year.
Cost of revenue includes a $15 million noncash reserved for Angiomax inventory obsolescence for the quarter.
Also included in operating expenses is a noncash asset impairment charge of $63 million for the write-off of contingent consideration for Raplixa as a result of the decision by Mallinckrodt to abandon that product.
R&D expenses were about $31.2 million higher compared to Q4 2016 due to increased spend for inclisiran and a milestone of $20 million incurred as a result of the initial dosing in the ORION trial.
Our SG&A expenses were down about $20 million compared to Q4 2016, primarily due to lower headcount, legal and infrastructure costs.
On a GAAP basis, net loss from continuing operations in the fourth quarter of 2017 was $159.4 million or $2.19 per share compared to $82.8 million or $1.17 per share in the fourth quarter of 2016.
On a non-GAAP basis, adjusted net loss from continuing operations in the fourth quarter of 2017 was $44.4 million or $0.61 per share compared to $54.9 million or $0.78 per share in the fourth quarter of 2016.
With that, I'll turn to 2018 guidance.
Included ---+ including the upfront proceeds from the Melinta deal, we began the year north of $300 million in cash.
We believe this, combined with the other sources of liquidity from the Melinta deal, namely the revenue earnouts, guaranteed payments in 2019 and shares of Melinta stock provide us a runway through data readout and filing of the NDA without the need to raise additional equity.
We have implemented a restructuring to focus the company on inclisiran with less than 50 employees going forward.
The annualized savings from the restructuring relative to the end of 2017 headcount is approximately $74 million, on top of $75 million we've already taken out for a total of $150 million of annualized head cost savings since the end of 2015.
To achieve these savings, our onetime cash payments will be around $25 million to $30 million, which includes severance and closedown activities during the year.
Virtually, all of these onetime payments will be made in the first half of 2018.
Going forward, the inclisiran team, including the headcount cost of support services, typically included in G&A, will have an annual cash cost of approximately $22 million.
Our R&D programs are well underway and moving more quickly than planned as <UNK> stated.
Current estimates for the anticipated total cost to submit an NDA and MAA for an LDL-lowering indication is expected to be about $150 million over 2018 and 2019.
Please note, this does not include the cost for the inclisiran team mentioned above.
In parallel, we will begin ORION-4, our cardiovascular outcome study, in 2018.
We can confirm that the estimated cost for ORION-4, which will recruit 15,000 patients, is up to $150 million.
As the ORION-4 trial recruitment takes off, we will provide updated guidance on its rate of spending.
As stated previously, nonfixed sources of liquidity from the Melinta deal, namely the revenue earnouts and shares of Melinta stock, together with fixed payments in 2019, are expected to provide us a runway through data readout and filing of the LDL-lowering indication, NDA and MAA, towards the end of 2019 without the need to raise additional equity.
We are not providing specific guidance or estimates concerning nonfixed sources of liquidity, and we will not give further cash guidance at this time.
And with that, I will turn the call back over to <UNK>.
Bill (inaudible) we will happily open it up for questions.
Jess, it's Bill.
At this time, we're going to stick to the guidance that we just mentioned on the call from the perspective of the R&D for the LDL-lowering trial of $150 million over the course of 2018 and 2019 and the total cost for the outcomes trial of approximately $150 million; the expected headcount cost of $22 million, we expect that for 2018 and, of course, the onetime costs.
But beyond that, we're not ---+ at this point, we're not going to give any further guidance.
Again, I think we're going to stick with what we've stated, Jess.
<UNK> <UNK>, thank you, it's <UNK>.
First of all, thanks for the question on the quality of patients being enrolled.
Obviously, you're right.
They are being enrolled very quickly.
We have very stringent quality control steps to make sure the right patients get enrolled.
And for the LDL program that is currently enrolling as we've discussed, we have very frequent, more than weekly checks of baseline data and I'm happy to report, all of the baseline expectations, including LDL at baseline and including use of concomitant statins, absolutely being met with a very high degree of quality.
So good news is the speed is going well, but the quality is also very much where we need it to be and we're very pleased with both.
LDL at baseline, to remind you, in these ASCVD trials is 90 ---+ excuse me, is 70 or 100 milligrams per deciliter.
If the patient has secondary ASCVD ---+ I mean, if they've had a heart attack or stroke or peripheral artery disease before, then they have to have a qualifying LDL of 70, and they do.
And those who have risk equivalent disease as, for example, in the European trial, some patients have risk equivalent, they have to have an LDL-C of 100.
And then in the HeFH ---+ the heterozygous FH trial, the cutoff is 190.
So yes, all of those are being met by patients, included ---+ the count will actually be randomized through the IVRS system, the automated randomization system, without that being affirmed and, obviously, we check it very carefully.
So it's a good question.
I hope that's a helpful answer.
Now in terms of the pace of ORION-10, I think at this stage, all I can say is it's going very well, and we'll update you on the completion of enrollment as soon is it's done.
And again, we've been enthusiastic about its pace, and hopefully we can bring that in, in rapid order as well.
Yes.
So we're very encouraged by the Phase II data on homozygous FH, as you mentioned.
We have a series of patients now that have responded very well by and large.
And so we turn to the pivotal study, ORION-5, and the biggest issue, as you probably realize in homozygous FH, is finding patients.
We've been working to find these patients around the world.
I think we have a large cohort of people identified, who we will pull from.
Somewhere around 40 to 60 patients is what we need, but we've already identified a lot more than that, which will make recruitment hopefully go well.
However, the biggest question mark is how long should they be treated for.
As you may know, other drugs have been approved on relatively short periods of treatment, 12 or 24 weeks.
And we certainly don't believe that it's appropriate to take a homozygous FH patient and randomize them to placebo for 18 months.
That would be thoroughly irresponsible.
So we want to bring it down to a short period of efficacy treatment.
The homozygous FH patients don't contribute a lot to the safety data pool that we're building.
Most of those data come from the other trials.
So the ORION-5 study will be short.
And how short, we don't know.
We're actually discussing it with the regulatory authorities right now to see what they're most comfortable with, but it will be significantly shorter than the 18 months of therapy and follow-up that the other trials have.
And that's the uncertainty right now, just to finalize that last piece of the experiment.
Two very good questions, <UNK>, as always.
In terms of mortality, I think you're absolutely right.
Mortality is the secondary endpoint in ORION-4.
There's no certainty that it will show a mortality benefit, of course.
Why do we think it's worth pursuing and pairing the trial for.
Really because of the relationship ---+ long-established relationship between LDL lowering and mortality benefit.
When trials are large enough and effect sizes are demonstrated over a number of years, there has been an ability to demonstrate mortality benefit for LDL-C lowering.
And really, that's the, should we say, the basic rationale.
Whether or not FOURIER is indicative of some alternative view that LDL with a PCSK9 ---+ LDL lowering with PCSK9 inhibit doesn't ---+ is not associated with that mortality benefit, I think would be a bit speculative given the relatively short follow-up that they had and relatively broad risk criteria they used.
They didn't focus on especially high-risk patients.
Obviously, we'll learn more from ODYSSEY as well.
But we think it's worth pursuing and ---+ but I think if you're going to pursue the possibility of a mortality difference, you have to be very patient, and that's what we're willing to be.
But I agree with your point, it's not primary expectation, it's actually a secondary endpoint.
Esperion, look, I think that with 35 million people in the country ---+ in just the United States alone, who need further lipid lowering in some way, with the excellent work that's going on at Esperion, I think we can look forward to that drug being part of the landscape as well.
And we're excited about that, as everybody is.
So I think the more new therapies we have to be able to mix and match, getting patients' risk down as much as possible would be good.
And I believe that the Esperion compound will hopefully have a place ---+ a part to play in that.
The first is on the safety database to date for inclisiran.
Can you give a sense of the number of patient years of data we have had on the last DSMB review and how that might compare to the next review.
And then, a second question is on the salesforce for inclisiran.
Can you just give a general sense of what type of sales force would be well suited to market it.
Well, let me do those backwards.
I mean, I think it's a little premature to be thinking about salesforce.
The market is evolving very rapidly.
We don't quite know the indication yet.
We don't know the results.
So I'd be speculating a bit, <UNK>.
But physicians need education on new drugs, payers need information.
Which of those is selling and which of those is educating is becoming a bit blurred.
And how to do that is evolving in the industry all the time.
So give us a year or 2 and we'll come back on that one.
<UNK>te to avoid it, but it's just a little early to be speculative.
As far as the safety data is concerned, as we said on the 23rd, the DSMB met in the first half of January.
They had between 700 and 800 patients to review.
And they recommended the trials should all continue as planned.
As I said this morning, the next DSMB review is towards the middle of the year and that will obviously have a awful lot of more people to look at, potentially up to over 3,000 people by then.
So that will be helpful.
Our own blinded information, of course, we get serious adverse event information typically, and we get blinded data on laboratory values and adverse events continues to be accrued.
And as we've said I think before, we will update any material findings from that, but obviously, there haven't been any that I could report today.
Actually that's been an exclusion criteria for the most part, <UNK>, because we don't have any experimental pre-information about that.
Obviously, the main study where we're studying switching between one of the PCSK9 inhibitor and inclisiran is ORION-3, which is the extension study of ORION-1.
So we'll learn more about that, but for the large pivotal trials, having had a PCSK9 inhibitor recently was excluded.
That's a very interesting point.
A matter of considerable detail.
Frankly, I don't know.
It's a good question.
On the surface of it, I would be comfortable therapeutically, but you're right, it might be a useful study to do and something we can think of down the road.
At risk of negotiating against myself here, I think the short answer is, with therapeutic drugs, you should never be complacent about safety.
There is no point at which, even after a drug is on the market, you can stop being super vigilant.
So I wouldn\
All of these outcomes trials, including FOURIER and ODYSSEY, and what we plan to ---+ they're testing the effects of long-term lowering of LDL through PCSK9 knockdown or antagonism.
I think all of us would be very surprised ---+ I say all, most of us would be very surprised if the LDL lowering associated with Praluent is not also associated with improvement in MACE outcomes.
I think ---+ so we're certainly expecting a positive clinical outcome result.
Now there are nuances as everybody on the phone knows of patients that are being enrolled, end points that are being used, duration of therapy, all of which may show modest differences relative to the FOURIER trial.
Some might speculate a bigger effect size, some might moderate that expectation.
But we do expect it to affirm once more that cardiovascular outcomes are significantly lowered by LDL-C lowering when it's affected by PCSK9 monoclonal antibody.
And we're, obviously, very happy about that and for this whole field, the better the data are, the more happy we are.
Yes, we didn't make that perfectly clear, and the answer is over 4 to 5 years.
I want to make it clear that one $150 million is not being spent in the next 2 years.
That's the entire cost of the trial to its completion.
I think it's 1 dose for that study.
And the main way forward on that science, <UNK>, I think is to then take that information and change the inclusion criteria of your larger studies.
Meaning, loosen the criteria for renal function at entry to allow for people with worse renal function than before, now that we know that it's ---+ that the body handles it pretty well.
And so rather than thinking in terms of long-term data from a specific renal impairment study, I think you can perhaps look forward to data from larger trials, including LDL-lowering studies and outcomes trials, which include people with low GFR.
Yes, yes.
And hopefully, that will reflect the population at large.
As you know, a lot of people with cardiovascular disease have concomitant renal impairment and having the right cross section of the population might be useful for prescribers.
We're not going to make any comments about our partnering strategies at this time.
Yes, thank you very much, everybody, for attending today.
We're moving very quickly with this asset.
We think it's an extremely valuable asset, and one that can make a huge difference in health outcomes for patients.
And we also believe it will be the source of substantial increase in shareholder value.
We thank you for your support in all those matters.
Thanks a lot.
| 2018_MDCO |
2016 | GPOR | GPOR
#Thank you, <UNK>.
Welcome, everyone, and thank you for listening in.
As announced in the press release yesterday evening, during the first quarter Gulfport reported approximately $15.1 million of adjusted net income on $164.6 million of adjusted oil and natural gas revenues and generated approximately $96.7 million of adjusted EBITDA and $83.2 million of operating cash flow.
The first quarter was another solid operational quarter for Gulfport, highlighted by strong production from our Utica shale assets and our continued focus on efficiencies that led to decreases in costs across the board.
In addition, Gulfport improved upon our already solid balance sheet, completing a successful equity offering which provides us with the flexibility and optionality should we continue to see improvement in the forward curve.
Total net production for the first quarter averaged approximately 692 million cubic feet of gas equivalent per day, ahead of our previously-issued guidance of 670 million to 685 million cubic feet per day.
As we discussed in February, during the first quarter Rice completed ahead of schedule the lateral that now connects two of our existing dry gas gathering systems, which allowed us to end our previously announced voluntary curtailment.
In addition, while we did not have a completion crew running during the first quarter, we entered 2016 with an inventory of 15 gross drilled and completed dry gas wells from our 2015 program, which were all turned to sales and flowing by March 31.
Following the first quarter, Gulfport brought back a completion crew in the Utica and began exiting our planned 2016 completion activities in the play.
We currently forecast production during the second quarter to average approximately 664 million to 692 million cubic feet per day and reiterate our full-year production guidance of 695 million to 730 million cubic feet per day.
During the first quarter, before the effective hedges and including transportation costs, Gulfport's realized natural gas price settled at approximately $0.70 per Mcf, below the average Nymex natural gas last day settlement prices for the quarter.
As you can see from our production results, we brought online significant volumes during the first quarter within a matter of weeks and, when coupled with an unusually warm winter, we came in slightly above the high end of our previously-provided differential guidance.
We currently forecast a similar natural gas differential during the second quarter.
However, we reiterate our full-year basis differential guidance of $0.61 to $0.66 per Mcf off Nymex monthly settled prices.
We believe we will experience stronger differentials in the latter part of the year and continue to be very focused on and committed to obtaining strong realizations.
In addition, before the effect of hedges, our first-quarter oil and NGL realized prices came in as expected and we reiterate our expectation to realize approximately $7 to $8 off WTI for oil and $0.19 and $0.22 per gallon for NGLs during 2016.
On the hedging front, we realized a significant gain of $65.4 million in the first quarter of 2016.
In an effort to further protect the balance sheet and provide certainty to our realizations and cash flows during 2016, specifically over the summer months and the shoulder season, we recently layered on additional hedges for the year and currently have approximately 82% of our expected 2016 natural gas production swapped at $3.20 per MCF.
For 2017 we have a large base level of hedges to secure a healthy rate of return for a portion of our anticipated activities and currently have approximately 355 million cubic feet per day swapped at $3.08 per MCF.
Turning to costs, we remain focused on improving efficiencies in the field and continue to see economies of scale as our dry gas volumes grow.
With regard to well costs, our efficiency gains and further cost reductions from our service providers have resulted in savings of approximately $300,000 per well on future well costs, relative to our estimates provided in November 2015.
And we continue to pursue additional reductions.
In addition, as you can see in our financial results released yesterday evening, all operating expenses continue to trend lower as well.
During the first quarter, our per-unit operating expense, which includes LOE, production tax, midstream, gathering and processing, and G&A, totaled $1.08 per Mcfe, which is down 9% over the fourth quarter of 2015 and 28% over the first quarter of 2015.
First-quarter lease operating expense totaled approximately $0.26 per Mcfe, which is down 13% sequentially and 41% year over year.
First-quarter midstream processing and marketing expense totaled approximately $0.60 per Mcfe, down 7% sequentially and 10% year over year, and first-quarter G&A expense totaled approximately $0.17 per Mcfe, down 6% sequentially and 40% year over year.
As we stated on the fourth-quarter call, we expect all per-unit expenses will decrease further as we progress through the year, due to our focus on cost initiatives in the field and the addition of incremental dry gas volumes, ultimately improving overall margins.
We have provided a detailed breakout of our updated well costs and operating expenses by phase window on slide 23 of the presentation posted to our website yesterday evening.
And assuming today's strip pricing, we estimate wellhead returns in excess of 40% throughout our dry gas phase window of the play.
Moving to the balance sheet, Gulfport remains committed to keeping the balance sheet strong and preserving financial strength and flexibility for the Company.
During the first quarter, Gulfport successfully completed an equity offering, raising net proceeds of approximately $412 million.
Proceeds from this offering provide us with significant flexibility as we prepare for 2017 and contemplate the appropriate levels of operational activity.
As we look toward a potential rebound in natural gas pricing, this additional liquidity allows Gulfport to adapt quickly should we choose to begin adding back activity within the basin and ensures we do so while adhering to our core philosophy of capital discipline and conservative credit metrics.
Conversely, this serves as an insurance policy in a lower-for-longer pricing scenario.
As of March 31, Gulfport had approximately $454 million of cash on the balance sheet and an undrawn revolver resulting in over $925 million of liquidity.
Before we move to Q&A, let me touch on the current state of the natural gas environment and the key leading indicators we are closely monitoring as we think about our 2017 activities.
Number one, as we discussed in February, the North American shale natural gas rig count had decreased in excess of 60% over the past year with less than 50 rigs running in all of Appalachia at that time.
Today this number has decreased even further, with the most recent Baker Hughes data showing less than 40 rigs running in the Northeast, which is down from over 130 rigs at the peak of the cycle.
We continue to believe that dramatically lower rig activity must at some point correlate to meaningfully lower supply growth.
Current EIA data continues to indicate that production in the Northeast have plateaued at around 19 Bcf per day.
And while the Northeast production supply growth is slowing, we are seeing evidence of material declines in production from associated gas; conventional gas in the higher cost shale basins such as Haynesville, Fayetteville, and Barnett.
Net-net North American gas supply appears to be demonstrating early evidence of a rollover.
Number two, meanwhile, the demand side of the equation as we enter 2017 is encouraging.
The increased demand from power generation, coal-to-gas switching, start up of the LNG exports, and increased exports to Mexico are materializing today, increasing the overall demand pool for North America natural gas.
This data suggests that the supply and demand rebalance is no longer just wishful thinking.
The natural gas markets are becoming more efficient as time passes and numerous key indicators are all pointing towards an improvement in pricing during 2017.
As the macro environment continues to improve, we are preparing today to implement the appropriate operational and financial strategy that will allow us to increase activity levels promptly, when warranted, to ensure that Gulfport will be an active participant in an upward swing of the commodity cycle.
In summary, our high-quality assets, low cost structure, strong balance sheet, and current liquidity have uniquely positioned Gulfport to not only endure the challenges during a depressed commodity price environment, but also be poised to capture the value associated with improved pricing and accelerated activity should natural gas prices strengthen.
This concludes your prepared remarks.
Thank you again for joining us for our call today and we look forward to answering your questions.
That's a good question, <UNK>.
Since November we've seen about a $300,000 reduction in our leading-edge AFEs.
And just to remind you, since the peak of the cycle, including the most recent savings, we brought down well costs by 34% to 40%.
These cost savings that we've seen over time are both from efficiencies and also from continuing RFP processes.
In fact, we just finished another round and I will let <UNK> jump in here and <UNK> and talk about that as well.
They have been working on it over the past several months.
I do think there's some additional savings, both through service cost reductions, but also mainly probably at this point through efficiencies.
But I will let the guys jump in and comment as well.
<UNK>, this is <UNK> <UNK>.
Just like <UNK> said, we are seeing less days on location and that really, quite frankly, is the definition of efficiency for us.
Less pad days equates to less costs, or quite a bit of savings.
Over the last year, as an example, we had a goal set for fracks at six stages per day and at the end of the year we came in just under that, around 5.9.
But if you do the math on that, roughly where we are today at eight stages per day that knocks down, if you do the math, on an average well you can go from about 36 days on pad to 22.
That equates to a significant savings.
So those are the kind of efficiencies we are seeing on all phases of our completion line.
Not overkill this, <UNK>, but one comment I do want to make is, while we continue to work with service providers and drive efficiencies down, we are certainly not making any decisions that would sacrifice well quality.
So we are going to make sure we keep delivering industry-leading wells.
We will cut costs where we can.
We do postmortems of every well that we drill to see where we can be more efficient, but we will never sacrifice well quality in doing it.
Yes, so we're going to run ---+ it looks like we're going to have two completion crews running.
We've got one now.
They can handle actually most of the activity that we need.
We may bring in a second one at some point in time, but with the efficiencies that <UNK> mentioned from our completion side, I think that completion crew can handle everything we need to do this year.
I will let <UNK> jump in here, too.
I'd say, on our side, we are certainly planning ahead on the long lead-time items if and when there's an opportunity to ramp up, getting ahead on permitting, unitizations, pad construction.
But on the service side, I will let <UNK> comment on that.
You know, that's an excellent question.
I think ---+ our thoughts on M&A activity really haven't changed.
I think we're in a little different position than some folks because we have a large inventory of undeveloped locations.
We've been pretty vocal about saying we don't necessarily think we need more undeveloped acreage.
Obviously, we would like to have an opportunity to get some production reserves and cash flow.
I just haven't seen the right kind of opportunities for us in the core area.
So I think we are pretty heads down, focused on developing our acreage.
And the equity raise, while certainly could help us pick up acreage here and there, it was really a defensive posture for a lower-and-longer scenario and also an offensive strategy to enable us to think about activity levels in 2017 in a different way.
I think certainly you have to begin now thinking about 2017 and what your thoughts are and levels of activity.
As you can see from the well economics in our slide deck, we make really attractive returns at $3 gas, over 40%.
And I'm sure from your own model, you can see the between $3 and $3.50 we could certainly support a higher level of activity.
Again, as I mentioned just a little bit ago, we're trying to get ahead on the long lead-time items that don't cost a lot of money: creating a bullpen of pads, making sure we are ahead on midstream development, permitting.
I would say we are planning ahead for an increase of activity.
As to when we make those decisions, I think a lot of things have to happen so we're watching ---+ certainly watching supplies.
We're watching gas price to make sure that this is not just a temporary phenomenon.
Watching inventories, watching winter forecasts.
A lot of things are indicators for us as to what our thoughts should be about ramping up.
And so <UNK> may have a few comments, too, on this.
Thanks, <UNK>.
<UNK>, it's <UNK>.
I think, as <UNK> mentioned, we're encouraged with the fundamentals that we are seeing for 2017, but I think it's worth highlighting a couple more things on top of what <UNK> talked about.
The first is that, as we talked about in February, we expect to have pretty strong exit-to-exit growth this year at a rate of 15% year over year.
And then, secondly, you talked about hedges for 2016.
We actually have a pretty good hedge book in place already for 2017, so we will look to be opportunistic to layer on there.
But we already feel pretty good about where we are, not just from an operations point of view, but from a financial liquidity and hedging point of view as well for 2017.
First of all, <UNK>, we've been pretty open about saying that we would like to monetize those non-core assets and we'd hoped actually that 2015 was the year that we could do that.
However, quite frankly, southern Louisiana continues to operate pretty efficiently for us.
We have allocated a maintenance budget to them this year, and with a small amount of dollars they are able to throw off their own cash flow and certainly keep the production flat.
So I think my response to that is at some point we will consider monetizing those non-core assets, but our attitude is they are not a physical or financial distraction to Utica.
So as long as they continue to support themselves, we're ---+ we're not in the position, I guess, that we need to give them away.
Obviously, it's hard to sell that kind of an oily asset right now, although there's been some improvement in oil prices.
But, at some point, we may have the right environment.
But again, we don't need it for a liquidity event.
We have got plenty of liquidity and so we have the luxury of being patient, waiting till the markets recover.
Are you talking about wet gas or are you talking about condensate.
We are going to hang out ---+ we're hanging on to our wet-gas acreage.
We like our wet-gas acreage and we do think that ---+ hope and think that prices will recover to a point where we start developing over there again.
Now, we have strategically ---+ certainly we are letting our oil acreage expire, which is not very much.
We never lease much over there.
And our condensate acreage, generally, we're not renewing those leases, although we do have an area that we like that we're going to hang on to.
But we are still trading acreage with other operators back and forth, so there are other ways to augment your acreage package other than just letting acreage expire.
But certainly we are not going to let wet-gas acreage go and certainly not dry-gas acreage.
Well, you know certainly that most of our inventory is in the dry gas window.
I think right now our wet gas locations that we have left to develop are only 12%.
We have ---+ we do have some wet gas pads and we probably will complete a few of those later this year.
But in a time when capital is precious, obviously you are going to stick to your most economic windows.
Right now, all of our activity is in the dry gas window and that's where it will remain for now.
We are certainly still at this point at 1,000 feet, but, look, we're encouraged by the movement in gas prices.
We will find the right time to go back to 750-foot spacing, because we do feel like that's the right way to develop this play.
But, for now, we're still focusing on 1,000-foot spacing.
Thank you, Latanya.
We appreciate your time and interest today.
Should you have any questions, please do not hesitate to reach out to our investor relations team.
This concludes our call.
| 2016_GPOR |
2015 | EBS | EBS
#Thank you, John.
Good afternoon, everyone.
Thank you for joining us today as we discuss our financial results for the third quarter and first nine months of 2015, our forecast for full year 2015, and our operational goals for the year.
As is customary, our call today is open to all participants and, 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.
There will be a Q&A session at the conclusion of our prepared comments.
Other members of senior management will be available to participate.
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 statement related to our business, future events, our prospects or future performance.
These forward-looking statements 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, so please review our filings 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 income, EBITDA and adjusted EBITDA, and the reconciliations between our gap financial measures and these non-GAAP financial measures.
For the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on November 5, 2015.
Since then, Emergent may have made announcements relating 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 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 investor's home page of our website.
And 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'll give an overview of the third quarter financial results, provide an update on our previously announced BioSciences business spinoff, and highlight some of our recent business achievements.
<UNK> <UNK>, our chief financial officer, will finish with a more detailed discussion of our financial performance.
Let me start with our financial performance for the quarter.
As you can see by our press release earlier today, we reported a very strong quarter with total revenues of $165 million, a 20% increase year-over-year.
Our GAAP net income for the quarter was $37 million, and adjusted net income was $40 million.
That represents a year-over-year increase of 69% and 59%, respectively.
As we announced in our press release today, we are increasing the lower end of our 2015 revenue guidance and reaffirming our guidance for net income.
Now let me highlight a few of our key business and operational developments.
During our August earnings call, we announced our plan to pursue a tax-free spinoff of our BioSciences business into a separate, standalone, publicly-traded company.
The new company will be called Aptevo Therapeutics.
As we stated earlier in the year, the spinoff will enable each company to pursue its own unique and focused growth strategies and plans.
Emergent will focus on biodefense, emerging infectious diseases and other public health threats.
Aptevo will focus on the highly attractive immune-oncology field.
We continue to make progress in this transaction and plan to announce the Aptevo board of directors and senior management team in early 2016.
We also anticipate filing the Form 10 with the SEC late in the first quarter of next year with a target to complete the spinoff by midyear.
I will now discuss our progress in our 2015 operational goals.
We have secured two product approvals and launched two new products in 2015.
Our first product approval and launch this year was IXINITY, a new treatment for hemophilia B in adults and teenagers.
The launch has gone as planned since we announced approval in April and started shipping product in June.
Both patients and healthcare providers have responded very positively to having this new treatment option available to them, and we expect revenues to continue to increase as IXINITY gains market share.
In August we announced the further expansion of our medical countermeasures portfolio with the launch of Emergard, a military grade autoinjector.
Emergard is designed for intramuscular self-injection of antidotes and other emergency response medical treatments that can address exposure to certain chemical agents and other similar emerging health threats.
We have commenced sales internationally to multiple allied governments and we are seeing strong demand.
Further, we see significant demand for Emergard in the US government market and have established our plans to address this unmet medical need.
Another goal for this year is to finalize the sBLA submission for Building 55, our large-scale BioThrax manufacturing facility.
First and critically important, the pivotal rabbit final study report has now been finalized with the primary endpoints of lot consistency and noninferiority all confirmed to have been met.
Further, in our recent meeting with the FDA to review sections of our submission, the FDA acknowledged that our facility is ready for inspection.
The FDA has also requested that we perform a reanalysis on one of the more than 30 assays used for comparability before filing our submission.
We are pursuing two alternative paths in parallel either of which could address this.
One path could be finished quickly; the other should be completed in the first half of 2016.
Under either scenario, we anticipate no adverse impact to our 2016 financial performance, as we expect to manufacture BioThrax in Building 55 on an ongoing basis following our expected German approval of the facility in the first half of next year.
That will enable us to deliver doses to the CDC under the anticipated multi-year follow-on contract that would commence in Q4 of next year.
On that point, we have had an initial meeting with the CDC to discuss the follow-on multi-year procurement contract to address the stated requirement of securing 75 million doses of an anthrax vaccine for the Strategic National Stockpile.
We are now targeting a follow-up meeting in early 2016 to begin negotiating the next contract.
This is right in line with where we expected to be at this point.
As many of you know, 2015 marks the end of our current multiyear growth plan that we announced in 2012.
In summary, we are on track to meet or exceed our goals for revenue, net income growth, and the number of products in our portfolio.
We are particularly pleased with our net income growth.
At the midpoint of our 2015 forecast, our net income CAGR over the three-year period exceeds 30%, which is more than double our target growth rate.
We are finalizing our next growth plan, which will be a five-year plan taking us to 2020.
This plan will be presented in January at the JPMorgan Healthcare Conference in San Francisco in concert with the announcement of our preliminary 2015 financial results and the forecast for 2016.
That concludes my prepared comments and I'll now turn the call over to <UNK> <UNK> for details on our financial performance.
<UNK>.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining our call.
I would first like to make some general comments about our financial results for the third quarter of 2015 compared to last year, and our performance year-to-date.
I will then comment on our balance sheet, focusing on our cash position, before finishing up with details related to our revised 2015 forecast.
From an operational perspective, we had an exceptional quarter.
And, in fact, our financial performance during the period was the strongest in the Company's history.
For the third quarter, total revenues were $164.9 million, or $27 million above Q3 of last year, a 20% improvement.
The increase in revenue is primarily due to BioThrax sales during the period.
Gross margin on product and CMO revenue for the quarter was 72%, which is above our normal range of 60% to 70%, and again reflecting the significant product contribution of BioThrax revenues during the period.
Gross R&D spend for the quarter was $41.9 million, a $2.3 million decline versus prior year, taking into account the offsetting effect of our contracts, grants and collaboration revenues.
Our net R&D spend for the quarter was $12.2 million.
This is a significant increase versus prior year and it is the result of the recognition in Q3 of 2014 of $15.3 million in the upfront fee that we received from MorphoSys related to the ES414 collaboration agreement.
SG&A for the quarter was higher year-over-year by $1.3 million due primarily to IXINITY launch costs and professional services to support our strategic growth initiatives including the proposed spinoff of our BioSciences business.
For the quarter our GAAP net income was $36.9 million, or $0.79 per diluted share versus $21.8 million, or $0.49 per diluted share in the same period of last year.
On an adjusted basis for the quarter we earned $39.8 million, or $0.83 per diluted share, versus $25 million, or $0.54 per diluted share, in 2014.
EBITDA for the third quarter was $61.8 million, or $1.29 per diluted share, and adjusted EBITDA for the period was $63.2 million, or $1.32 per diluted share, again reflecting the significant contribution of BioSciences revenues during the periods.
Turning to the year-to-date performance, the nine-month financials reflect the continued fundamental strength of the core business aided by the Company's efforts to manage net R&D costs and control SG&A expenses.
For the nine-month period of 2015, our GAAP net income was $29.5 million, or $0.69 per diluted share, and after adjustments our year-to-date adjusted net income was $38 million, or $0.81 per diluted share.
EBITDA year-to-date was $71.5 million, or $1.52 per diluted share, and adjusted EBITDA for the period was $75.6 million, or $1.61 per diluted share.
Across-the-board, our bottom line performance year-to-date is substantially improved year-over-year.
Turning to our balance sheet, it continues to reflect a strong capital position highlighted by our cash balance at quarter-end of $309 million along with an accounts receivable balance of $57 million.
As we have communicated in the past, our priorities related to capital deployment will continue to be focused on acquisitions that are synergistic with our core business, CapEx in support of our core business, and, third, consideration of stock buybacks and dividends.
Finally, as a result of the financial performance year-to-date, we are revising our full year revenue forecast by raising the lower end of the range by $10 million so that it now reflects a range of between $520 million and $540 million of revenue.
As for our full year earnings forecast, we are reaffirming our previous forecast of $50 million to $60 million of net income on a GAAP basis, and $60 million to $70 million of net income on an adjusted basis.
That concludes my prepared remarks and I'll now turn the call over to the operator for the Q&A session of the call.
Operator.
Thanks for joining the call, <UNK>, and thanks for the question.
No, they are mutually exclusive.
Both would allow us to pursue licensure and submit the application, so they are independent and both would be acceptable.
Sure.
So, the first question is a very good question in terms of the ability to [spin and acquire] at the same time, and it really does depend on what particular acquisition might be the subject of the deal.
Certainly, a product acquisition is different from a full company acquisition.
So, depending on what type of acquisition we're looking at, our capabilities to integrate will differ.
I think the other thing I would point out is it does take time between negotiating, signing and closing a deal.
So, I would expect that the spinout would not impact our ability to consummate one or more acquisition transactions, whether it's a product, a portfolio of products or a company.
Around the allocation of the R&D, <UNK>, do you want to handle that.
Sure.
<UNK>, thanks for the question.
Again, I think, again, it's safe to say that historically our approach to biodefense R&D, as we've talked about a number of times on the calls, is that we historically have wanted to keep that pretty much expense-neutral.
So, we are willing to spend money in R&D as long as it is funded by some type of government contract.
So, when you look at historically our net R&D, the net is really heavily weighted toward the biosciences portfolio.
So, as we talked about a bit on the call on August 6, we kind of outlined what we thought would be or could be achieved in terms of the split in overall impact on EBITDA in that $40 million to $50 million range.
So, I think with what we've reported in that kind of guidance you can get a good feel for what to expect going forward.
That's a great question.
I don't have an expectation either way.
There are some notice requirements that they must follow before the contract is awarded.
My experience is we can have some discussions with them ahead of any kind of notice coming out, but how they actually manage this particular negotiation, obviously not in our control.
If it's per history, I think we can have discussions with them and extensive discussions ahead of a formal notice being issued.
Okay, thanks for joining the call, <UNK>.
Good to hear your voice.
So, in terms of the contract, there is no standard.
It really is around reaching final agreement on all the key terms.
They certainly know what the current contract provides for in terms of duration and deliveries, and they clearly continue to have an expectation of continued supply.
So, I can't give you a definitive date.
We will know a lot more as we engage in the negotiations with the CDC.
Perhaps we will be in a better position to give guidance early next year in terms of likely timeline.
But I think that's probably the best I could say about that.
Ex-US, yes, I think the plan, as I outlined, is we're looking for German approval sometime in the first half of next year.
That will enable us to start triggering the manufacturing operations at Building 55, not only for the ex-US market, but in anticipation of delivering to the CDC.
And that production would be on an ongoing basis.
And the demand, we do have orders.
They are limited, and now is the time to start looking at the international market and determining how best to address it.
This is only a German approval, as we've described in the past, and we would want to now expand that approval across Europe through the mutual recognition process.
And we have targeted countries that we've identified in terms of prioritization for that registration.
So, it's the beginning and we look forward to expanding that market as time goes on.
And the last on the assay.
So, yes, I think the 30 assays were all well known to the FDA, they understood the parameters.
So, this is not something out of the blue in terms of what kind of assay is this and what does it mean.
I would say pretty much ordinary course, normal course, answering typical questions that the FDA would like to hear responses to.
So, on the M&A, we have a number of opportunities that we are evaluating there in various stages.
It would be premature for me to sort of gun-jump and give an expectation.
We are coming up on year-end.
It is a key focus for us, as you know, as we've said over the years to our growth strategy.
You know, you've known us long enough, we're very disciplined about M&A and these processes take some time.
So, I'm not all disquieted by where we are in the M&A process and we look forward to continuing to build the business through organic growth but as well through M&A.
And on the Aptevo spin, we really do believe it's a tremendous value creator for our shareholders.
It creates real opportunity to realize the value associated with the ADAPTIR technology.
It is intended to be tax-free, so no consequences to Emergent from a tax perspective.
Shareholders will receive the shares tax-free.
If they see the value that we anticipate could be realized, they'll hold it.
If they would prefer to see the cash benefit of the distribution, then they can realize that through a sale of the shares.
So, I think it provides tremendous flexibility for the shareholders and tremendous value creation for the shareholders as well as for the Company moving forward.
Yes.
The plan has not changed in terms of funding of the spinoff.
I will finalize those numbers as we get closer to filing with the SEC.
And the R&D question, <UNK>, I guess that's yours.
So, the steep jump, <UNK>, in R&D on a net basis, was that the question.
Yes.
So, the increase is really reflective of, <UNK>, in the third quarter of last year we had about $15.3 million associated with the MorphoSys collaboration agreement recognized in the quarter.
So, when you look at netting that out in Q3, it's kind of an artificially low number in the third quarter of last year.
Thanks, <UNK>, for joining the call.
We have in fact talked to the FDA about trying to coordinate that.
They understand from our perspective that could be preferable.
Preliminary indications were that they thought that might be workable as well, but they haven.
t committed to any timeline either for our inspection or for the inspection of Building 55.
So, we're sort of in a wait-and-see mode to see what ultimately happens.
And in answer to your second question, no, we haven't received our inspection as of yet.
It's really hard to second-guess what the FDA is ultimately going to do.
So, I don't want to give you a bum steer on that.
It really is entirely in their court.
We have expressed our desire and view on efficiency for our operation and for their inspectors.
They seem to acknowledge there is some benefit in that, but they are, as you know, free to do whatever they want to do and it's really out of our control.
That's a great question.
I think there has been a renewed awareness and interest and desire of the federal government to not only continue to protect the nation in the areas where they currently are focused in, but they are also expanding their focus beyond what has traditionally been the threat areas of concern ---+ small box and anthrax and botulinum and the like.
So, funding is going up.
The scope of responsibilities are going up, and what we expect to see is shoring up and expanding the capabilities of the government to protect the nation.
So, that is a long-winded way of saying we don't see any change in the appetite or the focus on addressing the threats to the country and doing that through the kinds of countermeasures that we manufacture and supply.
Thanks, John.
This is <UNK> <UNK>.
Before we conclude, my colleague, <UNK> <UNK>, wants to address the one question earlier.
So, sorry, <UNK>, you got cut off there before I could respond to your question about the 3Q R&D expense compared to Q1 and Q2.
I think if you look at how the R&D expense has been trending, not necessarily on a quarter-by-quarter basis, but more broadly on a trailing 12-month basis, you will continue to see that come down.
There are ins and outs quarter-over-quarter.
For example, earlier this year we had a $5 million payment associated with the initiation of the Phase 1 of ES414 that tends to knock down that earlier quarter number.
So, I think, again we can look at it quarter-by-quarter, but it's going to be a little bit choppy.
But the most important thing is just look at how the trailing 12 months are trending and I think you'll see a good trend there.
Great.
Thanks, <UNK>.
With that, ladies and gentlemen, that concludes the call.
Thank you for your participation.
Please note an archived version of the call and the webcast of today's call, specifically, will be available later today and accessible through the Company website.
Thank you all once again for participating and we look forward to speaking to all of you in the future.
Goodbye.
| 2015_EBS |
2017 | NATI | NATI
#Good afternoon.
During the course of this conference call, we shall make forward-looking statements, including statements regarding future growth and profitability, future restructuring charges and our guidance for revenue and earnings per share for the third quarter of 2017.
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 on February 16, 2017, and our quarterly report on Form 10-Q filed on May 1, 2017.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.
With that, I will now turn it over the Chief Executive Officer of National Instruments Corporation, Alex <UNK>.
Good afternoon and thank you for joining us today.
My key messages today are revenue of $319 million, a record for a second quarter; core revenue growth of 7% year-over-year; and non-GAAP net income of $35 million, up 21% year-over-year and a new record for a second quarter.
I'm pleased with our execution in Q2 as we continue to drive toward our revenue and profitability goals.
This quarter, we saw core revenue up 7% year-over-year and record revenue for a second quarter and for a first half.
We believe that alignment of our product and channel investments towards the growth opportunity areas of 5G communications, semiconductor tests, the connected vehicle and the Industrial Internet of Things continue to move our platform closer to our customers' challenges.
These investments help increase our impact within these opportunity areas and will help our customers speed time-to-market, reduce cost of test and limit cost pay downtime.
I'm pleased with the results that we saw across all 3 regions during the quarter as well as the revenue growth within automotive, wireless and semiconductor tests.
Looking at order size, we saw strength in Q2 in orders over $20,000, driven by system-level products like PXI.
Orders under $20,000 were flat year-over-year and we saw weakness in PC data acquisition products related to the weakness in the broader PC market.
Software products saw continued year-over-year revenue growth in Q2 as price agreements continue to be a strong driver of adoption of our software tools in major accounts.
This quarter was particularly exciting as we unveiled significant software launches at NIWeek.
LabVIEW, our flagship software and enabler of our platform accelerates our customers' productivity and as a result, continues to be a strategic driver of loyalty in our customer base.
The latest release includes new ways to measure and connect to the Industrial IoT, including the new LabVIEW Cloud Toolkit which connects LabVIEW applications to Amazon Web Services and additional support for Python.
This release also expands the reach of LabVIEW to new users in the engineering design flow, including technicians that need measurement and analysis capabilities.
With our programming, many new users can take measurements, visualize data and perform analysis to simplify iterative and common tasks in design and tests.
In addition to the LabVIEW release, we added a new category of software value-add for our customers with the announcement of our new system management software.
This product called SystemLink is a new monetization opportunity for NI.
It will help production intense-facilities optimize asset utilization by centralizing software and data management on distributed test systems.
These releases and the rapid innovation enabled by our software platform refresh will help us to meet the demands of a growing number of users with diverse needs.
The value of our software driven by development efficiency, ease of hardware integration and enterprise access to data ensures that we continue to deliver new value to our broad base of software users.
PXI instrumentation and RF products have continued year-over-year revenue growth in Q2.
Over the past 20 years, the NI PXI portfolio has grown to include hundreds of products, spanning the measurement needs of thousands of automated test customers.
In the past year, we have seen the second generation vector signal transceiver continue to drive penetration of PXI and the NI platform into new measurement and test applications at the cutting edge of communication prototyping and semiconductor production tests.
At NIWeek this year, we heard from Analog Devices, how the PXI platform is helping to meet production timelines and budgets for new semiconductor products.
We also heard from an alliance partner in our ecosystem, NOFFZ, about how PXI has enabled them to meet the production test needs of a wide range of products like wireless modules, gateways and router systems.
In developing these systems, a large part of our partners' time can be spent integrating mechanical, electrical and safety infrastructure which tend to be standard across many applications.
To help speed their system development, we announced more complete system configurations and services which will enable partners and customers to purchase complete test systems from NI.
For our customers, this reduces the number of vendors for streamline purchasing and for NI, we can increase sales efficiency by delivering systems faster.
At NIWeek, customers in automotive, aerospace and semiconductor showed how many new data NI data acquisition products are pushing the limits of measurement technology.
We showed that these products can validate performance of battery stacks and electric vehicles, measure power consumption of low power integrated circuits and characterize high-speed acoustic signals like shock waves.
By increasing measurement voltage, bandwidth and precision, we're expanding the capability of our platform to serve the real-world measurement needs of new technologies.
In Q2, CompactRIO saw significant customer interest in the areas of energy and advanced control and monitoring.
CompactRIO is ideally suited to take advantage of the ubiquitous connectivity in edge analytics needed for the Industrial Internet of Things.
Combining the latest in FPGA and application processor technology with NI software enables our customers to integrate more sensing, more analysis and more control into the systems of the Industrial Internet of Things.
For example, at NIWeek, Blue Origin showed how they use CompactRIO to automate dozens of test cells in parallel to meet their aggressive launch schedules.
Also at NIWeek this year, our customers showed how our platform and ecosystem helps them harness the power of the exponential trends driving our industry and our world.
Moore's Law, the explosion of intelligent devices and the rise of big data can be overwhelming but when harnessed, can bring self-driving cars to our roads, make everyday objects smart devices and enable new methods of high-speed transportation.
With thousands of NI customers in attendance including AT&T, DARPA and Valeo, NIWeek is proof point in the industry for technologies from 5G to driverless vehicles.
Not only are they becoming a reality, but our platform is significantly accelerating their path to market.
Wireless communication, particularly 5G has been moving rapidly and accelerating toward first deployments.
With strong revenue growth in the first half from our software-defined radio products, our customers continue to demonstrate the value of the NI platform and our differentiated position within 5G, as they grow the number of deployments used to test and validate these technologies.
Each year in NIWeek, our customers demonstrate major steps towards market viable 5G communication.
And each year, we see how the NI platform is helping them meet these accelerating timelines.
For example, AT&T is using the NI platform to measure the signal effects of the real-world environment on new wireless transmission frequencies.
By better understanding attenuation and distortion in the real world, the researchers at AT&T labs can create more robust transmission schemes and ensure more reliable connectivity.
This example as well as others from Nokia, Samsung and the University of Bristol showcase our product and channel coverage within research and development.
Given our long history with automated production tests, we believe we are in a unique position to serve the needs of these companies as 5G technology moves out of the lab and into products.
Thank you.
And I will now turn it over to our Chief Financial Officer, <UNK> <UNK>, for the financial update.
<UNK>.
Thank you, Alex, and hello, everyone.
This is my first earnings release at National Instruments and I am proud to be part of such a strong and respected company.
Today, we reported Q2 revenue of $319 million, a record for a second quarter.
Revenue was up 4% year-over-year.
Core revenue which we define as GAAP revenue excluding the impact of our largest customer and the impact of foreign currency exchange was up 7% year-over-year.
Looking at our operational results, non-GAAP gross margin in Q2 was 75%.
Total non-GAAP operating expenses were $194 million, relatively flat year-over-year.
Our non-GAAP operating margin increased by 140 basis points year-over-year to 14%, demonstrating commitment to our new operating model.
We reported net income of $25 million with fully diluted earnings per share of $0.19.
Non-GAAP net income was a second quarter record at $35 million or $0.27 per share which represents a 21% increase in earnings versus the second quarter of 2016.
Included in our GAAP net income is $4 million of restructuring charges.
A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.
Now taking a look at order trends in more detail.
For Q2, the value of our total orders was up 5% year-over-year in U.S. dollars.
Included in that total is $12 million in orders received from our largest customer compared to $18 million in Q2 2016.
Revenue from our largest customer was $10 million in Q2 compared to $14 million in Q2 2016.
Now breaking down our Q2 order values.
Excluding our largest customer, orders with a value below $20,000 were flat in the second quarter.
As an indicator of the strength of our systems business, we saw all orders over $20,000 up 15% year-over-year.
Orders with a value between $20,000 and $100,000 were up 1% year-over-year, adversely impacted by the soft spending by the U.S. government due to the late budget approvals, while orders with a value over $100,000 were up 42% year-over-year.
We believe the systems order growth is indicative of the value of our innovative platform and the strength of our direct customer relationships.
We continue to be deliberate in our sales channel investments in order to optimize our overall customer coverage and support our growth goals.
Moving to the balance sheet and capital management.
During the quarter, we paid $27 million in dividends, continuing our history of returning value to our shareholders.
We ended the quarter with cash and short-term investments of $368 million at June 30, 2017, and the NI Board of Directors have approved a quarterly dividend of $0.21 per share.
Now I would like to make some forward-looking statements.
Included in our guidance for Q3 2017, is approximately $6 million in revenue from our largest customer compared to $8 million recognized in Q3 2016.
Given our historic seasonality trends, we currently expect total revenue in Q3 to be in the range of $304 million to $334 million.
The midpoint of this range represents a new revenue record for a third quarter.
We expect GAAP fully diluted earnings per share will be in the range of $0.16 to $0.30 for Q3, with non-GAAP fully diluted earnings per share expected to be in the range of $0.22 to $0.36.
Included in our Q3 2017 GAAP earnings per share guidance is approximately $1 million of restructuring charges.
As of June 30, headcount is down 2% from December 31, 2016.
For the full year, we estimate the impact of restructuring charges on net income to be approximately $7 million to $8 million.
On other housekeeping items, we estimate that given current exchange rates, the impact of foreign currency will be minimal in Q3.
We continue to expect total non-GAAP operating expenses to be up approximately 1% year-over-year in the second half of the year.
In summary, we are encouraged by the strong order growth in Q2 and our focus on disciplined expense management.
We believe this focus will keep us on the right path as we move forward toward our growth and profitability goals this year and in 2018.
As data forward-looking statements, I must caution you that our actual revenue, expenses and earnings could be negatively affected by numerous factors, such as any weakness in global economies, fluctuations in revenue from our largest customer, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rates.
We will be participating at the Oppenheimer Conference and the Jefferies Summit in Chicago in August, the Deutsche Bank Conference in Las Vegas in September and the Stifel Conference also in September.
We look forward to seeing you there.
With that, I'll turn it back over to Alex for some closing comments.
Thank you, <UNK>.
I'd like to close today by thanking our employees for embracing our mindset of growth and profitability.
We made good progress towards our goals in the first half, with record revenue and 26% year-over-year growth in our non-GAAP net income.
This positions us well to deliver on our leverage goals for 2017 and for 2018.
Thank you, and we will now open up for your questions.
So for the ---+ helpful for all of us here would be helpful to note from you.
Any qualitative color you can give us into the back half and ideally into next year in terms of end markets, any specific customer segments, any specific categories of order transactions.
And where I'm coming from is it really helps us better model and think at the segment level, at the use case level and ideally, at the order category level.
Sure.
So <UNK>, as we look out into Q3 ---+ why don't we talk about Q2 first.
From an industry point of view, space and semi and automotive and communications, we saw some definite weakness in U.S. government spending in Q2.
As we look into Q3, we're really guiding based on our historical trends into the third quarter and at this point, we're not assuming any bounce back in U.S. government spending in Q3 at this point.
We'll see how that plays out as we go through the third quarter.
On the longer-term trends, we continue to be encouraged by the continued strength in Global PMI.
We're seeing some evidence from the semiconductor companies, both in analog and recent results from Intel and others that there is some underlying strength building in the industrial economy.
We certainly hope that, that plays through into the second half of next year and that's quite encouraging.
But obviously, we're only giving guidance at this point for the third quarter.
A quick follow-up for <UNK>.
<UNK>, you might have a certain thought process of improving EBITDA margins incrementally or the operating performance of the company.
How is it tracking versus your own internal goals and what might be some of the levers we could see for improving EBITDA margins incrementally as we head into the back half and into next year.
Hi, <UNK>.
We continue to be very focused on executing to the operating model that we presented at NIWeek.
And from what we're looking at right now and our guidance for Q3 reinforces that model is going to play through.
We've got the guidance for second half operating expenses at a 1% growth year-over-year, and we believe that's right in line with where we intend to be from that operating model perspective.
I guess, my typical housekeeping questions to start.
Could you help us with the employees x in the quarter and the average order size.
Sure.
The employees, so the headcount, <UNK>.
It's right about 7,400 heads, 7,398, to be exact and that's a 2% decline from December year-end.
And then the average order size that we saw was up 10% year-over-year at $5,900.
And then are we still expecting a 21% tax rate for the full year.
We are.
That's our outlook at this point, yes.
Perfect.
And then the orders of $100,000-plus growing 42% year-over-year is incredibly impressive.
Can you comment on drivers by maybe geography or end market where those orders are coming from.
And are we right to think that these orders could take multiple quarters to fulfill, meaning on top of your industrial commentary, Alec, that this bodes well for back half of the year.
Yes, certainly, when we look at system level business, in particular, it's kind of moved a little bit between the two brackets.
But orders over $20,000 have been up 15% and the aggregate is a very encouraging sign for that strength of the areas of business that we're focusing.
As I said earlier on, semi, automotive, communications is driving that.
Those industries look pretty healthy right now, so that's encouraging as we look forward.
And while we're being somewhat conservative as we look at the guidance here, we're just going with the historical pattern of being flat from a seasonal point of view.
The majority of the trends we watch are displaying positive signals.
And that answer, I think, dovetails nicely into the guidance because I think at the midpoint, you're looking for 4% growth.
You said that FX impacts are expected to be minimal.
And I think, given the large customer revenue that you provided us for 3Q, it looks like that's about a 50 bps headwind.
So is it conservatism that has you decelerating your core from 7% just reported to what appears to be about 3.5%.
Or is there something else that's fundamentally decelerating.
No, I mean, I think the fundamental indicators and structural elements that drive our business are healthy.
As we go into Q4 and into second half, we want to make sure we're delivering on the expectations that we set as we move forward.
We have had very good profitability growth in the first half of the year.
We want to deliver record revenue, record profit for 2017 and we want to be well positioned to deliver on our operating leverage goals as we move into 2018.
And, <UNK>, let me add to that.
I just want to add, the midpoint of our guidance just puts us at a 5% core revenue growth.
Great.
And then <UNK>, your first guidance as CFO of the company, are there any material shifts into how you're setting expectations relative to prior NI practices.
I can't speak entirely to the previous NI practices, but I am certainly holding people accountable for focusing on our operational target and being very focused in execution and driving what we say we're going to do.
Rick, thanks very much.
So let me take the test and answer your questions.
Last year, obviously, we saw a quite bit of growth from our largest customer.
This year through the first half, we see that revenue to be down.
As we look into Q3, we're looking for revenues from that customer to be reasonably close to where we were in Q3 last year, a slight decline.
And the business of that customer has now become pretty broad-based, so we're serving a lot of different applications within that customer for a lot of their different products, addressing different test needs.
The real driver ultimately there is what new technologies that they bring to bear that fundamentally obsoletes their existing fleet of test equipment.
And so, that's really the driver that will, I think, dictate the test purchase that they make as we go through the next couple of years.
That's primarily due to the drop in revenue from our largest customer, Rick.
That's all recognized in APAC because we ship it into APAC.
So when you look at the base business there, we saw above mid-single digit core revenue growth in APAC, pretty similar to the rest of the world in Q3, sorry, excuse me, in Q2.
So the base business continued to grow and it's just the volatility caused by the fact that the largest customer's revenues is recognized in that region.
As you know, Rick, I think there's obviously been some budget approval delays, especially in the U.S. for quite a while, those are pretty much resolved now.
And when we're giving guidance, we're going with the historical pattern and we're not assuming a bounce back in government spending.
I know the fiscal year ends in September, so that's a possibility we may see a better-than-expected result there, but in giving guidance, we go with the seasonal pattern.
Yes, thanks, Rick, for asking that.
What we're looking at is a second half, that's about 1% growth year-over-year from last year.
Yes.
Thank you for joining us today.
We look forward to seeing you at one of the investor conferences we'll be attending in August and September, and we look forward to talking to you again in October.
Bye.
| 2017_NATI |
2016 | OXY | OXY
#It really wasn't much, <UNK>, because to some extent we ---+ or to a large extent we really exited most of those areas.
So, the cash burn that we had seen was really for the most part over with.
And through the fourth quarter there may have been a little bit in the way of working capital.
If you want to call it sort of $100 million more or less as we continue to look at exiting some areas internationally.
But by and large it is largely through.
I'd point out too that the only thing left really in terms of the difference between what we have defined as sort of core, non-core or core and not the ongoing operations at this point is really the Bahrain assets or operation, so that is really it.
So I think we're most of the way through.
Well, that is part of it and also the uplift or continued ramp at Al Hosn.
Again getting back to what I said earlier, we are seeing better productivity from our wells and we are particularly excited about the New Mexico Wells.
So, we are really reluctant at this point to give a forecast.
And <UNK> and his team would like to have at least one more quarter to see how that development will progress to determine not only what we expect Q3 and Q4 to look like, but also whether or not he might add another rig.
<UNK> you might have some more comments on that.
Yes, <UNK>, I think the other thing that we want to see is the effect of our base management programs.
We are having some really good success there with pump maintenance, with surveillance activities, re-completions and that is providing some uplift as well.
So we want to see all those play out before kind of committing to the back half.
You know at this point we have got a pretty good inventory in those areas with the infrastructure that meet a pretty low-price hurdle.
So, we will have some infrastructure but not the really big stuff in the near-term.
I think in a normal world, and that would be one where we would expect to see production increasing in the Permian and NGL and gas prices recovering to some degree, we would expect to see in the neighborhood of $100 million to $200 million income at least from the Midstream business.
Yes, thanks, <UNK>.
I think we see this extending across a good portion of that acreage.
It is not just in the Cedar Canyon area that we've showed some highlights on.
We are really encouraged with New Mexico.
Multiple benches.
And again, that is going to be a function of where you are.
Some benches are better in some geographic areas, but at least two and in some cases upwards of four.
Good question, <UNK>, trying to predict the time when that supply demand balance occurs is a little bit like trying to predict oil prices.
Today there is a pretty good excess of capacity in the market.
But having said that, a significant portion of our improvements are due to things like design changes, technology improvements, utilizing some proprietary things such as Oxy drilling dynamics.
We have invented some special stabilizers in drilling, integrated planning, manufacturing mode ---+ all those things are really driving the big portion of our cost improvements.
And those are sustainable.
We've maintained our workforce so when we ramp back up we won't have to access high cost consultants to run rigs and run frac cores.
And we have recently made an alignment change with our supply chain organization where they have been integrated into operations as part of our integrated planning teams.
And so, the result of that is we have got better alignment of our commercial and our technical strategies to the actual value drivers in each one of those programs.
And that lets us drive productivity, utilization, logistics improvements and that takes cost out of the system not only for us but for our suppliers.
And so, in most cases price is important but it is not the needle mover.
But we are in conversations with our strategic suppliers to determine ways we can better align our operations, drive out combined system costs and focus on goals where we have got common success.
And given our scale in the Permian we are getting pretty considerable interest.
So, we continue to make immediate improvements to cash flow and cost, we are proactively taking actions to mitigate against inflation in a higher WTI environment.
At the end of the day we will be ready.
Again, we take a pretty measured approach to updating our EORs in our inventory.
We want to see more production, better understand GOR modeling and so with a little bit more time we will update our EORs.
But we are really encouraged by the results we are seeing with kind of generation two, generation three not only frac designs but our modeling efforts.
We would expect those to help across the board.
What I would say about that is we really don't have a set price at which we would increase.
We want to see some sustainable improvement with prices and we want to make sure that the fundamentals support prices.
I know a lot of people are saying that around $50 they would start to ramp up.
We have a very deep inventory in both (Permian) Resources and the EOR business that would generate really good returns at $50.
We are pretty committed to staying at the $3 billion capital range for this year.
But <UNK> and his team in the Permian business are looking at opportunities to ramp up in those areas where they have already started development and we are prepared to do it when prices do recover.
But we would expect that to be maybe adding a rig toward the end of this year and then ramping up at some point next year again if prices look like they are going to be in a range that is sustainable.
Yes, we are looking at all areas within the Permian Basin.
For (Permian) Resources we would look in Delaware, Midland Basin, Central Basin platform.
We would also look in some of those some areas, particularly Central basin platform and parts of the Midland Basin, for EOR opportunities.
So we are definitely looking around the Permian.
Well, we look at the long view of things.
So the issue has not been with us in terms of what we would be willing to go out and do from a pricing standpoint because we, especially around EOR assets, those are assets that produce 50, 60, 70 years.
So we are taking a long view on looking at acquisition opportunities with both EOR assets and resources.
The issue has been with some of the sellers who believe that ---+ or seem to believe that prices were going to really spike back up to $80, $90, $100 and it seems now that both the outlook for prices is starting to come closer together between the buyers and the sellers, but not quite on the resources side to where we think it ought to be.
Right.
I think that what we have done with our staff has definitely differentiated us from our competition.
And I think it is a concurring view to how one should manage through a cycle like this.
What we have done is we made the commitment to our employees that we were going to keep our staffing level.
We did have a voluntary separation program at the beginning where some of our later career people who had family issues and needs to go and to leave the Company.
We allowed some people to leave.
But we were selective in terms of trying to make sure that we lost no capability internally.
And so, those people that did leave had in most cases done a great job of training and mentoring people to take their place.
So what we have ended up with is a very capable workforce that has the skills and experience necessary in the midcareer or later career experiences.
But also some early career people who have done just a phenomenal job of helping us through this down cycle.
Because what we did is, to try to ensure that we were reducing cost, we took some of our early career people, sent them to the field, they replaced contractors in both our production operations, our well servicing and our drilling activities.
And so they were replacing contractors who had been doing these jobs for a number of years, had a lot of experience and our early career people went out there, learned it quickly.
And because of the way they view things and their fresh approach to asking questions and looking at things differently, we expected them to go out there mostly to learn.
But they actually went out there to learn, they added value, they improved logistics and improved efficiencies.
And not only was it a cost reduction from the elimination of contractors, but it was actually an improvement because they did a fabulous job to improve efficiencies and to think about how to do things differently.
Our field staff, on the other hand, what they did is they got really aggressive and proactive with mentoring these early career people.
And so, the combination of both our experienced staff and our earlier career staff working together, they have really added value.
And that is part of the reason that our efficiencies are improving, we are seeing these cost reductions in the field, we have to attribute that to both the early career and the mentors out in the field.
In addition to that, what we are doing is we know that to be successful for the long haul with an industry that has changed now, the industry that we are facing today has reservoirs that are tougher to develop, costlier and really a world that's more complex than it used to be.
So what we feel like as we have got to get to the absolute lowest possible cost structure to ensure that we can ---+ we have sufficient margins in a wider price range than what we have worked in in the past.
And so, to do that we feel like you can't do business as usual.
You really have to take a different approach to how you are looking at cost structure reductions.
So, we have got teams that are working on things that are further out.
Some of which I can't talk about right now, but they are looking at how do we change the cost structure of 2018, 2019.
What do we have to do now to do that.
And so they are working on the longer view.
And these are some of the people that we deployed to these project groups from the drilling and completion operation since we had the major reduction in that activity.
What we found is by giving our staff more time to become more strategic and innovative they are delivering value.
So we not only have a commitment from our management to keep our staff, our staff has more than paid for that decision by their delivery and their performance and they are continuing to exceed our expectations.
Every time it seems that we set targets for them they exceed it because they are not ---+ they recognize that we have made the commitment so they have also made the commitment.
And they are just ---+ they have been phenomenal.
And our staff is very, very engaged.
And I believe we will come through this cycle with a much more ---+ a committed, loyal and highly skilled workforce that will be well prepared for any kind of ramp up that we will see over the next couple years.
Yes, I would say while we very much value our operations in Oman and Qatar, we also ---+ I have been very impressed with the UAE, especially the leadership in Abu Dhabi.
They are very progressive and we enjoy doing business there.
We have had success with a couple of companies there, Mubadala when we developed the Dolphin project and now ADNOC in the Al Hosn project.
We have seen that our team partners very well with both of those companies and both of those projects were highly successful.
I am going to let <UNK> talk about a project that we just entered into an agreement a year ago or so to look at some offshore fields there.
This is also a project I am really excited about.
And before I hand it to <UNK> to talk about that I would say in Oman, Block 62, we have just brought on some gas production there, which also is another growth opportunity for us there.
So we still believe there are opportunities to grow in the Middle East.
I will hand it over to <UNK>.
Thank you, <UNK>.
We have entered into an agreement with ADNOC on the Hail and Ghasha fields.
These are fields that have been producing oil for some time and they have had gas discoveries, some going back 40 years.
So, we have worked up an appraisal program for a number of fields and there has been a few additional fields thrown in we call the Dauma fields to determine just what and when we should be developing, make a recommendation to the State, as to how they can both increase their available gas supply, but also further develop some of the hydrocarbons that have not yet been developed other liquids included.
We have just amended that agreement to add a partner, the Austrian State Oil Company who we've partnered with in many places.
So there is a pretty robust team working appraisal and engineering development.
One other area of more immediate growth is that we recently ---+ <UNK> went to the region to participate in the inauguration of the Al Hosn facilities.
And it appears that we are well along the way to getting an agreement to expand the Al Hosn plant.
Engineering is underway and we are having further discussions later this month to determine just on what schedule and how we would do that.
So those are good areas of growth, both medium-term and long-term.
| 2016_OXY |
2017 | SJI | SJI
#I see what you're saying.
It is the change.
You know what, let's see.
I was going to say, how about if I just have <UNK> follow-up with you with the individual piece there.
Well, that 1.2% is for the full year, not for the quarter.
But I would expect that you will continue to see growth somewhere in the 1.2% to 1.5% range, largely driven by conversions.
I think it will be very similar to what it's been for the past four or five years.
New construction continues to be steady.
It's certainly not at the pace it was pre-recession.
And I don't really think anything in South Jersey is pointing to some kind of aggressive kind of growth in new construction.
But as far as geographically, most of the new construction and most of the growth is coming in the Western part of our service territory.
And I think that's largely the result of Philadelphia's economy being a little bit stronger right now than Atlantic City's, quite frankly.
The thing I think is important, though, is that I wouldn't get completely fixated on the actual customer growth number as much as the margin growth as well.
Because what we are seeing right now is strong growth in our commercial market, which is allowing us to have significantly higher growth rates in terms of margin.
I believe ---+ <UNK>, what was the margin growth number year-over-year.
4.
2%, margin growth.
Which, again, is I think a very strong indication of the success of our targeted marketing efforts as well.
No, well, it's not quite large factories yet.
But when we get PennEast put in and we can start bringing that cheap Marcellus gas into South Jersey, we expect to see some new factories crop up.
No, it's primarily commercial.
There's a lot of healthcare facilities that have come up and ---+ over the last few years in New Jersey.
The hospitality industry outside of Atlantic City continues to grow.
And you are seeing a lot of conversions in the commercial industry as well (multiple speakers).
I do this every time.
I shut my slide deck down and forget my little wrap up.
So, before we wrap up, as always, please free to contact <UNK> <UNK>, our Director of Investor Relations, or Ann Anthony, our Treasurer, if any follow-up questions arise.
<UNK> can be reached at 609-561-9000, extension 4227, or by email at [email protected].
Ann can be reached at extension 4143 or by email at [email protected].
Again, thank you for joining us today and for your continued interest and investment in SJI.
| 2017_SJI |
2016 | NKTR | NKTR
#Yes, <UNK> that is a great question.
I think there are a lot of unknowns here clearly.
It is all blinded, so we are speculating.
We don't know variability, we don't know the effect sizes, et cetera, et cetera.
However, as a sort of gestalt, if you will allow me that, I think what it takes, our back of the envelope calculations take it from somewhere, the range of 50% to 85%, I think we now look at something in the range of 65% to 95%, that is a sort of slide if you like on the power.
No.
So if I start at the bottom at 50%.
The extremes are obviously 50% power, with the incremental number of patients, the 50% moves to a 65% number.
And if we were at the 85% point at this point, because we clearly don't know where we are, that 85% would move to a 95%.
So we are somewhere between 65% and 95%, so the midpoint of that would be, I am doing math in my head here, about 80% power.
What it is assuming I think are the assumptions are things stay relatively stable from the point of the midpoint conditional power analysis.
But once again, a huge caveat here.
We are dealing with a massive range of uncertainties.
We don't know, all we have is an outcome from an independent group, who said, up the sample size by 200 based on a preset criteria, if that helps.
It is very interesting.
I can't sort of aggregate that information.
I think a couple of public caveats at this point.
We know that there is huge variability across these types of pain studies.
One that I was certainly involved in several years back where we did an interim on one of the studies and not on the other one.
At the end of the study we had very strong results, but the stronger result came in the study which had the interim analysis.
They both had interim analysis.
One of them increased sample size, that was the one with the stronger results at the end of the study.
That obviously doesn't mean that will necessarily be the case here.
I think what we have done here is slightly different, because we didn't want to take, we wanted to avoid taking an alpha hit.
And we wanted to avoid unblinding in any way, shape, or form.
So we had to preset numbers that made a lot of sense to us, which was that 50% to 85% range, if you like.
They both had interims.
The one that was increased was actually the opioid experienced.
Thank you.
Thank you all for joining us this afternoon.
Again, I would like to thank our employees for their hard work and dedication to the Company.
I think we made some excellent progress, and we have an awful lot to look forward to this year.
So I am very enthusiastic about it, and we look to seeing all of you at the upcoming conferences throughout the spring.
Thank you, have a great evening.
| 2016_NKTR |
2015 | MDCO | MDCO
#If you're looking for an analog in terms of sales and market, the obvious one which changed the game last time, was Diprivan.
First of all, we've already, I think, indicated our understanding of timing of this.
We've, I think, stated that we believe that the timing is a median of 2 1/2 months but a range of 1 to 6 months.
That's the only information we have, and we certainly don't have any updates for that.
As far as its impact on operating costs and expense, I think <UNK> has already covered that.
We'll take that step, when and if it happens.
Again, just to recap on prior discussions we've had in public, the study we're doing is an escalating dose, subcutaneous study with patients first getting a single dose, and then a second part of the study where they receive two doses.
The aim of this study is to demonstrate, first, the dose related reduction in PCSK9 protein expression and in LDL.
And we expect that to be the first part of the study.
Then as part of that observation, we should be able to estimate how long a single dose of PCSK9, if you like, last for.
What's the duration of LDL knock down.
What's the duration of PCSK9 protein knockdown.
From the second part of the study we should be also look at the effects of the second dose, and that will give us some pharmacokinetic and dynamic information about dosing periodicity.
Either way, I think we're going to be able to come out and say, we think the drug could be or couldn't be, but I think we're very optimistic, could be dosed much less frequently than currently planned antibodies maybe as infrequently as every three months.
We also will be able to make reasonable estimates of the volume of injection required to elicit these responses.
In general, we believe that will be less than 1 cc, which we think is also incredibly important for patient care.
Let me just clarify the last thing, <UNK>.
Orbactiv was launched in October, so this is actually our first, full quarter that we just reported.
And we feel very comfortable given the eight steps of hospital adoption that I read out earlier, which I did so deliberately, that we're marching along that adoption pathway in a very effective way.
I think our teams are engaging the right hospitals, are getting the right signals from a lot of formularies, winning a lot of formularies, putting protocols in place, and beginning to get drug utilization.
It is the nature of the launch of hospital drugs in the 21st century that you cannot just go to doctors and ask them to start writing prescriptions for your drug.
You've got to get the hospital system working with you in order to build a sustainable and growing business, and we're very pleased with the execution progress we're making.
It sounds a little bit odd for a CEO to say this, but I don't think we should be counting boxes as much as we should be counting relationships and processes at this stage, but the box sales will come I believe.
As far as the number of customer-facing people, the 400 number includes everyone in our Company who works with customers.
That includes about 340 people, field base, and about another 70 or 80 people who are working in the home office, if you like, on marketing, reimbursement and analytics programs.
So just to be clear on that.
That won't change with the initial launch of Ionsys, but at the numbers we gave out include everything and include the Ionsys launch planned.
Over time, could these numbers evolve.
Absolutely.
In each of our given areas, depending on developments of those drugs, the numbers may be titrated up, titrated down, depending on market responsiveness.
Obviously, as the fate of Angiomax is clear then our need to deploy against Angiomax may change.
However, on the growth side, Ionsys, if anything, will be increased in resources as it rolls out.
And that's the stepwise plan that we have.
In summary, it's more like 340 field based, of the 400, but there's a lot of shared services, marketing and home-office based people also included in the number that was quoted as 400.
They are not all reps, quote.
Then your first question which was PCSK9.
Will the results of this study be definitive.
Well, let me put it this way.
They'd be definitive in the sense that you'll know what a single injection of PCSK9 does to you and if a single-loading injection of a normal dose was to knock down your LDL, as it did in the primate studies, remember, for three months or more.
If that is associated with both LDL and PCSK9 reductions that are substantial and especially at the dose related, which they were in non-human primate studies, then I think we really do have an extremely exciting prospect for market, which is going to be, we believe, at blockbuster proportions.
And where the development pathway is very straightforward, because clearly the clinical proof of concept of LDL lowering is well known and others are helping us with that.
So I'm very excited about this one because I think it's ---+ we're working in a massive market opportunity with relatively simple development steps.
If I compare the development of a PCSK9 inhibitor with the development of cangrelor, frankly, it's a whole lot simpler.
Yes, I think, remember ---+ it's a good question, <UNK>.
Each product has to go through the same steps.
If you go to a large hospital system and let's say Orbactiv is already on the formulary, already in standing orders, already being used and increased, unfortunately that doesn't accelerate the Ionsys.
You still have to go all the way back to beginning of the process for Ionsys.
Now, because we know the hospital because there's a level of trust established, The Medicines Company people working with the hospital are probably going to have some advantage, but the hospital still has to go through its internal processes for each product.
We respect that, and I don't think we can anticipate any sort of leap-frogging moves through those eight steps.
<UNK>, that's because I didn't mention the price, my friend, and I'm not planning to right now.
We're working on that.
I think what I did say, and I'm very happy to reaffirm, is that we are getting extremely good feedback in our market research and pricing studies and we feel we can certainly launch this with a premium price, largely because the value beneath the product is easily to describe and we believe demonstrate.
So we are excited about the pricing opportunity here.
It's what we said on the call, so we hope it's true.
<UNK>.
<UNK>, we're looking at the numbers now and that's where the direction looks like it's going to be lower.
Don't forget, if a generic does enter, it would be mid June, so we've taken that into account, as well.
Then, really the activity by a generic would be very intensive probably beginning of June.
We know for a fact, now, that competitors out there are talking about entry of a generic.
Until we get the court case, we don't know if that's true or not true.
Our inventory levels are, as at the wholesalers, are decreasing and we would imagine that they're also decreasing at the hospitals.
It's probably premature to do that.
Obviously, we haven't got the results yet.
I think that the IV study that was important and published in the Lancet, clearly shows you the potential for this drug in humans.
Remember, we are on a different platform and we're subcutaneous, so the dose response might be different.
Let's wait and see that data.
But, I think the order of magnitude of effect and the order of magnitude effect in the non-human primate studies, I think, has been very consistent and definitely right up there with the antibodies.
And so I think we can look forward to a strong effect, if the results are what we anticipate.
If the what passes.
I didn't catch that.
Oh, the DISARM Act, we haven't ---+ let's put it this way.
Positive, however, we're used to watching legislators create new legislation.
In general, we'll be interested in analyzing that once the legislation is passed.
Difficult to say what the final decisions and structure of the bill will be.
Thanks, Michael.
We're not going to make any comments about Eagle Pharmaceuticals on this call.
Thank you.
With regard to the Orbactiv launch, we are very, very pleased with where we are, as I said earlier.
I think the engagement of hospitals, the process of formulary adoption, the initiation of protocols, the pull through that we're seeing, I think is very gratifying, and certainly, relative to competitors, has been really quite strong, we believe.
As far as your third question about single-dose Dalvance, we've always assumed in our modeling that that would be an important product as well.
I think the whole game plan for everybody right now is ---+ the problem here is vancomycin, not the new generation products.
And there's plenty of space in this marketplace to improve patient outcomes, improve the convenience of dosing and to deliver better economic results for hospitals and infusion centers.
So as far as we're concerned, we would congratulate the Dalvance team on their study, and anticipate continuing to educate the market in how to use these new products in the best way for patients.
Sorry, you felt squeezed in, <UNK>.
We always like to reserve plenty of time for you.
These questions are actually pretty straightforward, because I think at this stage, we are not going to comment on the core case.
I think there are three judges involved and a lot wiser in these matters than any of us are, so we'll leave that to them.
I don't know what you want to say about gross margins, <UNK>.
<UNK>, I'm not going to comment on whether or not I'm comfortable with the sell-side consensus estimates.
I think that's something for sell-side estimators to worry about.
Then, in terms of the sales of Orbactiv, we did already say them on this call, but just to repeat it, $1.2 million of sales and about $800,000 worth of sales of Minocin, which we are actually very comfortable with and feel is doing quite well competitively.
<UNK>, do you want to say anything about gross margins on anything.
Not today.
Okay.
Thanks, <UNK>.
We thank you for your interest in this matter as a Company, which is rotating into a whole set of new launches and which has some blockbuster products we believe in the pipeline.
And we're very excited to be investing in these.
We appreciate your interest in what we're doing, and thank you very much for your support.
Bye for now.
| 2015_MDCO |
2015 | SBNY | SBNY
#Thank you, <UNK>.
Bear with me a second.
$7.3 million in pre-payment penalties in the quarter.
It's really just overall growth in clients and client activity, <UNK>.
I can't really point to any one particular item that's driving that.
I think it's just an overall growth in our client base, and they're doing more business with us.
Thanks, <UNK>.
Hi, <UNK>, good morning.
Well, the pipelines is strong.
It's strong where it needs to be in the beginning of the quarter, because there will be some softness toward the end of August.
We have one thing going against us this here that we didn't have last year.
I know this will make some people smile, but last year we had an advantage because Labor Day was September 1.
That meant clients were coming back sooner.
This year Labor Day is September 7, which means clients come back a week later, and some loans may be pushed into the fourth quarter.
Having said that, the pipeline in the beginning and what we're booking in the beginning of the quarter is very strong, which is where it needs to be.
Yes, I'd say most of the expense is baked into the second-quarter numbers.
I wouldn't see too much of a bump for the third quarter.
We are ---+ typically, when we get this late into the year, we're setting the stage for hiring for next year.
There may be a team or two before the end of the year, but we are really setting the stage for next year.
I'd go with 41%.
There were changes in the New York state and city tax laws that were beneficial for us, so we should see our effective rate come down to approximately 41% for the back half.
Well I feel very good, because we've hired five teams that will ---+ that have started to contribute, but will contribute greatly as time goes on.
The commercial real estate team continues to add, and they have now over 40 in their group, which is a wonderful group that's developing and continues to develop commercial real estate for us.
The ADL team has now been around couple years, and is starting to contribute.
Signature Financial is adding on line to business.
Everything bodes well, and we been able to keep our expenses low.
The only thing that clouds all of this is the continued expense and brain damage that we have to go through as it relates to regulation, and some of the things that we hire consultants for that are utterly ridiculous, but are necessary to do.
That's the only thing the clouds the growth of an institution, the time that has to be spent where I believe is unnecessary in some instances.
I don't think there's another ramp.
As <UNK>'s been saying about expenses, the regulatory expense ---+ when I say regulatory expense, I mean the expense that we're adding people, personnel.
We're adding consultants to help us and systems, and writing procedures and policies.
Our expense rate would probably be 10% or below, if we didn't have all of that additional expense.
It's embedded in there.
I don't think we'll have any major jumps quarter to quarter.
It will just continue to be going up, probably at about a mid-teen rate.
But you've got to understand, it's going up let's say mid-teens every quarter.
It's a higher base, so there's more actual dollars.
But that's not any different than any other institution that's going through the compliance aspects, the risk aspects that you have to do.
It's just getting ---+ there are a lot of dollars being put into it.
One of the things we're doing, <UNK>, that I think is very important is that everything we do today ---+ we always have to deal with what we call the closest fire to the house, but we have one that's further away, and we're constantly thinking about it, and we're working toward it, and that's the $50-billion mark.
If that doesn't change by the time we reach $50 billion in assets, we should be ready, and there should be no excuse.
Thanks, <UNK>.
Yes, we're using $250,000 in Chicago and $800,000 in New York for corporate owned, and $700,000 for an individual.
About 85%.
No, they weren't TDR.
We were just ---+ they weren't trouble.
It was just timing of getting the loans re-documented with the borrower.
We haven't made new loans, but we wouldn't ---+ if we saw something that made sense, we would certainly make it.
One of the things we saw, we expect it to be whatever the industry is.
One of the things that in terms of the industry, many of them were IOs.
They weren't all with amortization.
They were three-year IOs.
We changed to two amortization as part of the refinance.
No.
Thanks.
The 1.28 was about the same as the first quarter on the debt service part.
Our corporate balance is $116 million, and individuals are $511 million.
Yes, we used $900,000 for the corporates and $800,000 for the individuals.
Yes.
Thank you.
Thank you for joining us today.
We appreciate your interest in Signature Bank.
As always, we look forward to keeping you apprised of our developments.
Now I will turn it back to you, Lori.
| 2015_SBNY |
2016 | CPB | CPB
#<UNK>, on the first part of that question, <UNK> mentioned two factors that will impact at least our first half performance in 2017.
One is the supply constraints on protein drinks given the production ---+ the run times, 24 hours versus 72.
And the other thing is given some loss of customers on carrots, it will take us a little bit of time to re-acquire that business.
And so, as we look at C-Fresh for the full year we expect top-line growth low-single-digits.
Typically we would look for high-single-digits so obviously that is impacting our 2017 outlook.
And as far as innovation, I don't think the issue on this particular line has an impact on our innovation agenda.
It does not.
I would say though in the first half the team will be very focused on the fundamentals.
So the new product innovations will most likely go to market in the second half.
Yes, I think I'll try that.
So, when we first announced the cost savings program we were targeting $200 million of savings and we talked about half of that going back for re-investment.
I think as the savings level went up I think we kind of held the re-investment amount, so I don't think we are would estimate that ---+ I think I would estimate that less than half is now going back in the business.
We are not going to give a specific dollar amount in terms of reinvestment in 2017, but it is significant and it is in a number of areas.
We are going to support new product launches, things like Prego's Farmers' Market, Well Yes! soup, Plum infant formula, the Bolthouse spring innovation, Tim Tam's expansion in the US, Goldfish made with organic wheat ---+ so we have a number of product launches going on.
We are also going to invest in new capabilities around things like digital and e-commerce.
We are going to make investments in our Real Food initiative, so these are things like improving our can liners, continuing the removal of BPA, improving the product and more clean label, those types of ingredients which tend to be a little more expensive.
We are going to invest in longer-term innovation, things like our Acre investment fund.
And also <UNK> mentioned long-term innovation in Packaged Fresh.
We are also going to invest and add resources to expand our sales and distribution in China through our Kelsen business.
So we have quite a list of areas we are looking to re-invest and the P&L we have a significant allocation of funds.
Yes, and, <UNK>, our profit is strong, our challenge is top-line growth.
So these investments are really vital to the long-term health of the sales line of the Company.
Well, it is certainly F17; I am not commenting on F18 at this point, but ---+.
We did say the majority of growth will come in the second half.
And as you point out, there is two reasons for that.
We are lapping a relatively low marketing Q1-Q2 and we have these lingering issues on C-Fresh.
So that will tend to suppress our first-half performance, but we will see it come back in the second half.
Yes, we have a much stronger marketing investment in the first half, particularly in the Americas Simple Meals and Beverage with four really big campaigns.
We are not going to give specific guidance, but I would say we expect relatively weaker performance in the first half and stronger performance in the second half.
I guess we look at it a little bit different than that.
We are very focused on improving our gross margin performance and expanding margin.
Within that we look to net price realization, productivity improvements to exceed inflation.
On the net price realization we feel really good about what we have been able to accomplish in 2016.
In fact, 40 basis points of our 170 basis point gross margin improvement is driven by net price realization.
And within that ---+ and it gets a little distorted on the sales variance ---+ but we made meaningful reductions in trade spend in soup given the promotional pricing we have taken on RTS.
And although it has impacted volumes it has contributed significantly to margin expansion.
Now we were up a little bit in the fourth quarter, it is a non-seasonal quarter for us.
Most of our dollar increase in trade in the fourth quarter relates to our Arnott's business in Australia ---+ we are lapping a period of supply constraint, so we had to pull back on our promotional activity so we are wrapping that.
But as I look at the whole year, we accomplished what we set out to do in our plan and have made meaningful progress, especially in soup, which is a very critical to our agenda going forward.
Let me build on that, that we also, as part of the setup of our integrated global services, have made investments in our revenue management and advanced analytics.
And we are continuing to look for ways to manage the depth and frequency of our trade programs to maximize profitable volume.
We have to take into consideration competitive activity and customer programs and consumer response, but this is definitely a point of focus for us.
It all starts with the consumer and the consumer trends are very strong in terms of health and well-being and particularly in fresh food.
Some of these issues are part and parcel to running a fresh food business.
But in our case these were execution issues and we can do better there.
So, we are really confident in the strategy to pursue fresh food in addition to the strong core brands that we have.
Sure.
I think the best way to explain our gross margin performance, which was down 90 basis points in the fourth quarter, is just to parse out the impact of the C-Fresh division.
So, the C-Fresh division in aggregate had a 70 basis point impact out of the 90 basis points.
So basically most of our gross margin decline is attributable to the two issues inside of C-Fresh, the recall which was 50 basis points, and the decline on carrots which has an impact on the margin as well.
And looking at the rest of it, inflation was not that great in the fourth quarter as we talked ---+ in the bridge the higher promotional expense was the key swing relative to prior quarters.
But most of the decline, as we said, attributable to the C-Fresh performance.
Yes, so we had some ups and downs obviously in 2016.
We ended up with a $0.02 headwind in 2016 versus 2015.
And looking forward our short-term incentives are close to target, the long-term incentive will go up a little bit.
All in we had about a $0.02 negative impact in 2017.
Yes.
Yes, I wanted to clarify that.
We look at ---+ we do look at M&A more broadly than just Campbell Fresh.
And each one of our divisions has mapped out specific targets that they are interested in that are a good strategic fit for their businesses.
And so we are highly interested in other consumer behaviors like health and well-being, like snacking, like simple meals that we can pursue not only from an organic growth standpoint but also from an M&A standpoint.
I am sorry, I didn't understand the question.
Absolutely.
I mean Plum Organics is a great example of a smaller brand that we bought.
We were able to integrate that into the Americas Simple Meals and Beverage business and capitalize on things like their sales force and supply chain.
Yes.
We definitely have some bright spots in soups this year.
We basically stabilized condensed and broth is up for the year.
But the issue we have had has been RTS soup.
And as you indicate, with brand Chunky we have the price realization behind us, we have improved Chunky marketing going into 2017, we had a label execution issue in the first and second quarter last year that we are cycling.
And then we can't control the weather, but that was definitely an impact in 2016.
So we believe that the Chunky brand will have improved performance in 2017.
In addition, we are launching Well Yes! midyear, which is a great tasting clean label ready-to-serve soup that we believe will have disruption in the soup aisle and capture the hearts and minds of consumers.
The other thing we have going for us in soup is Slow Kettle and organic soups continue to do very well.
And we just came out with new stackable cans in our RTS soup, which has been received really, really well from the retailers for merchandising purposes.
So, we have got a lot more going for us this year than last year and we expect soup to grow modestly.
Yes, thanks for that reminder.
We continue to be challenged in our shelf stable beverages, particularly on our products that contain sugar.
So V8 V-Fusion, for example.
And this year we actually did have some declines on our V8 Red.
Our new Veggie Blends, which we supported with some good marketing support, continue to grow and our V8 +Energy is growing really nicely.
What we have done is we have developed a brand-new campaign, but also we have increased our support around our V8 Red juice.
So instead of just promoting the new parts of the business we are going back to better balancing of our marketing against the core V8 Red as well as the new Veggie Blends and the V8 +Energy.
And we believe that that is a much better formula for success.
We don't expect beverages to grow next year but we do expect improved performance.
We have ---+ we do have top-selling varieties in the V-Fusion line such as strawberry banana or pomegranate blueberry and some others and we will continue to include them in the V8 line.
But the consumer will take us to the flavors that they like and we'll repeat.
So that is basically how we are playing it.
Thanks, Stephanie.
Thanks, everyone, for joining our fourth-quarter earnings call and webcast.
A full replay will be available about two hours after our call concludes by going online or calling 1-703-925-2533.
The access code is 167-3833.
You have until September 15, 2016 at midnight at which point we move our earnings call strictly to the website.
Just click on recent Webcasts & Presentations.
If you have further questions please call me, <UNK> <UNK>, 856-342-6081.
If you are a reporter with questions, please call Carla Burigatto, Director of External Communications, at 856-342-3737.
That concludes today's program.
Thanks, everyone.
| 2016_CPB |
2015 | CRUS | CRUS
#Thank you
Well at this point, as we indicated I think pretty close to a year ago, that we were having to shelf the LED stuff in light of the fact that our opportunities in audio were so much bigger and so much nearer and, frankly, more valuable to the Company.
So it was a difficult step we had to make.
So at relative to what burner LED is on, I would say it is not on a burner at this point.
We really can't come close to staffing all of the opportunities that we see in front of us, a big portion of which are software related.
Tons of different algorithms, that we either need to work with third-parties to bring in house, we need to develop ourselves, customers require a lot of support.
There's a broad road map of products where we are clearly staffing the very best opportunities that we see in front of us and not just the merely good ones, which is a great position to be in.
But we would definitely like to figure out how to do even more than we are already doing in the core space of audio that we serve.
So at this point, people should definitely think about us as a mobile audio Company.
Well, yes.
Sure.
So again, on the two trends, one being to move from the flagships down to the mid-tier and then also from the accounts that we serve in a big way today ---+ try to broaden that out to be a little more systematic in the accounts kind of number 3 through 10 of the mobile space.
We've sold to a number of those accounts in the past, as had the UK team.
But I would say those opportunities in the past were fairly opportunistic.
And so we'd really like to penetrate those accounts with something a lot more sticky like a Smart Codec and then start to broaden that out around the board with the amplifier products.
So I'll decline to throughout a number of boards because I think it probably ---+ there's some of them that matter a lot more than others, obviously.
But I think we do pretty well at accounts number 1 and 2 and so we prioritize 3 through 10 sort of in the order that you would imagine.
And I think we're making real good progress there.
Thanks, Chris
Sure.
There are ---+ as we say, they're out there.
It's good to have opportunities in front of us for the technologies that we are shipping in high-volume and mobile and continuing to expect growth in mobile.
In the near to midterm, we expect our growth opportunities to be driven and dominated by continued success in handsets.
But we've got a good presence really across the board in audio elsewhere.
We're in a lot of great applications from internet of things to other devices.
We have had an automotive business for many years.
But it is definitely something that we expect over the coming years to take that technology, target these other applications very specifically with more voice based.
For example, voice wake we think is a ---+ or voice command is a great opportunity in really just about every avenue of audio you can imagine.
So it's not in the near-term.
We've got plenty of opportunity to drive growth in the near term.
That something that is out there a little further out on the horizon
Well, yes.
No we're not breaking out.
No, not at all.
We really just started ramping in the latter half of the January quarter.
So another just a great, great job those guys did, knocked the cover off the ball and delivered a great product and supported a really heavy ramp extremely well.
I was very pleased.
A lot of people worked very hard under tough conditions to make sure that we brought that one home.
So no I wouldn't think that's a high watermark for them at all.
As far as the leveling of the quarters, all I can say, other than that Q1 is off to a great, is that there's just a number of factors involved that are kind of a lot of moving parts beneath the surface that it's not appropriate for us to get into.
And that it is in the context of a fiscal year that we expect to be driven by really great growth in the face of new product introductions as we've highlighted in the past.
So hopefully that's at least helpful a little bit.
No.
I think the gross margins that we're seeing with the products that we're introducing are consistent with that mid-40s type of view in the long-term.
Sure.
I mean we're ---+ our overall revenue is at a pretty good run rate at this point and you got to sell a lot of microphones to move the needle at that revenue level.
So the way I think I've indicated people should think about microphones for us today ---+ we're shipping them in high-volume.
They are a relatively low ASP device.
So if you look around there's plenty of microphone suppliers.
Typically the margins in that industry are not what we would be interested in.
So our goal is to, as the only supplier that sells everything in the whole audio signal chain from microphones, Smart Codecs, amplifiers, all the software that stitches it together.
Our goal over the long run is to develop microphones in tandem with the Smart Codecs so that they work better together.
They deliver better performance for our customers.
They deliver a compelling bill of materials for them and also increase our share of it.
So that's the goal that we've got over the long term with our participation in microphones.
That goal is a ways out.
But we think the business that we have today is a very valuable stepping stone to getting to that point.
So we're shipping microphones in some great devices with some great companies.
We think that the way we won those is by delivering a premium microphone, delivers great performance in a very small package.
So we're off to a good start there.
We got a lot of good work to do to develop the capabilities to really embed a lot more smarts in the microphone to do optimal system partitioning between the Smart Codec and the multiple microphones that will ultimately be in these systems.
But we think our opportunities for doing that are very good over the coming years and we are certainly staffing it appropriately to go capitalize on that opportunity.
Well, so they always ---+ so, again, what we sell is a Smart Codec.
And at the end of the day, the price for one of our Smart Codecs is to ---+ well unless there is third-party software involved, for example, the price for our Smart Codec is essentially whatever we work out with the customer for the silicon.
Whatever software and software services and system integration that we can provide along with that is something that simply makes us more sticky.
It makes the Smart Codec more valuable.
And so we think that's a significant competitive advantage versus other more software-oriented suppliers.
Now the caveat to that, of course, is if one of our customers wants to run some third-party algorithm in concert with some of what we provide, then there is typically some sort of fee associated with that third-party IP.
But obviously it's not my place to get into what different customers pay for what IP either.
So nevertheless the real meat of it is that always-on voice is a very valuable function.
Our role in that is to enable our customer to implement it with extremely low power.
And also, in a lot of cases, to try to augment that with functions such as our automatic speech recognition enhanced software so that the thing works better in noisy environments ---+ things like that.
So always-on voice is a great confluence of a bunch of things that Cirrus Logic does really, really well.
So low-power signal processing, very low-power analog, potentially over time we can work in the microphones and make those work better with the Smart Codec in that environment, which we think will be a difficult strategy for anyone else to follow.
So it's a really neat feature that's unfolding in the market.
I think we've yet to see the real true potential of what can be done there.
But I think it's something that consumers will really value and that even mid-tier devices are going to want to latch onto once it becomes mainstream.
Well we're already pretty far out past what we, under normal course of things, like to guide.
So we're not going to guide anything further other than I think if you do the math on the notion that we feel very good about year-over-year growth going forward through the year, that that kind of gets you where you need to be.
You bet.
Sure.
Well certainly our opportunity to grow ASPs and cross sell components are closely related.
So in some cases, we have the opportunity to ---+ for example, in the case of the Smart Codec, add memory, add more processors, add more analog IO, for example.
That's a way to grow the ASP of that device.
But to grow the share of our bill of materials, for example, if we have a Smart Codec, if we can couple that with a boosted amplifier, make the two work better together, that's another way to grow the value that we're selling to a particular customer.
And then further on down the road as we are successful in the microphone space, that's, again, an opportunity to grow a ---+ to cross sell devices and grow ASPs.
And it's interesting to note that a number of years down the road, many of these devices are talking about it's not one or two microphones, it's quite a array.
So even though the devices themselves are, at the moment, fairly inexpensive, it can add up to a meaningful adder on the bill of materials going forward.
So we see great opportunity in all those areas.
We've really never, in my career, all career's been in audio, I've never had the opportunity to serve a market where what we do already today is in such great demand across the board from a great suite of customers.
Thank you.
In summary, FY15 was a great year for Cirrus Logic as we delivered strong revenue growth, achieved our long-term non-GAAP operating profit target at 20% and expanded our product portfolio.
We are even more excited about our outlook for the future.
With an arsenal of innovative audio and voice products that we expect to ramp over the next year and solid relationships with key market leaders, the Company is poised for meaningful growth in FY16 team.
If you have any questions that were not addressed, you can submit them to us via the Ask the CEO section of our investor website.
I'd like to thank everyone for participating today.
Goodbye.
| 2015_CRUS |
2018 | EGRX | EGRX
#Thank you, <UNK>, and good morning, everyone.
At Eagle, we have been focused on executing a multi-pronged strategy to build long-term sustainable value for shareholders, and deliver best-in-class products for patients.
With our existing portfolio, we have identified opportunities to protect and expand our bendamustine and RYANODEX franchises by advancing solutions that fill unmet need in the marketplace, and which I will discuss in greater detail shortly.
And with our pipeline, we have multiple product candidates that offer promising formulations in several attractive markets.
In other words, we believe we have a solid business today with multiple opportunities for upside.
As you know, currently, we derive the bulk of our revenue from royalties on the sale of Bendeka, our RTD 50 ml, short infusion time formulation.
We have now decided to launch our 500 ml solution, which I'll refer to as big bag from now on.
If you recall in our agreement with Teva, we retained the rights to this product.
It is a liquid form of bendamustine that does not require reconstitution.
We will provide a more detailed view of the timing for launch shortly.
I'd like to point out that although earnings were lighter this quarter, starting during the second half of the year, we expect to see earnings estimates go up due to the anticipated launch of big bag if approved.
We decided to launch big bag for a few reasons.
First, we feel that there is a segment of the population that requires an alternative to TREANDA, at a reduced price point to Bendeka.
Second, this will provide us with more control over our revenue growth and help us manage our business better.
We expect big bag to be very profitable for Eagle, generating 2 to 3x the EBITDA per vial compared to Bendeka.
We continue to believe in Bendeka, and that is a tremendous product with many patient and caregiver benefits.
Teva is doing a very good job for us and we're pleased with their accomplishments.
We view the launch of big bag as being complementary, enabling us to provide additional value to a cost-conscious segment of the market, while at the same time allowing Eagle to increase profitability.
We will pay Teva a 20% royalty on gross profit for each big bag vial and continue receiving a 25% royalty on net sales of Bendeka.
And while we are on the subject of bendamustine, if you recall several years ago Bendeka was awarded orphan drug designation.
Surprisingly, however, we did not receive the 7 years of exclusivity that typically goes along with it.
We sued FDA over this and had our oral arguments in court last week.
It is possible the litigation results will be available shortly, perhaps 2 weeks to 2 months from now.
Our view has always been that Bendeka is entitled to the exclusivity based on the orphan drug designation.
Rather, moreover, we believe there is a reasonable likelihood that such exclusivity would mean that TREANDA generic product should not enter the market prior to December 22, rather than November 2019.
We will have to wait for the outcome of the litigation, but believe that the exclusivity is warranted and we're hopeful for a positive outcome.
In addition to protecting our bendamustine franchise, we focused on pursuing label expansion and additional drug delivery opportunities for RYANODEX.
We'll be returning to the Hajj in Saudi Arabia from August 17 to 23 to conduct an additional study for exertional heat stroke.
Our previous study in 2015 was shortened due to the unfortunate stampede that occurred as we began our study.
At that time we had collected data for 34 patients over the course of 1.5 days.
This year we plan to have 5 12-hour shifts accepting patients, and pad in an extra day to the front end of the study, and are hopeful that we can collect a more robust sample set with significantly more subjects.
We expect the data from this study will support the positive results of our prior work.
If successful, and depending on FDA's review time, we could potentially be on the market with an exertional heat stroke product for most of the 2019 season.
As I've mentioned in the past, we are also looking at the potential RYANODEX's treatment for nerve agent-induced seizures and seizure-related brain damage as an intramuscular injection.
Once again, we will be meeting with officials from the U.<UNK> military later this month to discuss our progress on this front and hope to advance our nerve agent and IM versions this year.
At this point, we have elected not to pursue a clinical trial for RYANODEX for the treatment of ecstasy and methamphetamine intoxication.
Importantly, we believe this patient population may be embedded within the EHS framework, and don't believe a separate trial is required at this time.
Instead we will focus our resources on the indications I just discussed, and several opportunities we are pursuing with other molecules and formulations.
We will continue to monitor the situation and update you as appropriate.
We are not altering our view of the long-term forecast for RYANODEX based on this.
Now turning to our other pipeline projects.
I am pleased to report that our Vasopressin ANDA, the first of 2 ANDAs in development, was accepted for filing by FD<UNK>
This product is the generic version of ANDA's original Vasostrict formulation.
Vasostrict had approximately $400 million in brand sales in 2017.
We believe that we are the first to file, which would provide us with 180 days of marketing exclusivity once approved.
A fulvestrant clinical study is ongoing.
It looks like we may have more subjects in the trial than anticipated, as the dropout rate has been lower than planned.
We expect to have the data available in the fall, and we remain on track to file an NDA early in the fourth quarter of this year assuming favorable clinical results.
Before turning over to <UNK>, please let me make a few comments on the quarter.
First quarter revenue was $46.6 million, EBITDA was $9.5 million and adjusted non-GAAP diluted EPS was $0.53.
We recognize that revenue in the quarter was lighter than anticipated and we believe there were a few factors at play: one, we had a limited short supply situation with Bendeka, the channel is now fully stocked and our second manufacturing site is now up and running; additionally, we expected there would be some significant orders at the end of the quarter, which didn't ship until the beginning of Q2.
We expect those sales to be reflected in Q2 results and have no effect on the year; three, RYANODEX sales should be stronger for the year overall.
Some degree of lumpiness in RYANODEX revenue is expected because it is driven by expiry of both the generic product and previously purchased RYANODEX.
June and July have unusually high amounts of expiry, and we anticipate strong months ahead.
And what you'll hear from <UNK> as well is that although we were heavier on R&D expenses in Q1, our full year R&D forecasts remain unchanged.
Based on these factors plus what I articulated regarding big bag, I'd like to repeat that we'd expect the second half of the year estimates for '18 to increase.
Overall, we believe there are significant opportunities this year to build value in our business, and exciting catalysts on the horizon.
With that, I'll turn the call over to <UNK> to review the first quarter financial results.
<UNK>.
Thank you, <UNK>.
In the first quarter of 2018 total revenue was $46.6 million compared to $76.8 million in first quarter 2017, which included a $25 million milestone payment from Teva.
First quarter RYANODEX product sales were $4.4 million, flat on a year-over-year basis.
RYANODEX market share in the first quarter is 57% in dollar terms and 34% in unit terms.
Royalty income was $35.8 million compared to $36.5 million in the prior year quarter.
Approximately, 4,500 units of Bendeka, which were shipped to Teva during the last week of March, were not shipped by Teva to wholesalers.
These units would have resulted in an additional $2 million in royalty revenue during the first quarter.
Gross margin was 75% during the first quarter of 2018 as compared to 77% in the first quarter of 2017.
As a reminder, the first quarter 2017 revenue figure included a $25 million milestone payment from Teva.
On the expense front, R&D expenses increased to $17.3 million for the quarter compared to $7.5 million in the prior year quarter, largely due to external clinical costs associated with the fulvestrant clinical study, which completed randomization of 600 subjects during the quarter.
Excluding stock-based compensation and other noncash and nonrecurring items, R&D expense during the first quarter was $15 million.
We are reiterating our 2018 R&D expense guidance, which we expect to be in the range of $46 million to $50 million.
This reflects ongoing expenses for: number one, the enrollment of fulvestrant in RYANODEX CHS clinical trials; number two, API outlays for the fulvestrant and Vasopressin programs.
And finally, additional development work on the RYANODEX nerve agent program.
Excluding stock-based compensation and other noncash and nonrecurring items, R&D expense would be in the range of $40 million to $44 million for the year.
SG&A expenses decreased to $15.2 million in the first quarter of 2018 compared to $18.6 million in the first quarter of 2017.
The decrease was due to the expiration of the Spectrum promotion contract at the end of June 2017 as well as a reduction in marketing expenses.
These reductions were partially offset by the increase in personnel-related expenses associated with the expansion of our sales force during the second quarter of 2017.
Excluding stock-based compensation and other noncash and nonrecurring items, first quarter 2018 SG&A expense was $10.5 million.
2018 SG&A expense is expected to be in the range of $61 million to $64 million.
Excluding stock-based compensation and other noncash and nonrecurring items, SG&A expense would be in the range of $44 million to $47 million for the year.
Net income for the first quarter was $2.6 million or $0.18 per basic share and $0.17 per diluted share, compared to net income of $22.9 million or $1.50 per basic and $1.42 per diluted share in the prior year period, due to the factors discussed above.
Adjusted non-GAAP net income for the first quarter of 2018 was $8.2 million, or $0.55 per basic and $0.53 per diluted share, compared to adjusted non-GAAP net income of $26.5 million or $1.74 per basic and $1.64 per diluted share in the prior year quarter.
For full reconciliation of non-GAAP net income to the most comparable GAAP financial measures, please see tables at the end of our press release.
Our EBITDA for the first quarter 2018 was $9.5 million compared to $38.2 million in the prior year quarter.
During the quarter, we completed $7 million in share repurchases as part of our $100 million expanded share repurchase program.
Since August 2016, we have repurchased $88 million in stock.
As of March 31, 2018, the company had $95.7 million in cash and cash equivalents and $53.4 million in net accounts receivable, $42 million of which was due from Teva.
The company had $48.8 million in outstanding debt.
With that, I'll turn the call back over to <UNK>.
Thanks again, <UNK>.
I'll close by reminding everyone that at Eagle we are focused on unlocking the potential in proven medicines through enhanced treatments and valued partnerships.
We are just getting started on our mission to maximize the full potential of treatments for patients and physicians and create unmatched value for shareholders.
To recap, the ODE case should be resolved shortly.
We believe that our bendamustine orphan drug designation entitles us to exclusivity through December of '22.
Between now and then, we have a strong base business that will be supported shortly with the launch of our 500 ml ready-to-dilute bendamustine solution if approved.
And the collaboration with SymBio covering Japanese rights to bendomustine ready to dilute and rapid infusion injection products.
And following this launch we have the [HS] and nerve agent trials for RYANODEX, which could add 2 new indications for next year.
We're also working diligently on a very promising transformation from an IV market to a subcutaneous market and could potentially have this filed and/or on the market next year as well.
The recruitment of our fulvestrant trial is going well, with results expected later this year.
And in addition to these 3 potential launches, our portfolio could include what we believe is the first to file formulation of Vasopressin, a second ANDA we are starting a biostudy for, as well as PEMFEXY.
We continue to build significant cash, are minimally levered and have the ability to add to our growth throughout ---+ through product or company acquisitions.
And as we have always done, we will continue to manage our cash prudently, so that we can invest in activities that maximize value for shareholders.
With that, I'd like to thank you for your continued support and open the call for questions.
Operator, please go ahead and open the line for questions.
You have 2 very interesting thoughts.
Look, first on EH<UNK>
You're right, we received a complete response back in July, and we've always ---+ we've had so many conversations.
We've always believed that we did what we were required to do.
I think at the end of the day it is really simple after having discussions with the agency and the back and forth, I think it really just comes down to an acknowledgment that we did what we needed to do and perhaps where we landed here is, a, we see it, but we prefer to have more than 34 subjects and why don't we get some more subjects, and we all concluded that the best way to do it was go back to the Hajj.
And you're right, the 2 trials, the one we ran in '15 and the one we're about to run in '18 are almost identical.
And I think it's just an acknowledgment that we wanted more than the 34.
If you remember, we originally wanted 100, maybe we'll, between the 2, we'll get closer to that.
Hopefully, we'll get back to the 100 here that we thought.
We'll just have to see how it goes.
And then get back to the FD<UNK>
But to answer the other question, we think that we're aligned, yes, we've had several meetings.
Last meeting was very positive.
And we believe that there's an agreement between the agency and Eagles to what needs to be done, and (inaudible) we will go collect the subjects.
And then as it relates to the second ANDA, I can give you a little bit more color, the second one does not require a Paragraph IV, it's an older generic that's been on the market for many years, and there's just ---+ only one competitor.
It's a hard drug to develop.
It requires a biostudy.
The size of the drug, a little bit under $200 million.
And we'll start that study here reasonably soon and as soon as we conclude the biostudy and assuming we pass, then we'll let everybody know what the product was and we'll file it with the agency.
So <UNK>, I would phrase it this way.
The ---+ what we all recognize that the difficulty of running a study like this is that you can't target a certain number of subjects, because the Hajj is only 4 days.
It comes to an end and you're done.
We can only recruit what we could recruit.
In this particular case, we've added a day to the beginning, and we've expanded the time, because it's so hot around the clock.
What we're being told by the people who go to the Hajj every year, the medical teams that we're working with, is that you can get heatstroke patients later into the night and so we've expanded ---+ excuse me, to 12-hour days from 8-hour days.
It would be ---+ in the perfect world we would wind up with a p value of 0.05 or better, that would be the easiest way to the quickest approval.
Our last study with only 34 patients was really strong, our p-value was at 0.08 and if you extrapolate out and when the statisticians do what they do, if we had somewhere between 70 and 100 patients, our .
08 would have dropped down below .
05.
I think there's recognition at the agency as well that there's other really very positives in our data, and so there's no real specific number.
It would be great if we can get at least another 65 or so.
Even if we wound up with another 35, and now we had 2 confirmatory studies with similar results, assuming that the results are similar, I think we have an excellent chance at approval.
I think the key isn't so much around the numbers, but the results.
And if we wind up with a second study with similar response as we did the first time, I think we're in excellent shape.
And that's where the focus really should be.
But if there's no stampede, if nothing happens this time, there's no reason to think that we shouldn't achieve more than enough subjects to make it extremely robust, to add it to the first study and put us in really strong chance of a approval and launch in the summer [for] next year.
Yes.
I think we can do that, <UNK>.
We've always had the right to launch big bag, as you know.
We're thrilled with what Teva had done for us but big bag is a very profitable opportunity.
There's quite a bit of upside for us by launching and with or without the ODE decision, I think it makes sense to launch it.
As I said in my script earlier that it's profitable, and at the same time it winds up helping us manage our business.
I don't think it would really matter to us if we win the OD or not win the OD, we would've made the same decision.
But if we have 5 years of exclusivity going forward, you can see how these 2 together could create some value for us that we shouldn't pass up, and take advantage of it.
And as I said, it's complementary to everything that we're doing with Bendeka.
Bendeka is a great product, but there's a portion of the population that I think would want this opportunity of a ready-to-dilute product.
And we're going to take advantage of it and go launch, and needless to say, we're pretty excited about it, and thrilled about the future of bendamustine.
I don't think we're ready, <UNK>, to give you a forecast or guidance on the sales.
I think we're just going to go out, we'll launch.
It'll be a meaningful launch for us.
Bendeka is first and foremost in our minds and the most important product in the mix for us.
It offers really strong patient benefits.
There is a segment of the market that I think would like big bag, and we'll go after that.
But we really do believe this is complementary to everything that Teva is doing for us, and our focus is on growing the value of Bendeka.
We'll support that with the big bag launch, and it doesn't take a lot of big bag sales because of the economics, to have a positive impact on the company.
And that's why we think our earnings will be going up now because of this launch.
But you know, it's ---+ Bendeka is really very important to us.
Yes, so <UNK>, we are ---+ look ---+ and we think about ourselves as being very opportunistic management here.
ANDAs are not a core part of our business.
We don't see ourselves in any way as a generic drug company.
We're a specialty company.
We're very proud of the improvements in Bendeka.
We're extremely proud of the potential improvements of exertional heat stroke nerve agents and then fulvestrant.
Having said all that, we do have these 2 NDA's that are ---+ were unique and took a lot of effort and skill along with our partner to get the drug this far and to ultimately get it on the market.
I think it's our job to optimize the value of these assets.
As you can see by the launch of big bag today and the expansion in new clinical trials for exertional heat stroke, we'll monetize this asset in the best way possible.
If it means launching it, well obviously we're equipped to launch it with our sales force.
If it means [settle], if that's in the best interest of our shareholders, we'll do that.
But right now we're just thrilled to find out that we were able to get it through FDA to this point.
And to wind up seeing what appears to be first to file and ultimately enjoy that 180 days that comes along with it.
So it's ---+ for our shareholders it's wonderful.
And I would tell you, we didn't spend a heck of a lot of money to get to this point.
So all good there as well.
No, I don't think it's really changed, <UNK>.
The point that I would make on this topic is that we, as a forward and management team, expect that we should be able to grow this company for many, many years to come.
And based on the fact that we are so unlevered, such an unusual situation in the industry right now, we're building significant cash, we have significant cash, we have a nearly unlevered balance sheet.
If we add some time to the bendamustine opportunity with a successful exclusivity situation with the orphan drug position that we find ourselves in.
You layer on the pipeline, depending on the level of success that you have in the pipeline, we are moving 7 products forward in clinical now this year.
So you should be able to grow this company year-after-year, for some time if things go well.
But we do have the ability to acquire.
And so what could we acquire.
We can acquire products, we can acquire clinical programs, we could acquire companies.
I think it all depends on how things unfold as we move through 2018, when we see where we are with all of these programs that we discussed today.
And depending on how they move along, we could be in a position to accelerate the growth of this company significantly if we choose to.
And I guess the point is, that we're making is, that we believe we have quite a bit at our disposal, quite a bit going on this year, and we could very well be in a position to continue to add opportunistically what you see today and what we could still do that's unknown to make sure that this is a great growth story going forward.
We are very proud of our accomplishments since we went public in 2014.
It's been a great growth story since then and we're going to do everything we can to continue it.
You know what, I really can't, Greg, but thank you for the question.
When you are in the middle of these things, there's really not a heck of a lot that you can say.
I think some people in the industry have done a really nice writeup that our investors have looked at or may want to refer to.
But what I can tell you is that historically, the designation attached itself to the exclusivity.
And at the time that we went through all that work with the FDA, they gave us the designation when we were working with the orphan drug group all those years ago, we had no reason to believe that the designation and the exclusivity would be separated.
And really our argument is just that, we do have the designation, we did get the drug approved for the indications that went along with the designation and we simply believe that, that exclusivity should follow.
And then we'll see what happens, right.
We'll know in the next week or 2, up to 2 months or so, and we'll find the answer.
Yes, that's a very good question.
And perhaps, I don't know fully what the competitors in the industry are doing.
I can tell you it was difficult on a number of levels.
I think the people that I've spoken to since we made the announcement, I think there has been general surprise in the industry that someone hasn't filed an ANDA for this before.
I can only assume that there are people behind us.
How many is hard to tell.
But you're right, I think this is one of those markets that's a little bit more difficult than others or you would have seen an ANDA previously, and it wasn't the easiest thing to do, and hopefully it'll work out for our shareholders pretty well.
We're not aware of any other bendamustine competition in the near term.
We believe that, first, Bendeka, which is the only liquid on the market today, is protected by hopefully 7 years of exclusivity, if we're successful here with the ODE.
But don't forget we have 13 patents protecting our formulation.
And we expect those patents to hold up.
They run from '31 to '33, and most of and many of those patents also cover the launch of big bag and hopefully, that will be covered by this orphan drug exclusivity as well.
So people need to get around the patent, they need to get around the exclusivity if we get it, to come to the market.
And so I think we are in pretty good shape from a competitive standpoint going forward.
Yes, it's a very good question.
So if you take the first question, the first part of it first.
Look, there has been a concern over the years that starting in 2020, we have a dip in our royalties coming from Bendeka because of additional competition.
We've never thought that ---+ so we thought, if you've noted in the past, we've always said that we thought we'd lose maybe 30% of our royalty.
And we've always believed that our pipeline, that we've discussed today, is far ---+ large enough to overcome that decrease.
And that we would be a growth company out in time regardless.
If that dip does not come, everything that we do here is additive.
It also gives you more certitude in running the business, because you're not going to have to worry about the order of magnitude of that decrease, or that ---+ if it's going to happen or not.
And it just gives you certitude, gives you the comfort of knowing that you have 5 years to build your runway, and it will just make it easier to run the business.
But I don't believe there's any major strategic change to the company.
We'll continue to move the 7 projects along with or without the exclusivity.
We believe that with even moderate success in the pipeline we'll grow this company for many years to come.
We'll obviously have a little bit more cash than less cash, if we have the exclusivity.
But with an unlevered balance sheet, nearly completely unlevered, the cash that we have and the royalties coming from Bendeka, now big bag.
I think there's more than enough opportunity with or without it to make sure that we continue to grow this company.
And as a management team, we are very focused on making sure that this is a growth company for many years to come.
It'll be easier with the exclusivity, but we'll still do really very well under either circumstance.
Yes.
Look, it's very minor changes, Tim.
You can ---+ everybody can go back and take a look at it.
We filed on the original product.
The only changes that were made, there's a little change to pH, there's a little bit of a change to preservative.
It's essentially the same product.
There is no medical benefit between the new Vasostrict and the old Vasostrict.
There's no patient benefit, there's no medical benefit.
And I think it was probably done to give a little bit more patent life, which is part of the reason why we decided to file on the old one, as opposed to the new one.
And we believe that we'll be extremely successful in converting the market to our ANDA, assuming we get the product to the market, especially during that period of time that we're exclusive.
Well, look, I'll tell you that from my view and I know many of us here at the company, we see the sales force that we now have as being very strategic to this company.
And hopefully, we'll get these products through the pipeline and we'll grow our sales force.
And it's a big change for the company to where we were couple of years ago, is having the ability to bring more products into the company and utilizing that sales force.
We're thrilled about the people in the sales team that have joined us.
They are very talented individuals with a lot of experience in the hospital and in the channel.
And so we believe we have every capability of launching this product on our own, very successfully.
And we will do that if that's the decision that we make.
I would say, Tim, as well, I think the point that you're getting is, I would not rule out Eagle bringing in additional opportunistic products like this, because we do have a certain level of talent here.
We're very good at filing patents.
I think we're very good at getting around patents.
We're very good at coming up with tricky formulations, being able to get hard products to the market, which we've been doing since the company was in existence.
And now you layer on the sales capability and the marketing capability that we have here.
There's no reason if we find opportunities like this that we could just easily bring into the company to find additional value for our shareholders, there's no reason to pass up on those opportunities.
And I think it's likely that we'll continue to announce situations like this, where we believe we have an unusual capability of bringing value to the company.
Thank you, everybody.
Appreciate the time you spent on the call with us.
| 2018_EGRX |
2017 | TLRD | TLRD
#Thank you, WIlliam.
Well, we closed the vast majority of those stores after the wedding season, so they were essentially closed in the third quarter.
So the transfer is really a 2017 event.
Historically we have seen a very high transfer rate in the Men's Wearhouse stores.
And we will continue to monitor.
You know, we had a pretty strong tux year.
So it is hard to see that they had a material impact on us.
I mean obviously we are pretty dominant in the tux rental space, so to a certain degree, anybody that rents a tux is taking a little bit of share from us.
But we had another good year in tux, so I do not see the material impact.
Yes.
We think that might be playing a role and we think we feel that probably the most at K&G.
And we have seen some traffic improvements in the last week or so that we attribute that.
Yes.
I mean, we are going to be investing a little bit in some of our store remodels.
Our Joseph Bank fleet is going to be getting some, what I would say is some sort of paint and carpet kind of investment because those stores have not been touched in a while and we want to make sure that we maintain the experience that our customer expects.
In addition to that, we've got our IT spending, we have got some of the spending on things that <UNK> talked about, particular in omni.
And then there are some miscellaneous things around facilities and things like that, but we think $90 million is an appropriate amount.
That is down from last year in part because in 2016 we made some DC investments that won't repeat in 2017.
Thank you.
Well, thank you for joining our call today and we look forward to updating you on our next quarter.
| 2017_TLRD |
2018 | PBCT | PBCT
#Good morning, and thank you for joining us today.
Here with me to review our first quarter 2018 results are: Jack <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Chief Financial Officer; Kirk Walters, Corporate Development and Strategic Planning; Jeff <UNK>, Commercial Banking; and Jeff Hoyt, Chief Accounting Officer.
Please remember to refer to our forward-looking statements on Slide 1 of this presentation, which is posted on our website, peoples.com, under Investor Relations.
With that, I'll turn the call over to Jack.
Thank you, Andrew.
Good morning and we appreciate everyone joining us today.
Let's begin by turning to the first quarter overview on Slide 2.
Our first quarter performance demonstrates our success in enhancing earnings power of the company, while continuing to build the franchise for the long-term.
We are pleased to report record quarterly net income of $107.9 million or $0.30 per common share and a return on average tangible common equity of 13.8%, an increase of 420 basis points from a year ago.
We continued to execute on revenue-producing initiatives and synergies created by recent acquisitions.
As such, we're also pleased, total revenues of $386 million increased 2% from the fourth quarter and 16% from a year ago, driven by both higher net interest income and fee income.
The net interest margin was 3.05%, a 2 basis point decline from the fourth quarter, primarily due to the unfavorable impact of tax reform on our municipal bond holdings and tax preferenced items in our C&I portfolio, as well as 2 fewer calendar days in the first quarter.
These declines were partially offset by higher yields on new business and upward repricing of floating rate loans.
On a year-over-year comparison, net interest margin was up 23 basis points.
While the first quarter is seasonally higher for expenses, total non-interest expenses increased only 2% from the fourth quarter, reflecting our continued focus on controlling cost.
The seasonality in expenses and the unfavorable impact of tax reform on fully taxable equivalent revenues were primarily ---+ the primary drivers of the increase in the efficiency ratio on a linked-quarter basis.
Average loan balances were $32.1 billion for the quarter, a decline of less than 1% linked quarter.
While the first quarter is typically seasonally slower period for loan growth, production was also unfavorably impacted by customers remaining cautious across our portfolios.
Commercial real estate balances were lower primarily due to continued slow market conditions, heightened competition and elevated payoffs.
In addition, commercial real estate balances reflected greater than expected runoff in the transactional portion of our New York multifamily portfolio.
Despite the modest decline in the loan balances for the quarter, given our diversified business mix and strong commercial loan pipelines at quarter-end, we remain confident the company can achieve the 2018 growth goal of 4% ---+ 6% that we announced in January.
Moving on to deposits, average balances were $32.8 billion for the quarter, also a decline of less than 1% from the fourth quarter.
We remain focused on gathering deposits across both our retail and business ---+ commercial businesses.
As I discussed last quarter, we will continue to enhance technology and marketing capabilities to better serve clients.
We're also investing in digital marketing capabilities with new tools and the usage of data.
We are aligning technology-based offerings with our expert bankers across business lines, including mobile and online capabilities, putting human interaction at the center.
Therefore, we were excited to launch our new retail checking campaign in February, which is themed, where the technology is as helpful as the people.
The campaign is promoting quality of our customer service and the relevance, effectiveness and convenience of our technology.
Also, during the quarter, branch associates once again recognized People's United for its commitment to service with 5 excellence awards in middle-market banking, both nationally and in the Northeast.
It's an honor to be recognized as it reflects the success of our unwavering commitment to service and the ability to offer a full suite of products that help clients achieve their financial goals.
Our solutions oriented approach to banking continues to differentiate People's United.
Finally, our prudent capital management has enabled us to grow the business organically and invest strategically in the franchise, while also providing a consistent cash return capital to shareholders.
As such, we are proud to announce the company's 25th consecutive annual common dividend increase.
We remain committed to our strategy of annually increasing the common dividend, while also continuing to reduce our common dividend payout ratio by growing earnings.
It's important to note that the common dividend payout ratio was 56.3% for the first quarter, down from 78.3% a year ago.
With that, I'll pass it to <UNK> to discuss the first quarter in more detail.
Thank you, Jack.
Turning to Slide 3.
Net interest income of $295.8 million increased $3.5 million or 1% on a linked quarter basis.
The loan portfolio contributed $10.7 million of the increase to net interest income due to higher yields on new business and the upward repricing of floating-rate loans.
Net interest income also benefited $2.7 million from higher average balances in the securities portfolio.
The largest offset to these increases was a $6.1 million reduction in net interest income from higher deposit and borrowing costs.
In addition, 2 fewer calendar days in the quarter lowered net interest income by $3.8 million.
As displayed on Slide 4, net interest margin of 3.05% was 2 basis points lower than the fourth quarter.
Excluding the unfavorable impact of tax reform on our municipal bond holdings and tax preference items in the C&I portfolio, net interest margin increased 4 basis points from the fourth quarter.
Net interest margin continued to benefit from the loan portfolio, which favorably impacted the margin by 10 basis points, as new business yields remained higher than the total portfolio yield.
Conversely, 2 fewer calendar days in the first quarter reduced the margin by 4 basis points, while higher deposit and borrowing costs collectively lowered the margin by another 6 basis points.
In addition, a lower securities portfolio yield decreased the margin by 2 basis points.
Turning to loans on Slide 5.
Average balances were $32.1 billion, down $175 million or less than 1% linked quarter.
Average balance growth of $120 million in equipment financing and $31 million in residential mortgage was offset by lower average balances of $168 million in commercial real estate, $114 million in C&I and $44 million in home equity and other consumer.
We continue to be very pleased with the addition of LEAF, as their average loan balance grew 8% from the fourth quarter, in line with our expectations.
Period-end loans were also $32.1 billion, down $471 million or 1% linked quarter.
As Jack referenced earlier, loan production during the quarter was unfavorably impacted by customers remaining cautious across our portfolios.
Commercial real estate balances were lower, primarily due to continued slow market conditions, heightened competition and elevated payoffs.
In addition, commercial real estate balances reflected greater than expected runoff of the transactional portion of our New York multifamily portfolio.
Write off from the New York multifamily portfolio was $145 million in the first quarter, which was higher than our quarterly expectation, due to 1 relationship with 10 loans, totaling $54 million, paying off earlier in the year than anticipated.
Average deposit balances for the first quarter were $32.8 billion, down $54 million or less than 1% linked quarter.
As you can see on Slide 6, growth in interest-bearing checking and money market balances of $121 million was offset by $175 million in lower average balances collectively across savings, noninterest bearing and time deposits.
Period-end deposits were $32.9 billion, down $163 million or less than 1% linked quarter, driven by a $199 million decrease in time balances and a $64 million decrease in noninterest-bearing deposits.
The declines were partially offset by growth in interest-bearing checking and money market balances of $68 million as well as savings balances of $32 million.
Deposit costs were up 3 basis points for the quarter.
We continue to focus on controlling deposit cost as demonstrated by an interest-bearing deposit beta of 16% since the beginning of the current cycle of increasing interest rates.
In comparison, our loan yield beta is 26% during this same period.
Looking at Slide 7, noninterest income of $90.4 million increased $3.1 million or 4% on a linked-quarter basis.
As you will recall, noninterest income in the fourth quarter included $10 million of net security losses incurred as a tax planning strategy, which were offset by a tax benefit associated with tax reform.
Noninterest income in the first quarter benefited from $2.9 million in higher insurance revenues, reflecting the seasonality of commercial insurance renewals, which are higher in the first and third quarters of the year.
Commercial banking lending fees were also up $1.8 million in the quarter, primarily driven by higher C&I loan prepayment fees.
The largest offset to these improvements was a $3.7 million decline in customer interest rate swap income, which had a very strong fourth quarter.
As a reminder, the other noninterest income line item in the fourth quarter benefited from a $2.6 million gain on the sale of 2 acquired loans as well as a $1.2 million gain from the sale of Suffolk's headquarters building in Riverhead, Long Island.
On Slide 8, noninterest expense of $243.5 million increased $3.8 million or 2% from the fourth quarter.
The first quarter did not have any merger-related expenses, while the fourth quarter included $1.6 million of merger-related expenses with $1 million in professional and outside services and $600,000 in compensation and benefits.
Excluding merger-related expenses, noninterest expenses increased $5.4 million during the fourth quarter.
The primary driver of this increase was $8.6 million in higher compensation and benefits, primarily reflecting seasonally higher payroll and benefit-related costs.
Additionally, professional and outside services were up $900,000 from the fourth quarter.
The largest offsets to these increases was $2.8 million in lower amortization of core deposit intangibles, relating to certain acquisitions, which were fully amortized as of year-end 2017, resulting in approximately a $2.6 million lower quarterly expense in 2018.
This reduction was contemplated in our full year 2018 expense goal provided in January.
Additionally, regulatory assessments were $1.3 million lower in the fourth quarter, due in part to a reduction in average assets.
Turning to Slide 9.
The efficiency ratio of 59.4% increased 330 basis points from the fourth quarter, but was flat compared to a year ago.
As Jack described in his remarks, the seasonally higher payroll and benefit costs in the first quarter as well as the unfavorable impact of tax reform on fully-tax equivalent revenues were the primary reasons the efficiency ratios increased from the fourth quarter.
Tax reform added approximately 90 basis points to the efficiency ratio in the first quarter as a result of a lower FTE adjustment to net interest income, while seasonally higher payroll and benefit costs added approximately 150 basis points.
Looking forward, we remain committed to enhancing operating leverage through revenue growth and effective expense management.
Our strong credit culture and conservative underwriting standards continue to drive exceptional asset quality as demonstrated on Slide 10.
Originated nonperforming assets once ---+ as a percentage of originated loans and REO at 58 basis points is once again well below our peer group and top 50 banks.
Net charge-offs of 6 basis points improved 2 basis points from an already low level and continue to reflect the minimal loss content in our nonperforming assets.
Moving on to slide 11.
We are pleased with the progress we have made improving our profitability metrics.
Return-on-average assets of 98 basis points improved 28 basis points from a year ago, while return on average tangible common equity of 13.8% increased 420 basis points over the same period.
As we continue to build the earnings power of the company, we expect further improvement in these metrics.
Continuing on to slide 12.
Capital ratios remain strong, especially in light of our diversified business mix and long history of exceptional risk management.
In addition, capital ratios were favorably impacted by approximately 11 basis points, due to the reclassification of $38 million from AOCI to retained earnings, representing the stranded tax effects arising as a result of tax reform.
The final slide on Page 13 displays our interest rate risk profile for both parallel rate changes and yield curve twist.
We remain asset sensitive in spite of rising interest rates, and we continue to be well positioned for further increases in interest rates, as approximately 43% of our loan portfolio at quarter-end was either 1-month LIBOR or prime-based.
Now we'll be happy to answer any questions you may have.
Operator, we're ready for questions.
Now, <UNK>, it's <UNK>.
No, the ---+ those loans were scheduled to pay off in the third quarter of this year and they paid off late in March.
So our original guidance that we gave back in January of payoffs of $250 million to $300 million, is still our current expectations.
Yes, the balance ---+ $1.250 billion is the outstanding balance now.
Well, we had a nice capital build in the quarter.
Part of it, we talk to the 11 basis points I just mentioned.
Capital levels were a little higher than we expected just because the size of the balance sheet was a little smaller than expected.
Our expectation would be that if we do have the opportunity to acquire in the banking space it would most likely be a 100% stock deal.
So in no way would we think that our capital levels would be an issue around any type of acquisition.
Well, this is Jack, <UNK>.
I think there's certainly some of that.
There's as always, I guess, in my mind, a mix of opportunities and challenges for the people that we have relationships with and that we talk to.
And rates are coming up, people are hopeful about the economy and that makes them optimistic about progress.
But on the other hand, there's a lot of challenges around growing deposits, spending money on technology, et cetera, that weigh on people.
So I think we are very anxious, waiting on Washington, given our size and the benefits of the Crapo bill.
Those that are smaller, it's less of an urgent issue.
There's obviously some potential progress and relief in the proposal.
So I would say, it feels pretty normal right now.
Yes, Mark, we do.
The ---+ that guidance was predicated on 2 Fed tightenings as we said.
And it looks like there will be 3.
So I would call that a tailwind.
We were ---+ the margin came in where, basically, where we expected in the first quarter.
We had guided to 5 basis points impact of tax reform, it actually turned out to be 6.
A lot of that driven just by a smaller balance sheet.
So the ---+ that guidance is still exactly where we think it should be.
Potentially reduce expense.
All right.
So, we've talked for, well, couple of years now, about our B50B project.
That project has remained in place.
As we've described, there are many things that we continue to work on around things like data governance that incrementally we have built into the expense run rate.
We are making very good progress there.
And those are the kinds of things, Mark, where we would continue to work on given that regardless of SIFI designation, going to ---+ we're a $44 billion bank, we're going to be a $54 billion bank.
We need to have very solid governance and control around our data.
So there's a lot of different components.
I've mentioned in the past, where we kind of understand the living will.
We're not spending any time or money or building one.
We know it's not appropriate and it would be a waste of resource, so we avoid those kinds of things.
So I would think ---+ I think the way for everyone to think about it is, there are many things that we have built to be prepared to cross $50 billion that are beneficial to the company and are in our run rate.
And there are many things that we could avoid like a living will or the impact of the liquidity ratio, et cetera.
And some of those things will be net benefits as we avoid them, but we wouldn't see an expense reduction in the sense of avoiding them.
We just wouldn't have to incur it in the future.
Sure.
Take a peek at it.
But maybe first I'd ask Jeff <UNK> to give you a sense of where the pipelines are in his conversations from the different business lines.
Thanks, Jack.
Yes, so our pipelines have really been growing over the course of the quarter, and I think we've experienced some momentum as we moved through the first quarter.
At the end of the quarter, we had particularly strong pipelines in some of our larger markets.
I would point to Massachusetts as one example and Boston in particular in both our C&I and commercial real estate businesses.
And we're also seeing particularly strong pipelines and good activity in Long Island, which is where our bankers from Suffolk County National Bank have really started to show some momentum.
If you recall, about a year ago ---+ or it's been about a year, since we acquired Suffolk County National and so we're through a lot of the transition.
So we're back to just doing kind of the good business that we've always done in other parts of the company.
Maybe just on the equipment financing growth this quarter.
I think, typically, the first quarter is a little weak for that business.
It looked strong.
And as I look at some of the indices that track that lending area, they also look good.
Can you maybe give your outlook for that business and any benefits you're seeing from a tax reform perspective.
Yes.
So let's start with the second part.
We're really not seeing any benefits yet from the tax reform.
We're expecting to see the favorable impact of the reform on depreciation to motivate people to move forward.
I think the people are in those planning processes now, that's just my take, but I'd say, we're not seeing the signs of it yet.
And our expectations in the business, generally, on the larger and more, kind of, historically PCLC and the [old fin fed], I would say, we have reasonable growth expectations this year that are in line with our overall guidance on the loan portfolio.
LEAF, obviously, is net new and incremental, and we expect a very healthy double-digit growth from LEAF through the year.
Sure.
So I would say the, kind of, heightened competitive environment is coming in at multiple directions, but ---+ and we do see this typically in the first half of every year.
For instance, in the commercial real estate area, the insurance companies come back into the market, seems to be a little more activity with funds that are competing for deals.
And then, I think, the reality is, as we've seen in the industry, the loan growth has been soft.
And so, you've got an environment where, I like to say, too much money chasing too few deals.
So competitively the opportunities are very ---+ are in situations that are very competitive, kind of, across the spectrum.
And we are sticking to our underwriting discipline.
And we're sticking to our ---+ I should say we actually had a slightly improved spread this quarter.
And that was encouraging given the business that we did and the improvements.
But I think our biggest opportunity in terms of competing well, holding the line on pricing is all of our long-standing customer relationships.
So it's when you have a good relationship banking business model and you've got customers that have been with the bank 10, 15, 20 years, we obviously have an advantage competitively.
They know us, they depend on our good solid execution and that helps them, kind of, plan and operate.
And we can get appropriately rewarded for that.
Yes.
So we have naturally a process and regular discussions about our ---+ about pricing and where we're positioned in different markets.
We manage it on a geographically.
I think is the way to think about our markets in the various states and then respond to what's going on within those markets.
We're seeing, I'd say, pressure across the board.
People are moving, certainly CD rate is up.
There's a lot of specials out there in different markets with different institutions.
And then there's people moving money market rates up.
On the very large balances across government banking, commercial and retail, it's really kind of an exception pricing environment.
So discussions based on large dollars and what people's appetite is for.
It's definitely what you would expect, and I think what we're seeing as the deposit betas change.
Yes.
The only color I would add to that, <UNK>, is the competition is heating up, but I would still characterize it as fairly well controlled to date.
I think it's a combination of both, <UNK>.
We have had higher pay downs, actually, I'll say roughly through the last 4 to 6 quarters.
It's ---+ so it's been inching up.
And I think a lot of that are either people deciding to sell properties in an environment where they feel like they're just getting a very good offer that they should take, or as I mentioned, insurance companies come into a deal and get very aggressive about competing for it.
On the origination side, we feel very good about the businesses.
One of the first places that I go in my mind in terms of our opportunities is the diverse nature of our portfolio.
And so you've got a lot of different, very specialized focused lending platforms and they all have strength and they all have good people and they have an ability to grow.
Obviously, real estate has been ---+ it's been a challenging period and we continue to move through that.
Again, we've got a lot of very good people in that business and a lot of very good customers.
So we expect to keep moving forward.
The pipeline, what.
The pipeline yield.
It's consistent with what went on with the books this quarter.
So the way we think about that is we look at existing portfolio versus new business that goes on each quarter.
And we talked about that an awful lot.
That averaged in the mid-20s, mid-to-upper 20s, the last couple quarters, and that has moved up about another 20 basis points.
So that differential is around 50 basis points these days.
So think about a pipeline yielding about 50 basis points more than the existing aggregate loan book does.
Sure.
So the ending balance at 3/31 was $865 million.
The ---+ everything about that acquisition is tracking where we expected it to be.
So very favorable from a growth perspective, from a yield perspective.
Their yields range in the mid-7.5%.
Yes.
We are concerned about that.
I would say, some ---+ in some deals that we lose, we certainly would draw conclusions that some people may be ---+ we are trying hard not to do that and hold the line.
But I would say, there's some pressure.
We'll see how people play it out.
I think ---+ we're not going to have a real good feel for that until we get into half or through the year to really understand how aggressive people will get.
The only thing I'd add to that, Matt, is for all the pressure we see and feel as a bank and as an industry, the fact is, that our credit spreads actually widened a few basis points in the quarter.
That's the one hard fact that we have.
Thank you.
In closing, our strong first quarter performance was highlighted by another quarter of record earnings, continued revenue growth and effective expense management.
Significant year-over-year improvement in both return-on-average assets and return on average tangible common equity, sustained exceptional asset quality and further reduction in the common dividend payout ratio through earnings growth.
Finally, given the importance of the common dividend to our shareholders, we were also proud to announce the company's 25th consecutive annual common dividend increase.
Thank you for your interest in People's United.
Have a good day.
| 2018_PBCT |
2017 | SFM | SFM
#<UNK>, it's <UNK>.
What we've set out in our guidance was we're going to remain in the 1.2 to 1.5 times leverage, net debt to EBITDA.
That's our intent going forward, so you can do the math on that.
We ended the year 2016 around 1.3.
Yes.
I would say the biggest components were the holidays as we had talked about in our script.
Holiday programs is our national organic program, our meals.
The team did a fantastic job of executing and what we're seeing is more and more customers are filling up the entire basket for the holidays, just not single or unique items from Sprouts.
So that's exciting for us and that's a program we've build over the last really three, four years.
And as always, we had a handful of learnings this year that we'll deploy next year and get even better.
So those weeks were really strong this year to help offset some of the unanticipated deflation that started in December.
<UNK>, I don't know if you would add anything.
(multiple speakers).
I'll just give you to what <UNK> said, one small anecdote.
I was at our first store opening in Florida yesterday and I spoke to several customers in the VMS department and one of them as an example told me that they used to shop three, four different places to find all the items and then also try to figure out what all they need to buy and they truly found a one-stop shop with Sprouts.
And actually, that was our biggest basket that we had for the day.
So I think it's both the depth and breadth of product as well as the great service from our really knowledgeable team members in that department that have continued to give us tail winds actually for the last five years in that department.
That's for the entire year.
To the extent that produce gets ---+ It would really be a combination of produce and ---+ where produce and bulk sit in the back half of the year will be the driver behind it.
We think that some of the other categories will lap and turn positive.
And so really depend on produce and bulk, how that settles in as we go into the summer and the fall.
And to the extent that they're better, don't necessarily need to be inflationary, but just being close to flat, then I would expect that we could see inflation in the back half of the year.
Sure, <UNK>, it's <UNK>.
From a gross profit perspective, we were down 70 basis points in total but excluding the impact of the 53rd week in the prior year we were down 50 basis points.
That compares to down 60 in the third quarter.
Of that 50 in the fourth quarter, about 20 basis points of that decline related to occupancy.
So a step up in the number of stores, the average square footage is now closer to our average prototypical store of 30,000 square feet.
So really I would say the merch margin component of that was only about 30 basis points.
As it relates to DSE.
Again, we've seen similar performance that we've seen year to date, about 50 basis points of the 120 decline after, again, the 53rd week is stripped out, is related to the wage increases that we put in place at the beginning of the year and the increased training.
So that leaves about 70 basis points of year over year to leverage, which about ten of that was related to the step up in depreciation as you know, the number of stores increased significantly from 27 to 36 from 2015 to 2016.
We've made adjustments as we moved throughout 2016, as we do our review market by market and make adjustments.
Clearly, we've made investments in infrastructure and technology.
As we have spoken about before, we have put in a labor scheduling system into the stores in 2016 mid year for the non production departments.
And it's our intent to expand that to the production departments in 2018.
We're starting to see some early wins on putting those systems in place.
So we fully anticipate getting some productivity improvements on an ongoing basis that will help offset wage pressures in various markets.
Yeah.
I think it just depends on what the environment looks like when category by category as that inflation resumes.
At times there is a little bit of a lag in passing the prices through and more so it can tend to be by market and more competitive market.
It can tend to be a little bit longer and in lesser competitive markets it can come back pretty fast.
So on average, I would say that it takes a few months, but people do tend to pull up and I think when leverage starts kicking back in, everybody gets back to a less stressful, more normal environment sooner rather than later.
And as you know, when deflation persists, people just get antsy and upset and in the past we tend to see the food fights resume.
And so hopefully as we see some turn, as we go through the year that will really settle everybody down.
I think that in certain areas (inaudible) we actually do weekly price checks.
In other areas we do a monthly.
So we have our pulse on the market.
(inaudible) on certain of the perishable departments really closely.
As <UNK> said, we use a pricing model.
And in terms of trying to pick up tonnage to your earlier question, you can try to do that to some degree, but at some point then you're just creating a more competitive environment overall and over time, we found that's disruptive for cumulatively the industry.
Just depends on market by market how competitive the set looks is where it ends up at the end of the day on the ground.
As I mentioned earlier, as it relates to competition on the promo side, again, it's produce and meat.
It's fairly in line with Q4.
You could say it's slightly more promotional, but that's only in one or two markets.
But we are experiencing a high rate of deflation in produce on the first part of the quarter.
Which again as I allude to do earlier, with the recent rains, the heavy rains in northern California, some of that could change very quickly.
So we'll wait and see.
Yes, <UNK>.
It's a great question.
Really at the end of the day it's balance between near term and long-term, right.
So, as Ed mentioned that it's certainly the near term it helps improve cannibalization.
It reduced margin pressure.
With that said, when we look at our IC model, and our cash on cash return model, it's still superior in fact or cash on cash returns is similar or higher than it was three, four years ago.
So what that would tell you is every unit you could open, you would.
And so the framework is simply around operations, great execution and consistency and making sure we're executing well.
I think what's different today from a Sprouts business model versus three, four, five years ago is we have more initiatives that we're pushing which are somewhat resource intensive like deli, Amazon, real focus on meat and seafood.
It's not simply putting items on the shelf.
There are service components to them.
So I think it's a balance and we feel that now that we have 17 regions, to be 18 soon across the country, it's still fairly manageable when you have 17, 18 regions to grow 30, 32 stores a year.
It's pretty manageable if you have good, strong execution on the ground.
Yeah.
I think that as we've gotten started at the year, we've actually seen a couple of abnormal weeks kind of bump around.
We had some real tough weather in some of our markets on the west coast particularly, and California doesn't seem to be seeing much sun right now.
If you look at especially the month of January.
So, we've kind of moved around in the quarter.
Certainly produce deflation has not helped the overall comp, but tonnage is still strong.
Our execution is very strong and in recent weeks, it looks like our execution continues to get stronger and stronger.
So we feel good around where we sit.
But we don't want to try to pinpoint comps within half a percent or 1% in this deflationary ---+ when you have deflation bumping around.
It's more of a ---+ when we look at the business and how do you pinpoint comps, it's as much of trying to pin down deflation as much as it's to pin down tonnage or traffic.
So that's where really the comment comes from is that we don't ---+ sitting here today, we don't see much deviation from the range.
But if we see bump around in deflation, then it can sneak to be upwards or down.
Yeah.
As <UNK> and I both are in stores all the time and we\
We'd like to thank everybody for joining us today and I look forward to speaking to many of you on the road in the coming weeks.
Thank you very much.
| 2017_SFM |
2017 | FTK | FTK
#Thank you, and good morning on behalf of the Flotek team.
Joining me this morning are <UNK> <UNK>, Flotek's Chairman, President and Chief Executive Officer; Rich <UNK>, our Chief Financial Officer; and Josh <UNK>, Executive Vice President and our Head of Operations; as well as other members of our leadership team and board.
Our earnings press release was distributed this morning and is available on the Flotek website.
In addition, today's call is being webcast and a replay will be available on our website.
Before we begin our formal remarks, I would like to remind everyone participating in this call, listening to the replay or reading a transcript of the following, some of the comments made during this teleconference may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and other applicable statutes reflecting Flotek's views, comments or expectations about future events and their potential impact on performance.
Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations are intended to identify forward-looking statements, but they are not an exclusive means of identifying forward-looking statements on this call.
These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ from such forward-looking statements.
These risks are discussed in Flotek's filings, including our Form 10-K with the U.S. Securities and Exchange Commission.
With that, it is my pleasure to turn the call over to <UNK> for opening remarks, followed by a financial review from Rich and insights into our operations given by Josh, followed by our outlook.
We will open for Q&A after the remarks.
And with that, <UNK>.
Thank you, Matt, and thank you all for joining today's call hosted from our Global Research and Innovation Center headquarters in Houston.
I'll begin by giving a summary of our quarterly results, followed by an overview of our business segments and ongoing strategic initiatives aimed at maximizing our ability to generate free cash flow in future periods regardless of the commodity price scenario.
Rich will then review our financial highlights for the quarter and provide additional financial details, followed by Josh, whose role at Flotek was recently expanded to oversee operations for our entire organization.
We are pleased Josh has accepted this critical role, and we are confident in his vast experience in chemistry manufacturing, efficiency improvements, as we believe this change will further integrate our organization.
Josh will provide an operational overview on our Energy Chemistry Technologies segment and an update around our citrus end markets and ongoing initiatives at Florida Chemical, our integrated operating subsidiary within our Consumer and Industrial Chemistry Technologies segment.
Finally, I'll end with closing remarks and outlook before taking your questions.
Overall, Flotek's third quarter results were below expectations primarily due to challenges we faced related to Hurricane Harvey, but also impacted by client slowdowns in the Rockies region in our ECT segment.
Our CICT segment performed relatively in line with our expectations, while we were able to execute higher-than-expected sales after Hurricane Irma created disruptions in the global citrus marketplace.
The third quarter was disappointing.
However, our ability to extract cash from our business highlights the shift we have made from a diversified oilfield equipment provider, which requires higher CapEx, into an asset-light pure-play specialty chemistry technology company.
For continuing operations, which encompasses our Energy Chemistry Technologies or ECT and Consumer and Industrial Chemistry Technology or CICT segments, Flotek's consolidated third quarter revenue was down 6.7% sequentially and up 23.5% year-over-year.
Adjusted EBITDA for the company was $3.3 million and we generated free cash flow, net of CapEx, of $6.8 million in the third quarter.
To provide you an update in our Energy Chemistry Technologies segment, total revenues declined 7.1% to $61.2 million compared to the second quarter, and the segment generated adjusted EBITDA of $11.7 million.
Domestic revenues declined 11.5% sequentially in the third quarter.
And outside of approximately $5 million, which can be attributed to hurricane-related issues, significant decreases in our Rockies region negatively impacted our results.
Our clients in this region have stepped back completion intensity and, in some cases, moved away from optimized completions as takeaway capacity constraints have limited well flow performance.
This is the primary driver for domestic completion nano-Fluids or CnF revenues, declining 16.3% and volumes declining by 18.4% sequentially, outside of the hurricane-related impacts that we have previously disclosed.
This region should benefit from higher commodity prices and increased takeaway capacity in future periods, and we believe these issues are transitory as operators continue to focus on driving better economics through technology over the long run.
Our conventional chemistry revenues, our non-CnF component of ECT, grew 2.5% sequentially.
Demand remains strong for our friction reducer product lines and patented pressure reducing fluid, or PrF, as well for our full fluid systems in our Prescriptive Chemistry Management or PCM platform.
The emerging trend of decoupling, which began with the downturn in commodities, has reached less than 10% of completions.
And while no blueprint has been established, it is clear that indications are that this trend is very favorable to operators' economics.
It is our view that this trend will grow over time.
It will also be influenced by equipment capacity, product pricing and technology.
Flotek was a first mover in this trend in chemistry and full fluid system design represented by PCM, and we believe operators will continue to shift to use our leadership as the standard in this ongoing shift.
Internationally, ECT revenues expanded 85.3% from the second quarter or by $2.5 million, primarily driven by higher CnF sales.
Canada rebounded from a larger-than-normal seasonal slowdown.
And sales were higher sequentially in all regions except Latin America, which was negligible in size as a percentage of international revenue.
Canada remains our most significant geo-market, but outside of Canada's typical seasonality, we expect that international activity will continue to fluctuate on a sequential basis due to the nature of large shipping orders and inventory management, which creates lumpiness as we continue to penetrate new markets.
We believe the opportunity for high-margin growth will evolve, with completion techniques around the globe.
However, we are also taking a close look at certain geo reasons, which may not have the same opportunities as others, and rationalizing costs in those areas which should also help our broader G&A reduction initiatives.
We remain as committed as ever to research and innovation, which continues to expand our market opportunities and deepen our client relationships.
Our pipeline of client-specific projects at our R&I facility increased by 12.2% quarter-over-quarter; in October, continued the positive trend into the fourth quarter.
In addition, our initiatives with IBM, utilizing the Reservoir Cognitive Consultant capabilities, positions Flotek to capitalize on this demand once we've commercialized our offering.
We see operators working towards aligning CapEx and cash flow, which should bring a more stable U.S. shale market and will likely smooth out the large fluctuations we've experienced in the past few years.
We believe it is unsustainable for the industry to expand and contract at the pace it has since the commodities cycle turn down.
We welcome an era of a narrower spread between cash flows and capital spending of our clients and see the importance of technology differentiating oil and gas producers globally.
Flotek is uniquely positioned in that we do not have any major CapEx, hiring or equipment spending needs as we penetrate new clients and geo regions.
Our leadership position in the specialty chemistry and completion chemistry marketplace, coupled with further G&A reductions, are intended to increase our profitability in a more flat spending outlook environment.
Moving to our Consumer and Industrial Chemistry Technologies segment or CICT.
Less than 90 days ago, we had anticipated citrus pricing to moderate due to significant increases in forecasted global crops.
For example, the Brazil crop alone is expected to grow greater than 50% versus last season's levels.
However, Hurricane Irma has impacted the near- to intermediate-term pricing dynamic as Florida suffered substantial losses in its current crop.
Revenues in CICT for the quarter were $18.3 million, a decrease of $1 million in the second quarter.
Adjusted EBITDA of $1.9 million was slightly lower for the second quarter due to product mix and declining prices prior to Hurricane Irma.
We are continuing to penetrate new clients and market channels, and believe our margin profile in this segment has potential to improve in coming quarters.
We believe we are ideally positioned in the citrus value chain and we'll continue to serve the needs of a growing list of clients.
Moving to the balance sheet.
Subsequent to quarter-end, we reduced the balance on our revolver by another 25% or $10.2 million to $30.4 million, after reducing the balance from $48.4 million at year-end 2016 to $42.7 million at the end of the second quarter, or by 11.8%.
We are effectively in a debt-neutral situation as our only current borrowings are backed by current assets, and we will continue to utilize our borrowing to fund working capital demands in our growth.
I would like to highlight that we generated $7 million of free cash flow during the quarter after capital expenditures.
Additionally, while it's taken some time to reflect on our financials, I'm pleased with company-wide efforts to reduce G&A and find areas of operational and efficiency improvement.
Our efforts are far from over, however, and we believe we can further reduce SG&A levels in the coming quarters.
As stated last quarter, while to some it may seem like changes have not come fast enough, we can say that we are making an impact in our business and we will not sacrifice critical relationships or jeopardize our growth opportunities in this process.
In the third quarter, we repurchased 630,000 shares of stock for $3.7 million and we have $50.7 million of remaining board authorization on our share repurchase program.
Additionally, we will continue to assess the M&A marketplace.
I'll turn it over now to our CFO, Rich <UNK>, to provide a review of our key financial information and provide an update.
Rich.
Thank you, <UNK>.
As we have previously discussed, the assets, liabilities and results of the Drilling Technologies and Production Technologies segments continue to be presented as discontinued operations.
During the third quarter, the company completed the sale of substantially all of the remaining assets of the company's Drilling Technologies segment for $1 million in cash consideration and a note receivable of $1 million due in 1 year.
The company expects to have sold or liquidated all assets and settled liabilities related to these 2 segments by year-end.
A customary escrow holdback of $1.9 million should be realized over the next 13 months.
The financial statements in the Form 10-Q and going forward should more accurately represent the results of our core businesses, Energy Chemistry Technologies and Consumer and Industrial Technologies (sic) [Consumer and Industrial Chemistry Technologies] as continuing operations.
For the third quarter, we reported total revenue of $79.5 million compared with $64.3 million in the prior year period, an increase of $15.2 million or 23.5%.
On a sequential basis, quarterly revenue was down $5.7 million or 6.7%.
Energy Chemistry quarterly revenue was $61.2 million, an increase of $16.1 million or 35.8% over the prior year period.
A sequential quarterly decline in revenue of $4.7 million or 7.1% was experienced in the Energy Chemistry.
International sales for this segment increased $2.5 million during the third quarter of 2017 compared to the second quarter of 2017.
Consumer and Industrial Chemistry revenue for the third quarter was down $1.1 million or 5.2% sequentially, and down $1.1 million compared to the same period of 2016.
Our third quarter consolidated operating margin was a negative 3.9%.
The segment operating margin was 11.2% in the Energy Chemistry Segment and 5.4% in the Consumer and Industrial Chemistry segment.
Corporate general and administrative expense was $10.3 million, flat from the third quarter of 2016 and a reduction of $0.9 million from the second quarter of 2017.
Our corporate G&A during the third quarter as a percentage of revenue decreased to 13% from 16% in the third quarter of 2016 and 13.1% in the second quarter of 2017 as we progressed our cost-reduction initiatives.
During the first 9 months of 2017, the company incurred nonrecurring charges of $1 million related to executive retirement and $0.4 million related to the shareholder lawsuit and SEC inquiry.
Early in the fourth quarter, the company took significant measures to reduce contract labor and consulting expenses.
Segment selling and administrative expense was $9.3 million, a decrease of $0.5 million from the third quarter of 2016 and a reduction of $0.1 million from the second quarter of 2017.
Segment selling and administrative expense as a percentage of revenue decreased to 11.7% from 15.2% in the third quarter of 2016.
Noncash compensation was $3 million in the third quarter.
For the quarter, research and development expense was $2.7 million compared to $2.3 million in the same period of 2016.
This increase of $0.4 million is attributable to meeting customer demands and for new product development and new chemistries which are expected to expand the company's intellectual property portfolio.
For the third quarter, Flotek reported a net loss from continuing operations of $3.4 million, representing a loss of $0.06 per share on a fully diluted basis.
This compares to a net loss from continuing operations of $1.9 million for the third quarter of the prior year.
For the first 9 months of 2017, Flotek reported a net loss from continuing operations of $5.3 million, representing a loss of $0.09 per share on a fully diluted basis.
This compares to a net loss from continuing operations of $2 million for the first 9 months of the prior year.
Flotek reported a minor tax expense for the 3 months ended September 30, 2017, compared to an income tax benefit of $0.9 million in the prior year.
A reduction of an expected tax benefit of $0.6 million related to stock-based awards that, beginning in 2017, must now be charged against income.
At September 30, 2017, the company had accounts receivable of $56 million, compared to $47.2 million at December 31, 2016.
At September 30, 2017, days revenue and accounts receivable was approximately 64.5 days compared to 62.5 days at December 31, 2016.
For the quarter ended September 30, 2017, the provision for doubtful accounts was $0.2 million.
At September 30, the allowance for doubtful accounts is $1.1 million or less than 2% of the receivable balance.
At September 30, 2017, inventories totaled $70.7 million compared to $58.3 million at December 31, 2016, an increase of 21%.
This increase primarily resulted from higher costs for citrus oil.
This inventory historically builds during the first half of the year and is now being used.
The impact was more pronounced this year because of citrus oil cost inflation.
While the volume of citrus oil held constant and was the same at December ---+ at September 30, 2017, and September 30, 2016, the average unit price was up significantly.
During the third quarter, inventory decreased $7.7 million.
Our inventory turnover at September 30, 2017, is approximately 3.2x per year.
At September 30, 2017, borrowing under our revolving credit facility was $40.6 million and there was undrawn availability of $34.3 million.
Our credit agreement was amended on September 29, 2017.
It increased the maximum revolving advance amount by $10 million to $75 million and extended the maturity for 2 years until May 2022.
Limits on capital expenditures were increased for 2018 and thereafter, and the amount of permitted repurchases of our common or preferred stock was increased by $10 million.
During the first 9 months, capital expenditures were $6.2 million compared to $10.6 million in the same period of the prior year.
Expected capital expenditures for 2017 have been further reduced to a range of $9 million to $11 million, and we expect to be toward the lower end of that range.
During the quarter, the third quarter, the company repurchased 630,000 shares of its common stock for $3.7 million or an average price of $5.85 per share.
As of September 30, 2017, the company may make additional share repurchases of up to $10.7 million.
During the third quarter, the company filed a universal shelf registration statement on Form S3 with the Securities and Exchange Commission.
The universal shelf was declared effective by the SEC on October 11, 2017.
This filing permits the company to sell new securities to the public with a maximum initial offering price of up to $350 million.
As a reminder, our financial statements report the continuing operations of our Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies segments.
The Form 10-Q provides a description and analysis of our discontinued operations, Drilling Technologies and Production Technologies, in the footnotes.
We continue to be focused on monitoring capital expenditures, lowering SG&A costs, protecting our liquidity and growing our core businesses.
And now, I'll turn the call over to Josh to provide an operational performance update of the company.
Thank you, Rich.
I'm honored to take on the role of operations for the entire organization and believe, through greater efficiencies, we will maximize our ability to generate cash flow for our shareholders.
Beginning with our CICT segment, we have positioned our inventory to withstand citrus market disruptions that the global citrus industry is experiencing since Hurricane Irma.
As we announced last quarter, progress continues to occur in the expansion at Florida Chemical, and the new distillation tower being installed this month enhances our capabilities into new citrus varietal opportunities and will relieve any potential bottlenecks with our citrus isolate production.
We've established new channels to market with our Japan sales office, which contributed to our first Asia end market sale in October.
We believe we have a runway of opportunities in our CICT segment and we have laid the groundwork to capitalize on our strong position in the global citrus markets.
To provide an overview of the impact from Hurricane Irma on the global citrus industry, we believe crop damage in Florida will lead to tighter supplies.
This has already caused prices for citrus oils to increase and is unlikely to alleviate until at least the end of the second quarter of 2018.
This has changed our outlook from last quarter, but it is important to keep in mind that the current Brazilian crop is expected to decline 50% or greater to last season.
To put this into context, the growth in Brazil more than offsets the volume of the entire Florida citrus crop.
It is for this reason we believe the Irma-associated impacts as temporary, and we have adjusted for this market dynamic.
In taking on leadership of the cross-segment operational activities, we can leverage our manufacturing and G&A efficiencies of the entire Flotek organization.
Under my leadership, we will drive out operational inefficiencies and further integrate our 2 segments.
This requires a full review in our cost controls, execution, logistics and ability to stay ahead of changes in our clients' demands.
And part of our transition, we have delayered reporting structures in our business that reduces G&A at the corporate and field level, while creating greater visibility throughout our organization.
Many of these changes have occurred, but the full impact of these changes are unlikely to be fully realized until early 2018.
We have a number of systems implementations and optimizations that are underway that will further allow us to eliminate cost at a variety of levels.
To provide more clarity, in our ECT segment, as <UNK> noted, we experienced a step back in our Rockies region.
We see this issue occurring in the region as a ---+ as fairly transitory.
PCM activity has increased in the third quarter, which has broadened our customer base and expanded our direct sales opportunities.
However, with this growth, we have experienced some growing pains and cost inefficiencies related to deliveries and building out scale in this offering.
As we manage through the ramp up of our PCM activities, it should be noted that our gross margin profile has and may continue to fluctuate as scale is achieved.
With that, I'll turn it back to <UNK> to offer concluding remarks.
Thanks, Josh, and before we take questions, I would like to offer an outlook and add some concluding thoughts.
While we acknowledge disappointments in the quarter, we continue to progress the company towards an asset-light pure-play specialty chemistry business model that is positioned to generate free cash flow regardless of the commodity price.
To that note, as of month-end in October, we have a $27.4 million net debt position and current liquidity of $47.5 million, which includes undrawn balances on the company's revolving line of credit.
This is as strong as a financial position Flotek has been in since I began leading the organization in 2009.
In ECT, visibility in the fourth quarter is challenged given the anticipated holiday slowdown, commodity swings and client desire to align CapEx with cash flows.
However, recent success with new clients opens the door for further penetration of our CnF product portfolio as evidenced by more wells being identified by operators in their public remarks which have utilized our technology.
To that extent, we are excited to see well names and programs in the public domain, but we will continue to refrain from speaking about their success.
In our CICT segment, where we have greater client visibility, we anticipate a normal seasonal slowdown.
However, we expect the top line to be in the $15 million to $18 million range with flat margins.
On the cost front, we will continue to drive G&A lower.
We have undergone an extensive cost reduction program.
To outline our strategy, we've reduced our total continuing operations headcount by around 10% from this time last year to current.
In addition, we project executive salary and benefits have declined by 15%, and expenses by employee on expense accounts are down more than 30% from a year ago.
We've also eliminated consulting and contract labor positions, which reduces the spending in this category by 40%.
In all, our long-term target is to operate at a 20% or below G&A level relative to revenues, which we are targeting in early 2018.
For the fourth quarter, we believe we will recognize an additional $1 million of cash savings for a total of cash SG&A level of $15 million to $16 million for the quarter, which will be mostly recognized at the corporate G&A line.
We expect further savings into 2018, which we look forward to update on its ongoing initiatives, will take time to reflect through the financial reporting.
As we move forward, our business is more efficient, our costs are structurally lower and we see opportunities arising to continue our long-term outperformance of growth relative to benchmarks.
Finally, I would like to thank our shareholders, employees, clients and stakeholders for their support of Flotek.
And to all veterans, we thank you for your service and honor you on this upcoming Veterans Day weekend.
With that operator, we'll now open the call to questions.
Sure.
So our retention rate quarter-over-quarter is as high as it's ever been throughout the year.
In fact, we increased the number of unique clients by a little bit over 10% third quarter over second quarter.
The ---+ as I've said consistently on these calls, the ---+ this is ---+ when you have transformational technology and you're not going to have as much as folks would like to have a predictable, steady growth, it just doesn't happen that way.
I think that kind of bears out with other transformational technologies over the last decade or so in this industry.
So from time to time, there'll be a leveling off, and in some cases, it may even decrease as the market continues to work its way through and we continue to penetrate.
Another statistic is that our amount of revenue directly to clients in the quarter was 66%.
Two years ago at this time, it was essentially 10%.
And so that trend, we believe, is very encouraging as it gives us the direct contact with the clients that expose them directly to our technical capability.
We've ---+ and again, folks that have followed the story of the way we reported, we've made a decision in terms of not talking specifically about clients, although I think folks have seen over the last 4 ---+ maybe in the last 4 or 5 weeks, certain clients have talked about their frustration of not having the amount of frac [fluids] available that they wanted to have, certain clients have talked about an overall 20% lack of efficiency in the completion process, and certainly that was in effect for us.
But we've just taken the approach that we're not going to specifically talk about well performance unless that client does it themselves.
Regarding the top 2, we don't see any benefit in expanding on communication there because we have certain confidentiality agreements with those folks, and we honor that and we hope everybody respects that with the question that you provided there.
And I hope that kind of extra granularity in terms of the retention, the increase in clients, the increase in business that's flowing directly through to the client gives you greater context.
Right.
So I think the kind of gem to take out of that question is that the CnF margins are essentially flat.
We've held up those margins.
We've made a real focus on that.
We've made a real focus on maintaining the pricing model on that.
The PCM margins are in a state of flux.
Josh talked about that a little bit.
And I'll give you kind of a business approach in answering that in that when ---+ in the fall of 2016, when we really started this and the industry really started to gain momentum on decoupling and disaggregation, self-sourcing, whatever different people want to call it, it's been my view over history that you're given really kind of one chance to make a first impression.
Because when you take on the responsibility delivering the chemistry package directly to location, those operators are expecting a seamless performance to what they've been used to.
I think there's a tendency to overstaff that to ensure that it gets done right.
And it's taken us some time to really understand the optimal amount of folks that are needed to be able to provide that service.
And that's part of the rationalization of the people that we've undergone in the last quarter that we talked about, and we're still working through.
Like when now products are returned to us because they're not all completely pumped, that's a different situation than when we were selling directly to the service companies.
And if they didn't use it, they'd save it and use it perhaps on the next well.
So the return freight, the return logistics and all that, it's still a work in progress, which from time to time has an effect on the margins.
But it's something we've got our hands around.
And again, with Josh's position there, the connective of the logistics and the supply chain between CICT and ECT, we're pretty confident that those margins will improve.
Does that help.
Yes.
I'd say first quarter, you'll see another kind of step change, maybe a tail in the second quarter.
But I think ---+ yes, we believe your assumption is correct there, <UNK>e.
And we're already, as we've talked about with the free cash flow and all that, seeing early benefits of that initiative.
And I think we wanted to call out to the folks that are listening or are going to read the transcript, it goes all the way to really looking at inside the expense accounts in terms of can we be as efficient as possible.
So this has been a top to the bottom effort of really looking at how can we make Flotek as efficient as we can to be able to deliver the returns we want.
Okay.
Thank you, operator.
| 2017_FTK |
2016 | SLCA | SLCA
#Well, I think the main driver might actually be something different than that.
I think what a lot of sort of single-mine operators are finding, or folks who don't have a big enough footprint, is that there's a sort of grade mix phenomenon going on.
And when you think about not having a sort of fulsome outlet for your products and your mine makes a certain mix of products, if you can't sell all that, the cost of what you want to consume can become very large on a per-ton basis.
And I think that's one of the things that's tripped up some of our smaller competitors as the demand profiles have changed out in the market.
So I would guess it could be that as much as anything else.
They just looked at it perhaps at the end of the day and realized that if they weren't going to be using a certain grade or couldn't use all of it, the price for the grades that they did want could be substantially higher than what they expected.
So I'll deal with the first question and then maybe ask <UNK> <UNK> to step in around the allocation.
Obviously, we've had a lot of discussion recently with investors and sort of publicly around our recent offering related to M&A.
And I think if you sort of step back, <UNK>, and look at the things that we've said in the past around, first off, why do we want to do M&A.
I think the drivers are all still there.
We have a very fragmented market in oil and gas in terms of our kind of supply base.
We have more than ---+ well more than 60 competitors out there.
And so that leads to a lot of and efficiencies.
It seems like it's ripe for consolidation.
I think more and more, the industry and others, particularly investors, are seeing that the scale matters in this industry.
The scale players are the ones who are going to win long term.
So being able to consolidate certainly helps that.
And obviously, we are extremely well positioned to do M&A.
I would say that there's sort of a new dynamic that's emerging, though, and this one I think might be interesting for investors, at least from my perspective.
The challenging market conditions that we have today could really be the catalyst to close some of the bid ask spreads that have been pretty wide out there right now.
We are doing a lot on the M&A front today.
There's a lot in our pipeline.
I think we're making good progress, but certainly we are going to continue to be patient.
But I'm feeling pretty optimistic about our pipeline of opportunities.
And so directly to your question, I certainly would expect that there would be some increases in business development expense over the coming quarters.
And <UNK>, maybe you could speak to the treatment of those expenses.
Yes, the treatment of those, unfortunately, it's an expense right.
In the old days, we used to be able to capitalize all that.
But now, as you are working on the deal, you expense all of that.
So you'll see that go through the P&L.
And you saw a lower number of business development expenses in Q1 versus what we've done in the past.
And that in no way should be interpreted as a lack of activity.
There's a lot of activity going on here.
We just didn't spend a lot of money on lawyers and accountants in the quarter.
So I would anticipate that expense go up, <UNK>, in Q2.
So it's a great question, <UNK>, and we continue to see high cost producers take capacity out of the industry.
Our current estimate is that there are about 25 sites that are off-line right now.
And I would guess that that represents 20 million to 25 million tons of capacity.
But by my count, I would put industry capacity right now, sort of effective capacity, if you will, at 40 million to 45 million tons.
And next obvious question is what does demand look like right now.
And so I would mark demand at somewhere between, say, 25 million to 28 million tons with probably some downward pressure coming into Q2.
So kind of do the math on that and we are 60% to 65% utilized right now in terms of effective industry capacity by our calculations.
So in our experience, there are a couple of kind of issues with restarting the mines.
The first is that you have to go in and re-staff the mine with employees.
And obviously, that takes a little bit of time.
Second is that it takes a lot of working capital to basically sort of get all the product prepared and start to get it in the pipeline to sell, particularly if you are pushing it out through a distribution network.
And then the third issue, which is one that maybe is not as obvious kind of from the outside, but being inside the industry, what you realize is that if you can't run your mine at a relatively high capacity, your cost per ton is going to be extremely high.
And it's kind of back to <UNK> <UNK>'s question around perhaps why EOG and others have chosen to shut in mines: you lose efficiencies very quickly in the mine site.
So if I had a mine site, owned something that was shut-in, I would want to get up to maybe 60% or 70% of capacity throughput of the mine of sales before I would start it back up.
So there's a lot of ifs there.
And then on top of that, many of the mine sites in Wisconsin you have to build sort of a wet stockpile in the good weather.
And we've seen those get depleted so they have to rebuild their stockpile.
So there's a lot of hurdles there.
I'm not saying it's impossible.
Certainly, you know, if pricing gets high enough and demand rebounds to certain levels, some of those sites might come back on.
But I don't think it's going to be as easy as perhaps some folks might think.
If you step back and think about what is it that drives the need for that capacity, I think it's going to be rig count coming back.
And if you do some quick math, what you'll discover is that roughly for every 100, say, horizontal rigs ---+ we tend to focus on horizontal rigs.
Everyone 100 horizontal rigs that come back, we'd estimate somewhere between 6 million to 7 million tons of sand would be needed to support those rigs.
Depending on where they come back, it could be a little bit more or a little bit less.
But that's kind of a good rule of thumb.
So I think what we'll see, <UNK>, is the volumes come back first.
And that's one of the things that will make it a bit challenging again for the folks who are thinking about restarting mine sites.
Because people like us and other Tier 1 folks with low capacity ---+ or low cost, rather, have excess capacity.
So I think we'll have to sort of get all our capacity back up and running first before the higher cost mine operators will realistically be able to do much in the way of starting things back up.
$30 a ton in terms of pricing.
Yes.
Look, I think somewhere around there, maybe between $30 and $40 a ton.
But you know, you have to remember where some of these folks are on the cost curve.
A lot of the mine sites that are shut down have cash costs in excess of $25 a ton.
These are kind of the guys that are at the high end of the sort of low-cost point of the curve and then the moderate and high cost suppliers.
And typically, that's ---+ you are starting around $28, $30 a ton on up to $40 or $50 a ton cost for these mine sites.
So to ---+ $30 a ton might not be enough, quite honestly, given that that's pretty close to their cash breakeven.
And that's in a steady-state environment.
And those cost curves were also anticipating that the mine site was sold out.
So when we say somebody is a $25 or $28 a ton cost player, they are probably not that for the first many, many tons that they make.
So there's a big hurdle there.
So I think there's a couple of things.
We've continued to gain share.
I think we took another probably 2 points of share plus in Q1.
And depending on how much you think is actually being pumped out there in the market, we are somewhere I believe over 20% share right now.
You do reach some max point.
And you can look at it in terms of share with customers.
I tend to think about it in terms of at what point competitors will defend their share position.
You know, up until now, I think a lot of the share gains have come from the Tier 3 and the Tier 2 and the high Tier 1 cost players who have either shut down or can't compete in this environment.
As the amount of volume shrinks in the overall market now, we are bumping up against competitors who were probably more similarly situated in terms of cost.
So there's a practical limit out there somewhere.
It's hard to know exactly what that is, but probably somewhere 25%, 30% share becomes a practical limit.
But that's a tough one to calculate because there's so many factors that go into it.
No.
We've never had those kind of conversations with customers.
Now, I think most of the big customers would tell you that they don't want to be sole-sourced, but the conversations that we've had with our customers typically go more along the lines of look, we are trying to consolidate down to two or three suppliers.
We want you to be one of those suppliers.
We were just down in Houston last week, as a matter of fact, talking to a pretty large customer.
And those were exactly the kinds of things that they were telling us.
So I haven't had any of the large customers tell us they didn't want us to be either their, say, number one or number two supplier.
So I think we are really well positioned.
But obviously, there's competitors out there as well and we mix it up every day in the market.
I think that we will see volumes ---+ both volumes and price ---+ continue to be under some pressure in Q2.
The quarter started out with volumes in line or a little bit down to where we were in Q1.
I feel like the 37%, 38% decline in rig count that we saw in Q1 is going to read through into Q2.
So there's a bit of a delay, obviously, between the rig count and the completion activity.
So I think we are just starting to see now as we get in kind of to the end of April here and into May the full impact of the big declines in rigs that we saw in quarter one.
So look, it won't surprise me at all if we see continued pressure on both price and volume.
Although, as I said, pricing has been relatively flat, but in recent discussions with customers, it feels like there's more pressure coming, though the reality is that there's not much more to give on price.
I mean, we are pretty much already down to breakeven.
So I think that there's kind of a limit to how low we'll go on price.
Maybe I'll ask <UNK> to comment on that.
He and his team do a lot of work in that area.
Yes I think it's very possible, because of what <UNK> just talked about, we're going to continue to see volume pressure into Q2 and pricing pressure.
So you are going to see an impact on contribution margin per ton.
And you know, we are at $0.60 now, so I got to believe that goes below breakeven.
No, I think that's a little hot, but I definitely believe that there's going to be pressure in the quarter.
Sure.
Look, it's hard to predict exactly what's going on in the industry.
We certainly have been aggressive in taking share.
And so on one hand, you could assume that perhaps you know (technical difficulty) would be appropriate for somebody who is taking share.
On the other hand, we're more than 20% of the market right now.
So I think we are relatively representative.
I'll be surprised if we are not sort of plus or minus perhaps where others are.
In terms of the progression, you know, we saw prices come down a bit throughout Q1.
And I think where we sort of exited Q1, April has been relatively flat with that.
But I expect in May and June that we'll see some additional pricing pressure just based on the volumes falling further.
So obviously, there is a corollary between volumes dropping and pricing.
And as I mentioned earlier in one of my responses to another question, we are seeing more sort of stranded product, if you will, from our competitors.
People having large volumes in silos or in railcars in a basin that they have to move because they are paying demurrage on railcars.
And so you'll see these kind of spot prices pop up that look illogical, and that just helps further erode the overall price in the market when those type of things happen.
No.
I think if you look at a comparison to Q4, our Q4 SG&A was definitely lower because we did have a lot of reversals of like compensation expenses and things like that that happened in Q4.
So you saw those being re-accrued in Q1 of 2015.
We gave guidance at about $15.5 million of SG&A expense and we were basically on that number.
I would anticipate that those expenses stay about at $15.5 million as we work our way through the year per quarter.
Yes, I think if I understand your question, you are right.
Just straight mine gate price dropped about 5%, but you saw a greater reduction if you look at the ASPs.
And that has a lot to do with where we are selling.
So selling more at mine gate than in-basin is going to affect that ASP as well.
Right.
Yes, $2, $2.50.
You are right.
Fixed cost leverage, for sure, impacted of the quarter worse in Q1 than it did in Q4.
You've got price.
You've got some mix issues in there as well as we are selling more of our product to bigger customers.
And that's causing, you know, an overall reduction in price as well.
We have a very detailed decision model that we use for all of this, <UNK>.
And the reality is for where demand has been for the last several months, we basically couldn't supply the demand without Sparta.
We have Sparta throttled back up.
We only have a couple of shifts there, so it's not like we are running it full out.
But it's definitely the right economic decision at this point to do that.
Obviously as circumstances change in the market, we are right on top of that.
And we monitor that literally on a weekly basis.
But at this point, Sparta is making a good contribution for us and is an important part of our network.
Sure, <UNK>.
I'll take the first part of your question here as far as trends.
If you look at the peak in 2014, we were selling 65% to maybe 68% of our volumes in-basin and the rest at plants.
And that trend has kind of gone the other direction now.
As I said, we are 60% at the plants and 40% in-basin, and I think it's going to wax and wane over time.
The reality is even our large customers who like to buy at the plants have a limited capability in their logistics network.
And I think the way to think about that is that our customers have invested in a logistics network.
They want to fill their network up first before they use ours.
So in a lower demand environment, it's only natural that on a percentage basis, they use their network more than ours perhaps.
And that moves on to your second question around the kind of longer term, where does this go.
I think that it will balance back out.
We'll see over the long run the sales moving more towards back towards our logistics network.
And if you think about the kinds of customers that we have that really heavily utilize the logistics network, it tends to be the smaller and medium-sized customers that ---+ the big ones use it, too.
But I think as we get more of the smaller service companies kind of back on their feet and the medium-sized guys growing again, those are the folks who use our network probably more heavily.
And I feel like long term, we'll continue to get separation and we'll start to regain, rather, the separation in margins there as we expect to get a return from the investment in logistics.
I guess maybe the last point on that, though, is that it's great to have optionality in this market.
We added another three transloads in Q1 to the network.
These were all sort of no-cost adds for us, no capital commitment, no minimums.
But in this market, you want as many sale point options as possible.
And we have the logistics wherewithal to cover that from our network.
It's one of the reasons we've been able to take share in the downturn.
And I think having that logistics network has been really good for us even in the downturn.
So we do have some sales in Argentina.
They are pretty small.
It's one of the reasons we don't talk about them much.
I think it could be an opportunity for us long term, and so we've positioned ourselves down there appropriately.
But we don't see a lot of short-term opportunities in Argentina.
We have in the past looked in other countries.
And I think that it's going to be tough for a company our size to try to establish a footprint in multiple countries in terms of sand distribution.
So a more likely route for us to expand internationally would be in partnership with one of our larger service company customers.
We've had some discussions around that in the past.
But the fact is the international market hasn't really been all that much in terms of opportunities.
But it's one that we keep our eye on, and if the opportunity comes up, I think we'll be well positioned to capitalize on it.
I can't really get into discussions around the contracts.
I think to me, it just keeps coming back to the reality that these cars don't need to be built.
I think everybody recognizes that.
The question is how do you find a way to not build the cars.
And we are working with a number of different parties to help us think that through.
Well, that's in theory.
If my General Counsel was on the phone, she might have different opinion around that.
But it's not the way we typically would do business.
It's an option: negotiate a penalty, end up in court or something.
But I think that the reality is that the industry as a whole knows that it's just not a good idea to build these cars.
Because if you look at the oversupply out there right now, <UNK>, there are just thousands and thousands of too many cars of the small-cube covered hoppers.
And the industry just doesn't need these.
Maybe not ever.
We certainly on the oil and gas side have suspended indefinitely the greenfield projects that we had up in Wisconsin and the expansion that we had at our Pacific, Missouri, plant.
It just feels like the industry certainly doesn't need those kind of capacities at this time.
So I do feel like it's probably M&A first, organic second right now.
So I think that's probably right.
DD&A was down in Q1.
I would anticipate that it jumps back up to a more normalized level of $15.5 million, $15.7 million in Q2.
And as far as tax refunds go, we did net in the first quarter about $5.5 million of a tax refund and that has already hit our bank account.
Thank you.
Thank you very much.
I'd just like to close the call with a few key thoughts.
First, we believe we are going to see further downward pressure on volumes and pricing in oil and gas in the second quarter, as we talked about, with the kind of declines that we expect in drilling and completions activity in Q2.
Second, we believe we will see continued growth in profitability in the industrial and specialty products segment.
Obviously, that's been a big winner for us.
We'll continue to drive strategic price increases and going to rollout more higher-margin products.
We didn't really get into it on the call here today, but we have another eight to 10 products that I expect we'll rollout in 2016, and these are pretty exciting new products for the Company.
And then finally, I want to just make sure that everyone knows what we are focused on as we get into 2016 here.
And the three things that I talked about in my prepared remarks, and that's cash, customers, and consolidation.
I want to also thank all my colleagues at U.S. Silica for their fantastic efforts to meet the tremendous challenges that the Company has faced over the last few quarters.
And I want to thank our investors for their interest and support and all the encouragement that we received from them in these challenging times.
And I certainly look forward to meeting and speaking with as many of you as possible in the future.
Thanks, everybody, and have a great day.
| 2016_SLCA |
2016 | AXL | AXL
#Yes.
We have one in our backlog at this point in time that launches in the 2018, 2019 period of time.
At the same time, we're reporting a significant amount of opportunity that is going to be post-that, so more like the probably 2019 to 2022 period of time.
But there are some significant opportunities with a plethora of different customers that are there.
Content per vehicle is really going to range anywhere between $500 to $2,500 depending on the customer and what type of technology they are looking for based on it is scalable, and it's all feature-based based on the customers' specifications.
From a platform perspective, no.
They were still strong and in our favor for that mix.
We do have annual pricing also from first quarter of last year to this year would be other element of that.
But principally you hit the main points.
So we would be up 6%, 7% or so based on those elements you just added back.
Starting with your last question, yes, we expect to see change in a positive direction going forward through the balance of this year.
And as we said, we are still quoting on activity that's really production source or SRPs in the 2018-2020 period of time, but those decisions are being let now.
So that is positive in that respect.
The first part of your question is we picked up some non-GM business on a brand-new platform that we don't participate in today.
It covers more of our driveshaft technology.
It is where it is, which is positive for us.
At the same time, we picked up some other driveline business.
So those are the favorable benefits that contribute to the move from 35% to 50%.
We're going to see more increase in regards to our pass car and cross-over vehicle as we've mentioned to you in the past.
We will see more balance in the mix of our product portfolio between truck and SUV and pass car and cross-over vehicle.
Our backlog alone has got well over 70% of the backlog is passenger car and cross-over vehicle, and a lot of what we are holding today is passenger car and cross-over vehicle.
Again, as I mentioned earlier to you in regards to our R&D activity, we're trying to design things that are scalable across truck, SUV and pass car, where they can be, so we can try to drive economies of scale and performance while keeping our R&D costs down in certain areas.
So, overall, I think our engineering organization is doing an outstanding job providing products that meet the market needs and the different vehicle segments and it's clearly a growth opportunity for us in regards to the cross-over vehicle.
And then you factor in what we're doing now in the electrification space, I see that as all positives for the Company.
This is <UNK>.
There's one other real significant issue that's pertinent to your question.
That's our manufacturing processes.
Many of our manufacturing processes are highly flexible and transportable between passenger car applications and truck applications.
In fact, we've rebalanced gear processing equipment, featuring equipment, forging cruxes for that matter, any number of different activities.
The one area where we have dedicated processing is on the assembly line.
But even within our assembly lines, we've designed common stations that can be and have been in fact recently moved from truck to car applications.
So we've got a substantial amount of process similarity that we can leverage in our operations as well.
We've built flexibility into our operations.
No longer do we have transfer lines and all of that.
We've got flexible component machining, flexible gear operations, and then we've designed our assembly systems as best we can to be flexible based on the stations that <UNK> had indicated earlier.
So we've got flexibility built into our operations while also trying to drive standardization into the product.
| 2016_AXL |
2015 | LNN | LNN
#There are some new standards that are going into effect, referred to as mash standard, that will require some of the road safety products to meet a different standard level.
I won't call it better; I would just say different.
That will require, in many cases, for our products to at least be retested to see if they meet those mash standards.
In some cases, it may require some product redesign or modifications.
That's the process that will be taking place.
And as what we're finding is some of the states will implement those standards faster than is required, but they are selecting to potentially implement those standards.
It may show up as we proceed with this, but I think it's something we can talk about in future quarters as we get into really understanding what testing needs to be required and what, if any, product modifications need to take place.
There isn't much I could tell you about that estimated cost at this point until we get further along in the process.
Yes, I can.
I can say that the replacement piece of business was the largest in terms of our whole goods shipped out the door; 47% would have gone through replacement, 25% into dry land applications, and 27% in conversion from flood or gravity.
And this is for the domestic US market that we're talking about.
I can also summarize this for you a bit and say that for the total year, 39% of the machines were replacement, 31% dry land and 29% conversion.
So it's much closer to that one-third in each category than what we saw during the drought period, but that's roughly the numbers.
Yes, it's a great little engineering company up in Boise that has specialized in water engineering, as the name implies.
And that includes everything from water rights to design of irrigation systems to the waste water-type systems and many different types of applications.
But they've expanded our capability from an engineering standpoint in terms of large projects, but also with much bigger, larger strength in water in general.
So we see them as a great addition to our engineering resource team that can be beneficial in many of the large projects that we work.
Thank you.
I think that's definitely a perspective on the story.
I think the other part of it is the things that we're doing to expand our business and increase share in many different ways, including our project revenue that we're working on with a key projects team that is going after large projects.
We have new product development taking place in each of our business units with new products planned for additional growth.
We've got market share gaining activities in each of our business and strategies that are being implemented.
So there's many other factors to this, other than just the marketing itself, as you've described it.
And I suppose if we just rode the market in that sense, that could be an outcome.
But that is not an outcome I would predict.
I'm not going to provide a specific kind of number, but I think that certainly the 18% was a very, very good year in the infrastructure business.
And as you mentioned, we potentially have some incremental investments on the product development side.
And absent a ---+ or I should say the QMB Road Zipper projects are certainly a key contributor to the margin in that business.
But we are continuing to work to look for projects, and we are continuing to work on other areas of the business to kind of make up that margin.
But I think it's certainly fair to say that 18% was a very favorable year, and so there could be some pullback in the margin this year if we don't get another QMB project.
This is <UNK>.
One other point that I would add to that is that prior to this year, where we were running with the infrastructure business, which consists of a number of pieces including the road safety products and rail and all the others.
But generally, most of the pieces were running in a 10% operating margin or better level.
The Road Zipper piece of it was the more volatile part because we were carrying expenses that were not offset, of course, if you didn't have the projects.
We've reduced the breakeven level for the Road Zipper piece of business.
We've built up more in terms of lease revenue with the Road Zipper piece of it.
And at the same time, on the road safety products business, the margins have improved through expansion of the business through additional revenue, but also through process improvements that have taken place in our production processes, and generally, just efficiencies in our factory.
So I think there's a number of enhancements that have taken place to both of those.
And again, it is going to be a little volatile based on what happens with the Road Zipper projects potentially, but the rest of the businesses have all improved.
I'll let <UNK> give you some of the more specifics, but I'd say anecdotally that acquisition has ---+ is performing as expected, if not better.
We have now integrated in our Digitec Electronics operation into Elecsys, and they did a superb job of taking care of customers and getting that done efficiently.
That team is a great team down there that has very good growth potential in terms of their business.
I'll let <UNK> talk about some of the more specifics on Elecsys, but I'd say that it has met our expectations.
I think I'll start out by saying this is probably the last quarter I'll talk about specifics on Elecsys, because we're now getting into it being part of the core business.
But in the prior quarters, I talked about it basically being a breakeven business with the purchase accounting but some of the purchase accounting amortization items are winding off.
But as <UNK> said, from an operating standpoint with excluding those purchase adjustments, the operating margins have been very good.
Just with regard to the fourth quarter, the operating margins, even with purchase accounting adjustments, are now approaching the 10%, as some of those purchase accounting amortization items wind off and the operating margins before purchase adjustments have been very strong.
So we've continued to see it progress as we expected, and as some of those short-term amortization items wind off it's definitely starting to contribute positively to the GAAP earnings as well.
Sales year ---+ I don't recall exactly where they were in the quarter, but it was a very good sales quarter for them.
I missed part of your comment, but I think the answer to your question is the players have not changed.
It's basically the same players.
Prior periods in trough situations, I would say that players were not quite as rational as what we've seen this time.
So it's definitely been more rational in terms of overall pricing than what we'd seen in previous trough conditions.
But the players are the same.
I don't think that's a factor in this.
I think it's more management.
Sometimes it becomes very difficult in a condition like this when the dealers are certainly trying to find any bit of revenue that they can in their regions, and they're pushing to the manufacturers like us to make concessions and do things to try and generate revenue.
However, there's not really a major share shift that's taken place and stayed shifted based on price.
It really is through differ differentiation that that share shift really is sustainable when it does take place.
I think that what we've seen over time is the pressure could take place from dealers to do something, and there had been some reactions.
And we're seeing less of that now and probably more of a realization of those are just short-term initiatives.
There's really not a used market for the systems.
There are some cases where if they're coming off of an application, which is really very, very rare, in fact, I honestly can't think of one.
I know of one or two that have been talked about at times in terms of taking it off.
There have been cases where we have bought back a machine that's been out in a number of years and sold it into another application or leased it into another application, if, in fact somebody wasn't going to use it.
That's a very rare situation.
But there's really not a used market for the machines or the barrier, that I'm aware of.
Well, the global long-term drivers of water conservation, population growth, importance of biofuels and the need for safer, more efficient transportation solutions remain very positive.
We're uniquely positioned for developing and delivering turnkey solutions.
Our offerings include a broad line of market-leading irrigation solutions for agriculture; providing the best irrigation management and control technology; engineered, integrated pumping and filtration solutions; as well as providing energy absorbing road safety solutions and solutions for expanding the capacity of existing roads and bridges.
We're committed to creating shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions and share repurchases, congruent with our capital allocation plan.
I'd like to thank all of you for your questions and participation in this call.
| 2015_LNN |
2016 | SBAC | SBAC
#Yep.
Yes, we are certainly watching and studying and working on all of that.
And if we can find something that we think is a good allocation of capital in that regard we definitely will do it.
I think 5G, in terms of our portfolio, which again is primarily a non-urban residential highway corridor to rural portfolio, I think you're going to see further equipment on the towers, but a continued reliance on macro sites.
The high-frequency spectrum that people are talking about, really most people do not think that will work outside of a dense urban environment.
And actually there was some good commentary on that from Neville Ray on T-Mobile's call is to what he thought about 28 GHz spectrum outside of dense urban markets, and he had some pretty negative things to say about its feasibility.
So we're watching it all very carefully, but I think for as long as there has been wireless, the laws of physics and how radio waves promulgate kind of drives and dictates things, and you just aren't going to get that outside of urban markets; any good promulgation with these high frequencies that folks are talking about.
So I think the true economically viable prospects there, you're not going to have 5G out along the highway corridors that runs only on 28 GHz.
And will not be economically feasible.
We think our towers will continue to be extremely important; more so as fiber hubs, as allocation points for back haul.
So we are actually pretty optimistic about where all of that takes us, and we definitely do not believe that systems and networks that run on 28 GHz or even some of the higher stuff that they've talked about is going to replace or even dilute the macro networks that is the bulk of our portfolio.
Our first preference, <UNK>, is to continue to flesh out the markets that we are in, and potentially expand into new countries in the Western Hemisphere.
There is plenty of opportunities to do that and build towers relatively easily at 5% per year portfolio growth.
So that is our first and foremost focus, and I will continue to be that for a while.
We will look and have looked on the other side of the ocean, keeping in mind though that our plan as it exists today, we're very confident will produce midteens AFFO per share growth compounded.
We want to see assets that are at least that good.
And historically the European assets have been lower growth yield-type assets that don't necessarily, or not even necessarily, that don't fit a higher capital appreciation-type model.
Yes, probably.
Probably.
Yes <UNK>, we have actually been operating we believe in alignment with all of the requirements of being a REIT already.
We just haven't made the formal election as of yet.
So in terms of structuring our operations, having what would be taxable REIT subsidiaries properly cordoned off and making sure that we meet all asset tests and income tests that would be required as a REIT, we have been doing all of that now for the last two years, actually, in order to allow us the flexibility to choose to convert whenever we would like.
And so it really is a matter of pretty much just making the election on the tax return.
So we could effectively do it even retroactively if we chose to, so long as we haven't yet filed our tax returns.
So the flexibility remains.
In terms of the PLR, we do not expect to look for a PLR.
We think it has been will determined, and there's plenty of president for tower companies as REITs.
You said it right up front.
It is around the ENT calculation.
We basically ---+ I think we disclosed on the last call that our current estimates around our accumulated earnings and profits, which are currently in a deficit position, is that they would move into a positive position in the latter part of 2017.
Most people say no.
It takes eight to 10.
And I'm not sure we necessarily would agree with the 20% mark.
You got me there, <UNK>.
I don't know the answer to that.
Yes, but we've been told by the equipment manufacturers that if they do that they are going to leave some performance on the ground, so to speak.
Performance will not be optimized by running AWS-3 through AWS-1 antennas.
Yes.
A fair number of internet of things players, machine-to-machine, I don't know if we've had any of the big guys who I think you're talking about on the fiber side.
But definitely there is some every day.
There's some interest from folks that are outside the traditional wireless world.
I would say it is probably spread, with Telephonic probably being the most steady and active, and any changes really as a result of the combined activity of the other three.
We are actually, and we're not projecting this, but it is logical to think that OIA, who is being watched closely by Anatel through all of this and now has a whole lot of better cash flow, actually picks up.
They certainly have the network needs for that.
So it's certainly possible.
We will be watching all that.
First, Mike, on the second one, some of that is driven by other things.
So for instance, our AFFO per share growth year-over-year was 10.5%, which is lower than last quarter.
But our services margins were very, very high last year.
And if you just adjusted for that one item alone and said it was flat from last year, the growth would have been 14%.
So I think when you take out ---+ there are other items of noise that perhaps could be adjusted out of there, and we're very confident that there's not a steady drop.
It is just an accumulation over the trailing 12 months.
And then the first question ---+
Sorry.
Discretionary CapEx.
We raised the discretionary CapEx by $35 million, I believe, at the midpoint.
Or maybe it was $40 million at the midpoint.
That is primarily made up of new acquisitions that we put under contract.
We did also have some decline in new tower build spending, but not a lot because a lot of the new tower build reductions that we are assuming are really just timing, and we're still incurring much of those costs.
So it's mainly new acquisitions put under contract offset by a little bit of decline in new builds.
You never, never say never, <UNK>.
But right now with Claros forming tele-sites ---+ although none of their Brazilian, or none of their the South American assets of gone into that yet.
And Telefonica's formation of Telsius, you're probably looking all carriers other than those for the most likely opportunities, and I don't want to get into rumors.
But there are definitely some rumors, some of which we think are more real than others, that there are some carriers down there that are looking to monetize their assets.
But it's really like it is everywhere else, where carriers, they need the money and they believe that the terms of the deal that they get and the additional OpEx that they take on is outweighed by the capital that they take in.
And that is really a different recipe for everybody.
So more will happen.
Do I think any of it is like next quarter.
No, I don't think that.
But I do think over time there will be additional carrier portfolios available.
Tony, we have time for one more question.
Great timing.
We appreciate everyone joining us this evening, and we look forward to reporting next quarter's results.
Thank you.
| 2016_SBAC |
2016 | MTRX | MTRX
#Yes, a couple things there, Marty.
The ---+ this doesn't necessarily make a trend, but over the past few weeks, we have seen an uptick in maintenance demand with some of our clients.
Right now we don't have any long-term visibility on what that means for capital projects.
We are currently in a small turnaround and ---+ for one of our clients in the Midwest on one of their iron-making facilities.
And so we are ---+ we think maybe we might have hit the bottom here, and that with the tariffs, the price increases in flat roll and hot band, that there's an opportunity here that the market may be in an uptick going forward.
But we are continuing to be cautious, and make sure we are being as efficient as we can with our cost structure.
Yes, I think we are coming out of the winter.
Progress is on our plan.
We are closing up a lot of the underground, providing more clear and free access to the site.
We have completed the concrete work on the ---+ both combustion turbine foundations.
We have all the main forensic pieces assembled.
We are in the process of the final core of the tabletop on the steam turbine.
Building structural steel is 50% complete in round numbers.
Our warehouse building and control building is well in progress.
Started work on the substation and switch yards, I think within the week.
And so overall, now, like I said we've come out of winter, I think progress is accelerating as we had anticipated.
And we are working very closely with our client as we move down the road.
Well, let's take them a piece at a time.
So the Oil, Gas and Chemical side has been a ---+ is nearly as long-term legacy part of our portfolio as the storage part, dating back into the 1990's.
So we ---+ while we think we've got opportunities from some operational improvement in our Oil, Gas and Chemicals segment, we think on the union side, we are actually opening up more opportunities there for us in some of the Midwest and East Coast refineries.
And then on our nonunion side, where we've got a very great brand position, where there's opportunity to move geographically into the Gulf Coast.
And we've made some ---+ we frankly have made some management reorganizational changes there.
So we are pretty comfortable where we are.
I mean, you know, the markets ---+ the market is not as strong as we'd like it, and things are not coming to fruition as quickly as we would like.
But we've essentially been fairly flat over the last five years in that segment.
And we are just not getting the growth out of it, and have had trouble, a little bit, on the bottom-line on some of the earnings.
This quarter was affected by this project that we had in our upstream segment actually that we've had ---+ as <UNK> mentioned, we had to take a reserve on.
So that's had a little bit of what was weighing down the quarter.
So, Oil, Gas and Chemical is still in a long-term future part of our business.
We still think there is growth opportunities there for us.
On the Industrial side, we've got ---+ basically got three components of that that's been driving that segment over the last two to three years.
You've got mining and minerals, which is weighted to the copper industry.
You've got iron and steel, which is in the major integrated steel producers of ---+ and our primary clients there are US Steel and ArcelorMittal.
And then fertilizer work.
So we take those a piece at a time, and the fertilizer work is really a project and not an operating unit.
And it just fit into that segment.
So those resources, as we wind down on that project, frankly, those resources, those people and equipment, those are moving into other parts of our business into other segments.
So, for instance, a gentleman who was the construction manager and some of the administrative people are moving from those projects up into our Dakota Access projects.
And you look at the iron and steel business.
So we are not ready to exit that business.
We've got a very, very strong brand position there.
You know, probably in excess of 30 years of experience working in that market.
While that market is becoming tougher and tougher because of our clients' economics, but it's ---+ it can be a cyclical business and you can have these downturns.
So, the goal for us there is how do we maintain our market share, maintain the strength of our brand, make sure that we are being as efficient as we can in our cost structure, and deploy any of those resources into other local markets within the geography that we provide those services.
And those are things that we are doing as we speak.
And then, thirdly, in the copper markets, again, have had ---+ we've been in that market about two-and-a-half, three years; have had some really phenomenal financial performance.
Frankly, in one of our US, was one of the highest ---+ delivered some of the highest margins in the business.
And again, it's a business that can be a cyclical business.
But we are able to take some of those employees and resources, and dispatch them into other projects that we have going on in the business to try and make our costs ---+ the costs have been associated with that region as effective as we can.
So again, we've got people from that ---+ those operations up into our Dakota Access projects and into some other things that we are doing around the country.
So, we are not prepared to exit any of those.
We are being mindful.
We are watching our costs.
We are finding opportunities to move people around to get the highest utilization we can out of all of our employees.
And we're just going to continue to watch it.
So, I think, first of all, for Oil, Gas and Chemical, we've been running, I'll say, averaging 8% the past few quarters.
And we would have been slightly below that this quarter, excluding the upstream charge <UNK> mentioned.
So if we can increase volumes 10% to 20%, we'll get to where we are fully recovering and get back to that level of full absorption.
And that would get us back in that range of 10% to 12%.
So we just need more turnaround activity to materialize.
That's been slower than we've expected.
And that will help us get there along with the proactive cost measures that <UNK> talked about.
On the Industrial segment, you know right now the majority of the work is maintenance work.
So, we are probably at the lower end of the range we gave at the beginning of the year, which was I believe 6% to 8%.
And that's the range we are probably looking at for the near-term.
If we can get some free-up of money that goes toward capital projects, that's when you'll see us get back to 10% in that segment, and that we've performed at the past couple of years.
Yes.
So if you look at the first couple quarters of this year, we were in the low-120's, I believe, in the segment.
We bumped up to above [130] this quarter.
I think that will continue to increase.
I think we should get up to [150-plus] a quarter for the next ---+ for at least the next three quarters.
No, I don't think ---+ we've had some of the ---+ for instance, in our storage side of our business, specifically in the flat bottom tank ,have had some of the heaviest bidding environment and RFP environment that we've had in the year.
So, I think our clients are just being more deliberate about where they are spending.
We still see some very large tank terminal opportunities in the marketplace.
But again, the deliberation to get those into the ---+ activated is just taking a little bit more time than normal or what would've happened a couple of years ago.
And we are ---+ as we said, we are very active in sort of this gas liquids and LNG market.
And it's doing a lot of feed work, looking at a lot of projects, the small to medium scale, which really fit our sweet spot probably more so than these big LNG export terminals, where there, we were going to be a subcontractor to build the tanks.
On these smaller facilities, we can provide the full terminal capability and not just the storage.
And where the bigger EPC guys have really got to take a step down to get to be in a more competitive mode against these ---+ some of these smaller gas-related projects.
So, bidding activity is very, very ---+ is very strong.
And really in the storage and electrical segment, both in electric, both in power gen and in power delivery.
It's just, in storage, it's just taking a little bit longer time to get that stuff into the backlog.
And one thing you ought to consider here is that if you think about a project lifecycle, it takes a period of time from the time the customer says, hey, I'm going to go forward with this project, to the time that project gets awarded and work actually starts on that.
So there's always a delay there.
Yes, I think so.
And I think the ---+ what we are seeing, if you think about big chunks of backlog coming in and out of the business, certainly one of those would be power generation.
A lot of what we're looking at right now are not the full general construction opportunities.
We are looking more at specific packages on those facilities, whether they are all the mechanical work, HSRG erection, the electric piece.
And so those projects are all moving down the timeline.
But again, as <UNK> said, in the power generation market, I mean, it takes months to get those projects bid and negotiated and into backlog.
Clients have to ---+ developers and clients have to win their ability to enter into a power district and they have to win those awards.
And they've got to award the projects to their contractors.
So, it just takes time to get that in.
I mean, we're very confident in that segment.
Not only in our ability to continue to build some backlog on the generation side, but frankly on our delivery side, where we do substation work, transmission and distribution.
We are ---+ it's not transparent to you guys on the phone, but it's ---+ we are having a very, very strong year there.
And they are frankly overachieving on that piece of our business compared to what we had thought going in.
And plus there's a lot of growth opportunity for us to move that model, as we said; not only expand our market share in the Northeast but to move into the Midwest and up into Ontario.
So, those are focus areas for us for growth and we see those opportunities.
Those opportunities are out there.
So I would say that if you looked at that change in EPS guidance, 25% to 35% of that change is just related to the third quarter ---+ you know the $0.08 of charges that we talked about, a little bit of under-recovery.
And the other portion relates to ---+ while volumes will be higher, they weren't going to achieve as high a level as we thought they were, previously.
No, it's fundamentally topline, which also has an impact on the bottomline because of the potential underabsorption issues.
And so we've got ---+ and it's a combination of a lot of things.
So we've got projects that we've had a high ---+ that we felt we had a high likelihood to win and start working off in the fourth quarter, that we either didn't win or the projects were delayed by our owners; or we had had an assumption, for instance, in our Industrial segment, that there was the opportunity for improvements in some of those businesses that we are just not seeing at the rate that we thought they would come back.
So it was a combination of a lot of different things.
But it's primarily a topline-driven issue, not a known performance issue that we are having on any of our backlog work.
Welcome.
So when we came into the new year, we had anticipated adding, on the electrical generation side, additional work that would be booked and worked off in the back-half of fiscal 2016.
And that didn't happen.
And that wasn't necessarily because the project ---+ when the projects went away, it's just either they moved or we were not successful in that bidding.
And so there still is plenty of opportunities out there.
We are actively bidding today as we speak.
You know specifically two, three projects on the East Coast that we feel very good that we are going to be able to add pieces and portions of those projects into our backlog in fiscal 2017, but they just didn't materialize in this year like we had expected.
No.
I think again, it's ---+ some of it is the dynamic with the client base on when they are taking projects to market.
Some of it is a little bit of dynamics change in the execution of these projects with the major EPC contractors that they are looking at instead of being a partner, and taking more of a subcontractor relationship with folks like us.
And so that doesn't change the competitive dynamics.
It does change the execution dynamics for us and how they think about some of these projects.
So, you have some owners like a TransCanada, for instance, that wants to play the EPC contractor.
They will go hire the engineer, they will go do the procurement of the major equipment.
They'll go hire a general contractor.
And then you have other clients and developers in this market that want ---+ fundamentally because they need the third-party nonrecourse financing support, they want to go to a full EPC contractor as a single source of supply for them.
And so, depending on what type of those projects are that are coming to market at the time that we are ready to bid them, can have an impact on our ability to win, how big a piece of a single project we can win, and the timing of what that gets into our backlog, and when it can start to roll out, depending on the lifecycle of the project.
So those dynamics that move around through that industry, I would tell you are pretty normal.
And it's just something that we, as a service provider there, that we've got to deal with on a month-over-month basis.
Well, I think probably you've got a little bit of everything depending upon who the client is that the turnarounds that we are doing ---+ so you talk about turnaround market, and we, I think, we had told you guys on the last call that we had 23 turnarounds that we were contracted for through the course of this year.
I think the majority of those we are still intending to happen within 10%.
But the size of them have been not as big as what we have done traditionally.
So, I think our clients are wanting to get back online quicker, that they are holding down their spending on the repairs where they may ---+ are doing what they need to do but not what they'd like to do.
And so we still fundamentally believe in our turnaround and plant maintenance teams think that they are pushing a lot of the maintenance work off.
And ---+ but we don't see this work as going away.
It's just a timing issue.
And so we've got to make sure we stay in position with our relationships with our clients that we are there when that happens.
And so it's just something again that we are going to have to deal with in this market environment.
So I think you saw probably Frontier release their earnings this week or the end of last week and they didn't have the best of quarters.
And a lot of that is driven by ---+ for them, anyway, and their markets that they serve, was driven by an oversupply in refined products.
So naturally, of course, that's probably affecting it.
And we had some turnarounds with them and we do maintenance work with them.
So, that, of course, is going to drive an impact into their spending plans.
Yes.
It was two projects.
The combined charge was $2.8 million in the quarter.
These were ---+ both were reserves on projects that are still open.
So we are not going to get to the point where we are talking about the individual charges, just because we are still negotiating the final closeouts on those projects with the customers.
The one in Oil, Gas and Chemical was an upstream-related project.
So, that's probably not too unexpected tough environment there.
And on the Industrial, that reserve, we are hopeful that we can improve that.
But that was our ---+ that's our best estimate at this point.
We don't project, into our forecast, increased scopes on our turnarounds.
We've got a majority of all of our turnarounds we were involved in the planning with our clients on what the scopes were going to be.
Those are the man-hour forecasts we use to feed our forecast.
And so if there is opportunity for turnarounds to grow, we really won't know that and won't take account of that until it actually happens and we are in the middle of it.
And so in the third quarter, while we had some turnaround activity, there wasn't really any kind of great growth rate in those turnarounds.
Right, so this is probably less about refinery turnarounds and more about ---+ there's a lot of things that are in our Oil and Gas and Chemicals segment.
So there is also work that we do in some work we actually do in chemical plants and some processing facilities, that there's capital work involved that I had mentioned earlier, that we had a high percentage in our forecast that we were going to be able to win that work and begin to execute it.
So for instance, in ---+ on the East Coast, one of our clients on the East Coast, we had a ---+ they're spending a tremendous amount of money.
We had a couple of key project in our go-get that we thought we would win and to get start working some of that off in the late third, early fourth-quarter.
And those projects, there was two or three of them.
One of them got pushed out just because of timing of the execution in the overall facility.
The other ones we didn't ---+ the other two we didn't win.
They went to the ---+ as we like to say, the successful low bidder.
So they ---+ the person might have won the work, but they may not make any money on it.
And we are not in the business to chase numbers.
So we are still on the ---+ this is supposed to be a profit-making operation so we are not ---+ we aren't going to go do work for nothing.
So I don't want to mislead you there.
All the changes in the topline in Oil, Gas and Chemicals are all related to light turnarounds.
So there's other things in there besides turnaround market that can restrict our revenues.
So we are still actively looking at M&A opportunities, both for things that we would pay for with cash as we've traditionally done, and there's opportunities where we might have to take a different position on that, if it's something very strategic to build our business.
Plus, we've got, especially through the first half of 2017 and into, frankly, the fourth quarter, we are really ramping up on our two major projects.
We want to make sure that we are in a good liquidity position to provide the working capital we need for those projects.
And so to some extent that also would restrict our desire to go invest a lot of money in the repurchase of stock.
So it's, again as we ---+ as <UNK> said in his opening remarks, we are going to be opportunistic about when and how much stock that we will repurchase.
And so, there's no reason to believe that we wouldn't get back into the market here at any time to go back and purchase some stock if we thought we were excessively undervalued.
So, we'll watch that.
No.
I think the costs are primarily in.
I don't expect any additional lagging acquisition costs.
And the acquisition has gone very well.
The products have been very well-received in North America.
So we are maintaining ---+ the initial short-term strategy there is to maintain our ---+ the legacy company's international market and presence, and bring them into North America where we can take some of our ---+ leverage our brand and our market presence and our client contacts, and bring these, what we think are some of the highest quality products into the industry, into the North American market.
And we are finding a really great acceptance by our clients, both existing and frankly some new clients, that are really interested in our products within their storage facilities.
And so we've been ---+ within two ---+ within the last two months, we've got ---+ we bid over $40 million in tank products into the market.
And so it's ---+ I would say it's exceeding our expectations to date.
The individuals that we've added onto the team through the acquisition are excellent.
Personally visited our engineering group in Australia and our manufacturing group in Korea in March.
Exceptional people, very bright, great systems and very focused on being part of the Matrix organization and delivering great results, and have the capacity for us to plug in additional sales opportunities.
You also see disclosure in the 10-Q that will be filed today or tomorrow that provides more information on Baillie.
Just a little tidbit from that disclosure ---+ the revenues recognized on that acquisition in the first couple months were $3.5 million, producing operating income of $0.7 million.
So, definitely off to a good start here with us.
No, I think we are still ---+ the Baillie thing wasn't necessarily an international focus.
It was just that's where we found the best product provider.
We are going to be more focused in the US and Canada here in the short-term.
But that's not to say that we would not look for a ---+ or be interested in a company that is US-based that might not be doing some work outside the United States or Canada.
But as far as going into a foreign country to look for an acquisition, I would say today that's not on our list.
Thank you.
Yes.
So we, actually in the quarter, had an award with one of the midstream companies there to add ---+ I'm not sure of the quantity of the barrels, but I think it was three or four tanks into their terminal out in Cushing.
We're doing some other work out there for a few other clients.
We've actually got a couple proposals in-house for some major additions into Cushing by both existing and some startup midstream companies.
So there are still people interested in adding storage capabilities and blending capabilities out in the Cushing storage depot.
And so we are pretty upbeat about that opportunity.
Yes.
Yes, we will do that sometime earlier than where we had traditionally done it, once we get through our budget cycle here and get this year closed.
But probably sometime in July.
You're welcome.
Thanks, everybody, for listening in for the great questions on the business.
We continue to be extremely bullish on our markets and our business in general.
We think we are doing some really great strategic things with the Company.
Very exciting time to be at Matrix.
And additionally, would encourage everybody to take notice about June being National Safety Month, and think about that in your ---+ both your working and your professional lives.
So, thank you, everybody.
And we'll talk to you next quarter.
| 2016_MTRX |
2016 | MON | MON
#There's components of pricing driven by the competitive situation we talked about.
But as far as the overall germplasm mix lift, it's about flat versus last year.
We've seen farmers being, as <UNK> was mentioning, maybe more prudent, but there are still ---+ the great point that we see, as <UNK> mentioned, the year one to three, we are still seeing this 50% to 60% of our portfolio in those years, so the dynamic is still there.
Now when you look at the absolute number, when you think about the ex-currency germplasm price mix we're going to be about flat.
Yes, <UNK>, thanks.
I'd say it's the latter because they are spending so much at the moment on solutions to try and combat this problem that are very, very expensive, but what were you seeing as you travel.
Yes, I think it's really hard, <UNK>, to generalize these things, but generally speaking, exactly to <UNK>'s point, the farmer is looking at it as what is it costing me to control weeds today.
What's it going to cost me to control weeds tomorrow with a new system.
And the really cool thing about dicamba is they all know it.
It's been around for a long time.
And they feel very comfortable with that technology.
So, when you look at it today, they are spending substantially more to control weeds, for example, and soybeans than they would have been spending a few years ago because of the resistant weeds.
Tomorrow, they'll be able to spend less because they'll use less other herbicides.
We'll still encourage them to use multiple molecules, but they will use less to control their weeds.
So it will be a good deal for farmers when they look at the total benefit of the whole system, both looking at seed and the chemistry package.
Yes, we get great visibility in the order books.
Maybe the puts and calls of what we're ---+ it's still early-ish, <UNK>, but what are you seeing.
I would say, <UNK>, where we're at today, it's more about logistics and moving seed into place.
I think as <UNK> mentioned earlier, if you look at the report that came out, where we would agree is that there was strength in corn in the South and strength in corn in the North.
Not sure it's as big and bold as they were suggesting that it would be, but we would have been seeing the same kind of thing.
The puts and takes is it's really wet in the South right now, it's hard to plant.
And the price change that occurred with the announcement of the corn expected planting beans look pretty attractive now.
And then you have the weather.
And I always say by the time you get to April, the weather between now and the end of May will have a whole lot more to do with how many acres of corn actually end up getting planted than what the farmers' intentions are based on ---+ from a generalization.
They're not going to swing a whole lot from where they already intended to plant.
And our order book would say they weren't quite as bullish on corn as the USDA, but we'll see how that one plays out and we'll know that over the next few months.
We're not hearing farmers making substantial changes.
It's changing a field here and there.
Yes, hard to call, <UNK>.
I think there's going to be continued ---+ I think the drive towards that integrated acre is going to continue to be important.
And when you look at <UNK>'s last point and some of the conversation this morning, it's really magnified in times that are tough for the grower.
They are looking for that incremental fraction of a bushel.
I think we've got the technology to unlock that.
So there's a piece of the consolidation of things driven by pure cost.
I think the winners in the space are those that are going to be able to combine these technologies and unlock a bushel rather than unlocking a dollar of cost synergy.
So hard to call.
But I think as we look at it today and in the comments that I made earlier and in my prepared remarks, for us the path in this is going to be driven less by large scale M&A and my guess is a lot more by collaborative efforts in bringing chemistry up onto our 400 million acre footprint.
And that 400 million acres, there is a lot of leverage and that shelf space and I think it's going to help growers in tough times.
So, that's going to be our focus going forward.
Say that again, <UNK>.
How much (multiple speakers).
Well, we are where we are.
I think you play with the cards that you have.
If you're contrasting it with and without Syngenta, Syngenta was an accelerant because it got us there I think potentially faster.
But the reality in this is we'll be able to cherry pick what products that we bring up.
So I think it's going to be more asset light.
It's going to have a smaller investment base, and we will do it I think with fewer products.
So that's the course that we're charting now at the moment and I think as every month passes we're getting smarter on the data science side.
The fascinating side of that is you are not waiting for months on a European regulatory approval.
You're not pouring fractions of billions of dollars in R&D and you see faster cycle times.
So I think the integrate ---+ our confidence on how we integrate this continues to increase more of that data science that we see unfolding.
So, that's definitely what we are trying to achieve.
Over time rebuilding from the currency, if you look at the calendar year ---+ at the fiscal year, unfortunately what happened to us is with the pricing from last season.
So entering into the first quarter, a big part of our Brazilian business happened before we took those actions because, as you know, we price in Brazil in the fourth quarter for a season that goes in the fourth and first quarter.
So when you look at our fiscal year this year, the real loss for us regarding Brazil was the first quarter when we didn't have any pricing offset.
When you get into the Safrinha season and the summer season to come, definitely what you are mentioning as totally valid.
That's exactly what we're trying to do.
So, in terms of how to quantify that, I'm not sure I've got all the numbers in front of me, nor the agility to do that on the fly.
But definitely this is exactly what we are trying to achieve.
So you would say 40% devaluation, 20% price increase, the net should be in this 20% range on the volumes to be sold.
Now, as you know as well, by the end of the first half, we've done pretty much most of our income in Brazil.
We still have a big business to come in the fourth quarter, but we also have costs in the third and fourth quarter.
Yes, we have a long-standing, very strong relationship with Sinochem that goes back probably 15 years.
In the recent years we formed a seed joint venture.
We've committed ---+ we're all in on that ventures, so we've taken our best germplasm, our best seed and we think we're well-placed within that to be a front runner in what the Chinese call the green channel, which is the accelerated process for approval of new corn hybrids and I would hope eventually new technologies.
So we crossed that bridge, <UNK>, three or four years ago.
Four.
Four years ago.
So we've been working with that team for a decade and a half.
We've been doubled down in seed for the last four years.
And <UNK> and I were there before the end of the year and then I was back earlier this year, so we've got a good relationship there.
Yes, yes.
<UNK>, why don't you cover that.
Yes, think of it a couple of ways.
So first of all, our newest varieties that we have been breeding to bring forward are going to be on the Xtend platform.
So that will be our best, highest yielding products, higher than anything else.
And that will be driven on breeding, but breeding with the Xtend technology or Roundup Ready 2 Yield for weed control.
There's another piece of this, though, that I think is also relevant.
As it becomes harder to control some of the tough to control weeds and you have to spray more herbicides, you have more risk of challenging the crop with the additional herbicides, as well as the lack of weed control also damages the yield.
As you clean up that field, the farmer is going to see the benefit of that as well.
So it will be hard to tell which it's coming from, but both of those are going to add to the overall system and the yield from the varieties.
So earlier cleanup and our best varieties, best germplasm.
So a lot of parallels with the Roundup Ready 2 system.
So, <UNK>, thanks ---+.
Thanks for your question.
Thanks for all of your questions on the line today.
Just a couple of concluding remarks to respect your time.
So I'd say in closing this morning we recognize a challenging 2016, challenging for our grower customers, challenging for our industry, but we remain bullish in agriculture and we remain bullish on our position as an industry leader.
We're confident in our long-term standalone growth plan, driven by our emerging blockbuster soybean platforms, our corn portfolio and, as <UNK> mentioned, our financial discipline.
And importantly, and I hope that came through today, we remain committed to an integrated solution strategy that's driven by innovation and by collaboration.
So, I think it places us in a very unique position to unlock value for our grower customers and for you, our shareowners.
So I'd like to, on behalf of the team here in St.
Louis, thank you for joining us on the call this morning.
| 2016_MON |
2017 | ARI | ARI
#Thank you, operator.
Good morning, and thank you all for joining us on the ARI first quarter 2017 earnings call.
As usual, joining me this morning are <UNK> <UNK>, the Chief Investment Officer of our manager; and <UNK> <UNK>, our CFO.
Following the successful common stock offering completed at the end of 2016, the first quarter of 2017 represented ARI's most active quarter to-date in terms of capital deployment.
The company committed to over $450 million of new commercial real estate loans and funded an incremental $115 million for previously closed loans.
Notably, the capital invested was primarily deployed in floating-rate first mortgage loans across a broad spectrum of property types and geographies.
As we indicated on our last quarter's call, first quarter operating earnings were always going to be impacted by the capital raised from both the sale of the remaining AMTG assets and the year-end stock offering.
However, given the pipeline of opportunities available for ARI, we felt it was appropriate to generate additional investable capital.
The robust pace of deployment during the first quarter speaks to the breadth of ARI's origination platform, though from a timing perspective, most of the investments closed during the latter half of the first quarter.
As I have previously stated, each of ARI's investments is a bespoke transaction and we frequently do not have control over the timing of closings.
Therefore, our investment activity tends to be lumpy.
The ARI dividend policy has always taken into account operating earnings with a multi-quarter perspective, and we continue to maintain our confidence in ARI's ability to provide a well-covered attractive dividend to our investors in 2017.
Looking specifically at the Q1 investments, ARI remains focused predominantly on floating-rate first mortgage loans.
At quarter end, 88% of ARI's loan portfolio was invested in floating-rate loans and our pipeline remains weighted toward LIBOR floaters, which leaves ARI well positioned for the anticipated rise in short-term rates.
It is worth noting that included in ARI's robust Q1 deployment was the origination of 4 loans secured by hotels.
Overall, ARI's net exposure to hotels in light of some expected repayments should not change much.
However, it is worth using our recent hotel loan originations as an example of ARI's ability to find attractive risk-adjusted opportunities and to utilize the broader Apollo platform in support of our efforts.
During much of 2016, there was pervasive negative sentiment around the hotel sector and this was reflected in both the weak performance of the hotel stocks and more relevant for us, many lenders pulled back from pursuing and providing hotel loans.
While some of the concern was justified, we continued to actively pursue hotel transactions.
We were able to use the knowledge gained from the hotel investment efforts in our real estate private equity funds, as well as the tremendous amount of experience within the broader Apollo platform to identify several attractive hotel loan investments.
The 4 loans which closed during the quarter are first mortgages on well-capitalized hotels at an attractive basis with lower loan-to-value ratios.
The weighted average LTV across the loans is sub-60% at 58%.
While not critical to our underwritten thesis, since the election in November, the hospitality industry has seen an uptick in performance and expectations which has benefited the underlying properties we financed.
Turning now to our investment portfolio this quarter-end, ARI's loan portfolio totaled $3.2 billion with a fully levered weighted average underwritten IRR of approximately 14% and a weighted average LTV of 63%.
I want to take a minute to discuss ARI's retail exposure as retail has been a very prominent topic in the news lately.
Historically, ARI has generally avoided financing malls.
The collective view of our team, based upon many years of experience is that the outcomes from mall lending and investing can be unpredictable and binary and we strategically sought to avoid that risk.
As such, ARI's exposure to traditional retail is limited to 2 loans totaling $195 million, one for the retail portion of our recently constructed lifestyle center in Cincinnati, Ohio; and the second, a street-level retail condo at (inaudible) location in South Beach at the base of Lincoln Road, which just closed this past quarter.
The remainder of what has typically been described as retail and ARI's loan portfolio, our predevelopment loans totaling approximately $500 million to sponsors who are aggregating properties currently occupied by urban, street-level retail, with a view towards redeveloping the location.
In each of these instances, any changes to the properties cannot take place until our loan is repaid or we agree to finance the next phase of the project.
You will note in our supplemental financial information package this quarter, we reclassified our retail exposure into 2 categories: retail and urban retail flash predevelopment, to clarify what we believe is a meaningful difference in ARI's retail exposure.
Away from the loan portfolio, we continue to trim our CMBS holdings.
During the quarter, we again took advantage of favorable market conditions and sold $69 million of CMBS bonds at prices above where the bonds had previously been marked.
At quarter-end, CMBS represented just 5% of ARI's net equity and we expect the company's investment in CMBS will continue to wind down both as bonds repay and we pursue sales when warranted.
As we look ahead, we believe the current economic climate remains very favorable for our business model.
While recent data indicated commercial real estate transaction volume was down in the first quarter, there is still a healthy level of acquisition refinancing and recapitalization activity which continues to create a strong pipeline of opportunities for ARI.
As always, the market remains competitive, but given what has been accomplished in ARI's 7-plus years as a public company and the strength of Apollo's real estate credit platform, we remain confident in our ability to find investments that meet ARI's target investment criteria.
As always, we will seek to ensure a balance between the investment opportunity and our ability to access attractively priced capital.
And with that, I will turn the call over to <UNK> to review our financial results.
Thank you, <UNK>, and good morning, everyone.
For the first quarter of 2017, our operating earnings were $38.6 million or $0.41 per share, compared to $29.8 million or $0.44 per share in 2016.
GAAP net income for the same period in 2017 was $37.8 million or $0.41 per share, as compared to $12.8 million or $0.18 per share in 2016.
A reconciliation of operating earnings to GAAP net income is available in our earnings release in the Investor Relations section of our website.
Turning to leverage.
We ended the quarter with a 1.2x debt-to-common equity ratio.
During the quarter, we upsized our facility with JPMorgan, increasing our borrowing capacity to $1.1 billion and extended the maturity date to March of 2020.
At quarter-end, we are just under $900 million outstanding on this facility.
Also in April, ARI upsized the Deutsche Bank facility to $450 million plus our asset-specific financing of GBP 45 million.
We have significant capacity available under both credit lines.
While our capital base continues to grow, our G&A expense ratio has essentially remained flat.
Annualized G&A for Q1 as a percentage of equity was 41 basis points, which continues to be one of the lower percentages amongst our peer group.
I also wanted to comment on a recent announcement.
Last week, S&P added ARI to the S&P SmallCap 600 index.
You may have noticed an elevated trading volume in our stock over the past several days, which we believe is correlated to ARI's inclusion in the index.
Finally, I wanted to highlight our dividend.
Based on Monday's closing price, our stock offers an attractive 9.5% yield.
Our board will meet again in mid-June to discuss the Q2 dividend, and we will make an announcement shortly thereafter.
And with that, we'd like to open the line for questions.
Operator, please go ahead.
Yes, Steve, I'll let <UNK> comment.
I mean to be fair, I think the point <UNK> is trying to make, Steve, again, it's deal-by-deal, right.
I mean, there are things that come in that we literally after a quick read of an offering memorandum or a quick conversation with the borrower you completely eliminate for whatever the reason might be and there is other transactions where you dig in and roll up your sleeves.
Some get to the finish line and some do not.
But let's make no ---+ I don't want anybody to equivocate, this is a bottoms-up sort of deep dive underwriting on every transaction that we do.
Yes, it's effectively a cash flow mortgage at this point for all practical purposes.
And I would say, given performance of the underlying asset at this point, it is a low to mid-single digits return on sort of the recast balance.
Yes.
I mean, we are in frequent dialogue.
In some respects, we are playing for time, right.
It's an unlevered asset on our behalf.
So we can hold it on balance sheet as long as we need.
I think the asset I would describe as stable, which is somewhere in the mid- to high 70s, low 80s from an occupancy perspective.
Rents have not moved much.
I would say anecdotally, the commentary around Williston and the Bakken in general has been somewhat more favorable over the last are few months just in terms of rig counts, employment expectations, barrels coming out of the ground.
Beyond what's physically constructed, there are some incremental, both entitled and untitled land that serves as collateral as well.
And I would say there is regular weekly dialogue amongst us, the borrower as well as the on-site property manager in terms of leasing progress, leasing strategies and also maybe, abilities at some point.
Call it in the short to mid-term to maybe monetize some of the excess collateral.
But it's a regular dialogue.
We have fully protected all our contractual rights as a lender.
But I would say at this point, we still view it as a sort of beneficial to working this out to keeping the borrower engaged in working with us and trying to get to a solution.
But to be perfectly candid, this is going to take time.
Look, the one that's on the watch list, so to speak, is the one we just referenced.
I would say, generally speaking, sequentially, no notable trends across the portfolio that sort of in any way materially changes credit performance.
I think at any given point in time, there are always transactions where we are more or less involved with borrowers just sort of an understanding what's going on.
But I would say, generally, across the board, I would describe credit performance as stable.
I would say generally speaking, things are performing modestly better than our underwriting.
Maybe not as strong as what the borrowers would have hoped in terms of their most optimistic operating plans, but our underwritings are always somewhat more conservative to the borrowers' expectations.
So I would say, we're very comfortable with what our underwritten expectations for these strategies were.
I think, depending on the asset type or asset class, I think there has been more or less outperformance relative to underwriting.
But I would say, we're pretty comfortable with the credit profile at this point of what's in the book.
I don't know that I'd couch it by anything along geography.
I think what we've generally found on our predevelopment loans at a high level, is that it typically takes borrowers longer than they initially anticipate to get plans in place, entitlements in place and typically along the way, things change which has ended up being a good thing for us as a borrower, because as long as we are comfortable with the asset protection, we're perfectly happy with the borrower who is longer a significant amount of equity taking somewhat longer to finalize their plans and then move forward quite possibly to take us out of a transaction.
And I think we've found that to be on the predevelopment side an opportunity in terms of us being able to work with borrowers to maybe extend maturity dates, add new collateral to the extent they require additional properties and just keep the economics going for ARI.
I would say, at a high level, no secret that we've tended to have meaningful exposure to the New York condo market pretty consistently for the last 3 or 4 years.
Putting aside the one project that everybody always wants to discuss, which is the Steinway Building.
I would say, for the rest of the stuff we've done in New York, I would generally say that pace of sales and pricing of sales has been as good or slightly better than we would have hoped for, for the stuff that is selling somewhere between the mid-teens to the, call it, the high 2s in terms of price per square foot.
And I would also say, on par, it's taken slightly longer than the developer ---+ for the developer or redeveloper to get there CO or their temporary certificate of occupancy and deliver units so our loans might have been outstanding slightly longer.
So that's sort of good news on the sales side.
Maybe a little longer to develop or redevelop the assets but certainly within a range of underwritten possible outcomes.
So nothing sort of surprising there.
And then I would say, we've tended on the margin not to do an overabundance of, I'd call it, traditional office lease up plays.
But I would say, where we've taken lease up risk on office assets, I would say, the performance has been within the range of expectations, call it as expected.
Yes.
Look, I think the most current update is they are building.
It continues to go up.
They've actually cleared height wise the original Steinway Building, and now they're going with what we call the tower units.
So development continues at pace.
I would say, the marketing office is open but there is really not an aggressive marketing effort at this point.
And depending on estimates, you got another 18 months plus or minus of construction to go.
But it's ---+ construction is continuing as expected.
<UNK>, do you want to comment.
Yes, I think the primary driver of that was probably one of our larger predevelopment loans that we pushed out from '17 to '18.
And again, I'd put that in the category of a good thing for the company.
Good borrower, we're comfortable with the business plan, collateral and certainly had an opportunity to not extend maturity, but it was I think an easy economic decision, an underwriting decision to do that.
I think from a capital plan and the way we think about it, I think our experience over the last 5 or 6 years has been more often than not, some amount of the stated maturities end up getting extended for various reasons.
Given the cycle we've been in over the last 6 years, they've tended to be pretty positive reasons, which is borrower wants to add some additional collateral and expand their business plan.
Borrower wants to rethink through their business plan and is willing to pay up for the ability to extend and they're still strong asset protection.
So we've always sort of somewhat weighted our maturities.
I think in terms of capital plan as we think about it from a high level, we still look at the balance sheet today.
And I'd argue, we're still modestly underlevered relative to what the company could handle from a leverage perspective, certainly given the bigger size of our portfolio today.
And certainly, a first step in that process was expanding the lines with JPMorgan and DB, as <UNK> mentioned, to give us more flexibility.
And then obviously, we've certainly been paying close attention to what's gone on in the capital markets, particularly some of the recent senior secured notes and convertible offerings that have taken place in our space that have been pretty attractive.
That being said, our desire has always been and will continue to be to try and pair up capital as closely as possible to the pipeline.
So we'll let the pipeline sort of drive the capital decisions and at least at this point, the pipeline feels pretty strong.
Look, I think it's certainly on our radar screen.
I agree with you, the bids were spotty.
But I think we've got a platform that's beyond just ARI's continually in the market, which I think increases our chances to find bespoke one-off opportunities to sell pieces.
I think we were very happy with the execution in the first quarter.
We maintained an active dialogue with the Street, vis-\u0102\xa0-vis what we own and what that bids might be.
I think if you look at CMBS over the history of the investment, it's been a fine investment.
I think if you look at the expected return going forward, I still think it makes sense for us to be opportunistic to sell when we can and redeploy that capital as needed.
Again, I think it creates some noise in our operating earnings, which is to be quite honest with you, really just noise and annoyance factor.
If you look at the loss we took in the first quarter, right.
There was no impact from that sale vis-\u0102\xa0-vis book value because we sold it at the mark or slightly above the mark that we were carrying it at.
But we do show a $1 million realized loss, which is at the end of the day, a complete noncash realized loss, because all that is, is matching up historical cost basis versus realized proceeds for an asset that is already mark-to-market in our book value.
But it is what it is.
I think even with that sort of potential noise and operating earnings, I think we're still biased when we can opportunistically sell.
Look, I think at a high level, this is no ---+ meant as no disrespect to the company that's going public tomorrow.
I would say, one additional company or several going public will not dramatically change the competitive landscape.
I think we have felt it has been a competitive landscape for the last 6 years, 7 years that we've been in business.
I think there is clearly proven to be a need for those of us that provide the type of capital we provide in the form of transitional senior mortgages as well as bridge loans.
And I think we've always described the marketplace as competitive for the last 5 or 6 years.
And I would say, we would expect it to remain competitive.
We feel confident in our ability to get capital deployed.
We feel confident in our ability to find transactions that make sense.
We've always expected there would be additional competition in the companies that are hopefully going public tomorrow or in the future are not surprises.
And in some respects, arguably having more companies public in the space might actually be a good thing in terms of equity investor focus and coverage of the space and giving investors more reason to track what's going on in the commercial mortgage REIT public space which has become a small group of companies and we'll probably benefit from having more names in the space.
Operator.
Thank you, Operator, and thanks to everybody for participating this morning.
| 2017_ARI |
2017 | PTEN | PTEN
#Working ---+
I think you ---+ that information should properly come from Seventy Seven at this point.
Yes.
So there are some areas of cost, that I think the entire industry is sensitive to.
In terms of labor on the rigs, we're not seeing the cost pressure yet.
In terms of labor and pressure pumping, I think we're going to start to see some pressure on labor.
And in general, we're going to have costs related to labor for the recruiting, the onboarding, and the training that we have to do to get people back to work.
So that's kind of what's happening in the labor front.
In terms of materials, I think some of the materials and supplies that we use in both drilling and pressure pumping will start to move up, in terms of costs.
But I'm also confident that we're able to manage those, but with activity moving up in general, and our pricing moving up, supplier's pricing is going to move up a bit as well.
In terms of sand, as I mentioned earlier, we see sand pricing moving up.
We see it more so in certain grain sizes than others, where supply is tight.
But I think at the same time, we'll also see mines improve production in those grain sizes as well, and the availability as we go into the year.
And so, we have agreements, and we have discussions and negotiations with multiple sand suppliers in multiple basins to ensure that we have the supply.
And so, that we could do our best to ensure that there's some cost competitiveness out there for us as well.
But, overall, the market is improving, the rig count continues to go up.
I'm certainly encouraged by how fast things are moving out of the gate in 2017.
In general, in the industry, I think that we can't activate frac fleets as fast as demand is out there.
And so, that's allowed us to get the pricing improvements on the incremental spreads that we're activating.
And the industry is likely building DUCs as a result of that.
So that's kind of how I see things playing out right now.
We do have a number of spreads that work for customers who source their own sand.
We have also spreads that work for customers who may source their own chemicals, but not their own sand.
But we don't, in general, get into the details of what those percentages are.
And they do change month to month.
Off hand, I don't believe they do.
Yes, I would say, the majority of improvement is coming from activity.
And certainly, we've got two new spreads in Q1 that are adding accretive pricing there, but the majority of the improvement is coming from activity.
Without getting into the details of fluid ins, and the consumption ---+ we mentioned in the financials that pressure pumping, we're allocating $75 million for fleet activations and maintenance.
And so, that maintenance will include fluid ins.
And you've got our fleet activation costs out there, so you can kind of see what some of that might be.
I am encouraged by, for instance, the fact that in our move to using a certain percentage of stainless steel fluid ins for instance, the cost of stainless came down over the last couple of years, not in relation to oilfield or oilfield activity, but more in relation to the cost of nickel and the stainless blend.
So as we move to, for instance, stainless, we're not paying large incrementals for those particular fluid ins.
I think it's safe to say, with us having 1 million horsepower, and then post-merger 1.5 million horsepower, that everybody calls us.
So I don't think there's any sand producer in the US that doesn't contact us right now.
Yes, so we're getting contacted by individuals who are looking to start new mines as well.
And so, that's why, while sand supply is a big concern of mine, we are hearing from individuals that are looking at starting production in sand that's not currently being produced.
So, and I won't get into the details of what we might or might not do.
So, yes, we concur that it is happening.
Yes, my comment in terms of the reactivation of frac spreads, and it's hard for the industry to keep up, was really more of an industry comment, and not so much related to us.
And it's based on discussions with customers.
And it's what drove us to be able to get the incremental pricing on the incremental spreads that we're putting out.
But overall, the utilization of the industry still has to improve before we get wholesale pricing.
When we look at our overall utilization, at the end of the first quarter, and going into the second quarter, we're going to be at about 60% utilization, and really pleased to see that number for a change.
As rig count continues to go up in 2017, I think we will see further additions to active fleet, in terms of pressure pumping, and improvements in the overall utilization.
And at some point, at a certain rig count, you're going to see the ability for pressure pumping pricing to move up higher across the industry.
So we're certainly encouraged that we're going to be at 60% utilization in Q2.
We will have to wait and see what the rest of the year looks like.
So I can only speak to us, and majority of our work, over 90%, is 24-hour operations.
Now some maybe 24/five days a week, some maybe 24/seven days a week, but the majority of our work is 24-hour operations.
| 2017_PTEN |
2015 | PX | PX
#Good morning, <UNK>.
(laughter)
Hi, <UNK>.
No, no.
It's very unique, and maybe I can comment a little more on that.
So we initiated this contract over eight years ago.
And we went into this arrangement with the concept of building our density as we do, and a model that we could build out and essentially establish the type of supply that we normally do.
Due to reasons unrelated to us ---+ frankly, a customer's permitting issue ---+ this delayed for seven, eight years, and our equipment essentially was in storage.
We had been receiving some progress and recovery payments to sort of help recover our lost time, value, and money.
But now the permit has finally been issued, it is modified and the scope has been changed on this project.
And basically the original project that we had signed up for is just not feasible from our perspective.
So we worked with the customer, and we felt this was in the best interest in the use of this capital ---+ was to go ahead and exercise this opportunity to sell the asset back to the customer.
So a very unique situation.
Clearly a US-based downstream energy type project is something you would want today's environment for growth; there's no doubt about that.
But I think, as you can imagine, <UNK>, we really researched this and analyzed it, thought long and hard about it over the last several years.
But we firmly are confident that this is the best use of shareholder capital ---+ was to go ahead and exercise this opportunity here the way we did.
Well, I think from a CapEx perspective, depending upon the timing of where the projects are, I still think this kind of $1.5 billion to $1.7 billion, and hence we are saying $1.6 billion number, seems to be where we are at given the backlog of projects ---+ although we are taking some actions on non-large-growth projects to maybe trim a little more.
As far as the backlog, as you know, it's lumpy.
We still have some pretty solid leads, mostly on downstream ---+ either energy or petchem type projects ---+ that we are pursuing.
They are a little bit larger.
So if they are executed and signed, they could create some lumpiness on the upside.
As far as the downside on the backlog, we've got two more projects that will be starting up here this year.
And then into next year, we have several more coming onstream.
So I think ---+ you know, all-in, I still think $1.5 billion to $2 billion on the backlog for the remainder of this year.
And then I think CapEx will probably be in the lower end of that range, just given the spend rate.
We didn't disclose that number.
But I think if you look at the dip in the project backlog ---+ there were three projects that came out this quarter.
That one was by far the largest.
In our investing cash flow, there was a divestiture line that comprised a large component of this settlement.
As I had mentioned before, there were some prior payments over the last eight years.
But at the end of the day, it was an energy project that we essentially just sold out from.
And you can kind of look at the numbers and figure it out.
Well, specific to the Gulf in the US, I expect the opportunities are still fairly strong.
When you look globally for us, clearly there will be some softening in places like China, South America.
We are just not seeing large capital projects in places like Europe, either.
So on a global basis, I would expect it to be a little bit lower.
But in the Gulf and in some other pockets of the world in downstream energy, as I mentioned earlier, we are seeing some good opportunities still.
And that's a lot of either national oil companies or independent oil companies looking to take advantage of a low-cost feedstock, whether it be oil or in the petchem side ---+ could be shale.
So I think from that perspective, it's still pretty good opportunities in the Gulf.
And I do expect projects related to US Gulf or energy and chemicals will probably make a larger percentage up of our backlog than it does today.
Yes, so really that's, as you can imagine, a macro kind of question, as the macros are really what are having Brazil struggle.
But from our just best guess at this point, and I was just down there about a month ago ---+ clearly 2015 is challenged.
The view is that there's not a lot of optimism around 2016 yet at this point.
Inflation is the big culprit they are really trying to get after.
And that's ---+ they just recently made a change here, and their fiscal deficit had to sort of step it down.
But they are going after the government balance sheet.
I think that part is positive; they are just not getting the tax revenue base.
So when you kind of add all these pieces together, I just don't think the confidence is yet there.
Clearly the confidence on the current ruling party is quite low right now.
So I think that is creating a challenge for investors to want to invest at this point.
Now, the real has gotten fairly weak here.
And so that does make exporting beneficial for those that can do it today.
So my best guess at this point is I'm not really expecting a lot out of Brazil the rest of this year or into 2016 ---+ we are kind of thinking it may just hold flat.
But if they can continue to take the actions they are taking, it should bode well for them to start stimulating the economy back into 2016, possibly.
It just remains to be seen.
But the SELIC rate is quite high right now, so they have a lot of room to stimulate.
They just are not comfortable with their inflation situation, and I agree with that.
So we're going to have to wait and see.
But we are not waiting in terms of our rightsizing the organization.
We are aligning it more with kind of the near-term outlook, which is muted.
And we are just rightsizing the organization around this.
But when things recover, we won't miss anything.
We are still very, very well positioned to capture more than our fair share when things recover.
Yes.
Yes.
I think you had to peel out the project startups, as they may be a little bit different than the underlying economic trends.
But at least what I'm seeing when I look at China ---+ you are kind of low signal digit, maybe mid-single digit in certain parts of the country right now is what we are seeing on the ground.
And I think what you've got going on there is it lot of the very large growth opportunities in either infrastructure; anything upstream, whether it's steel, mining, construction ---+ those are clearly softer.
And they were driving a lot of the growth.
Downstream is still okay, whether it's consumer-related, environmental, food, healthcare.
But those are just not as intensive in terms of gas usage.
So what I would characterize it as is we are still seeing good growth in these more consumer downstream opportunities.
And we signed that CNOOC deal last quarter, I think, as evidence.
But the upstream side is definitely softer.
And there's just, frankly, excess capacity.
I mean, that's one of the main issues is there's just too much capacity, and it needs to be soaked up.
Well, a third of our business is on-site.
So that third has to take-or-pay levels.
The other two-thirds are merchant and package.
So they would be requirements contracts, but not all of them by any means have any take-or-pay form.
But I will answer it this way: I feel quite good about our on-site protection in down environments.
And I think if you want to use history as an example, just look at 2009, when things really fell ---+ I mean really fell, and they really fell fast, as you may recall.
And we were pretty resilient.
And lot of that were the contracts.
A lot of that was the protection in the on-site.
So I feel fine on that front.
And I think you are seeing it play out in Brazil today.
We are still maintaining a pretty high-quality business in what several are calling some of the worst conditions in over two decades.
So I feel okay on that.
Now, the merchant and package, clearly that's going to be a little more exposed ---+ especially the package ---+ in terms of what's going on in the environment.
So I think ---+ I'm not sure if that answers your question, but that's about the best way I can characterize it.
Well, I think, <UNK> ---+ and that is a good question.
I think the multiplier is a function of this intensity per capita concept.
Right.
That really helps drive a higher multiplier in terms of gas pull-through on the growth.
And in the emerging markets, they still have fairly low levels of gas intensity per capita.
You just see it in the results, and you see it when you go to those countries in terms of how they're ---+ you know, the lack of application technology that's being deployed.
So I still think the multipliers are quite strong in those regions.
I just think the challenge you are seeing in a lot of emerging markets today is the investments are just simply not being made.
So people made investments in some of these markets, and the capacities are lower than they expect.
So they are just running with existing capacity ---+ or, in some cases, just not running that capacity.
And that's the bigger challenge.
But you look at certain countries that still have significant infrastructure needs, and they are just putting a lot of that on hold to try and get the government balance sheet corrected.
When they get back to a situation of addressing those infrastructure needs, I think you will see that multiple back in play.
And we should be in pretty good shape in terms of gas pull-through.
Well, I think, <UNK>, there's only been a few data points given the geographies that we participate in.
I'd say at this point there's nothing I could really point to to say in either direction I've seen anything materially different.
But we will probably just need more evidence and more time to just understand that.
Yes.
In fact, <UNK>, we are taking not just the growth in new CO2 in the US, and expanding it in other applications, and leveraging our package business to support that, but we are deploying that model in other countries.
So South America, Mexico, and some other parts of the world ---+ we are really trying to duplicate some of those efforts in leveraging our strong CO2 supply network and very strong food and beverage application technology.
So we're doing that to continue to grow.
We are seeing some opportunistic acquisitions that we've done in LatAm around food.
So I think that's been a good driver for us, and it's something that has a nice sort of resilient, non-cyclical aspect that meshes well with our portfolio and meshes well with our application expertise.
So we've been quite happy with that.
And <UNK> mentioned in the prepared remarks another CO2 supply that we've acquired here in the US.
And that will further help some of our synergies and our growth opportunities in that market.
Okay.
So first I'll talk about the base carbon steel.
Just on North America as well, while I feel a little better this quarter, we were coming off some pretty low lows in Q2.
So I think it's ---+ while the sequential I feel a little better on, whether they are at levels that we've seen or normalized levels, it remains to be seen.
But it does appear to be better so far.
I think Q2 there were just more customer outages and inventory ---+ excess inventory overhang.
Looking at South America, it's hard to say.
I think the only ---+ auto is still very weak in South America.
Infrastructure projects, as I mentioned, are just not happening.
So whether it's long steel, flat steel, there's just not very much demand.
I think one positive aspect is the way the currencies are going, especially when you look at a country like Brazil.
Their export market should start to open up a bit.
Their steel is definitely becoming more competitive.
But aside from that, the demand in South America, I think, is still a bit constrained given the end markets.
India ---+ we are still seeing some good opportunities.
We've had a few announcements here.
And we are working with some of the large steelmakers there.
So I think in balance, that one has been a good story.
China is just a story of excess capacity.
It's well known.
The government has made very explicit efforts to try and reduce that capacity.
We welcome that.
I think it's just been very slow going for that capacity to be reduced.
So until that happens, and those mills are closed that are kind of really fringe mills ---+ second and third tier ---+ I just don't think that situation will be fixed anytime soon.
And in Europe what we are seeing is if you have the mills, you are running them.
And we are seeing some customers run them fairly hard.
But I wouldn't expect much incremental investments in Europe at this point.
But that remains to be seen.
And as far as the argon ---+ I think argon always is naturally tight.
We are just not seeing the high levels of stainless that we had seen in the prior quarters for some of the production rates.
It does go up and down, but in this particular quarter we just didn't see the type of rates we've seen the past few quarters.
Sure, <UNK>.
Starting in North America, high 70s ---+ and that's a little bit down from last quarter.
And it's partly due to some of the things we had mentioned with manufacturing, argon, and just the further erosion in some of the upstream oil.
South America is still kind of those mid-80s range.
And as I mentioned last call, a lot of it is going into the non-cyclical industries.
So fairly resilient merchant supplies there.
Europe is low/mid-70s.
We are, as I mentioned, starting to see some uptick.
So while the energy business is quite down, the base underlying the manufacturing is picking up.
And we are especially seeing that more in the package side of the business.
In Asia it's a little bit different, depending upon the country.
On balance we are probably mid-70s, but Korea is still quite high.
India is low, but that's just due to some capacity that started up; we are loading that capacity as we speak.
And then China is a little low, just given ---+ partly the overcapacity and partly our concerted effort to transition from distributor sales to direct sales.
So that's kind of around the world.
Not a lot of change from last quarter, but we clearly have ample capacity to rebound when demand presents itself.
Sure.
And yes, North America is really driving that number, to your point.
And there's a couple pieces.
One, consistent with what we had said in the last call, natural gas, while we exclude the pass-through, is impacting that number a bit as we have it embedded in some of the pricing of the coproducts that we have.
So CO, methanol, certain products ---+ steam.
So that is negatively impacting that as natural gas has dropped almost 40% year over year.
There also were some outages in North America.
And it's impacting, frankly, our package business even more so than either on-site or merchant.
And that has also negatively impacted of that.
So I would say a good portion of this is temporary in terms of some of the outages in the natural gas.
But overall there might be a little bit of softening in chemicals.
As you see oil drop, I think the end products of some of these chemical customers are going to be a little squeezed ---+ their margins.
And I think you are starting to see that in some of the chemical companies' recent reports and outlooks.
So I think there is a little bit of softening happening there.
Activity is pretty low, still.
Their oil output has continued to drop.
They are still going through some belt-tightening in terms of balancing their fiscal books.
So from that perspective, not much improvement.
Now, the rest of Mexico is actually performing quite well.
Automotive is very strong.
The peso hit MXN16.30 the other day, which is making their exports extremely competitive, especially when added to their labor costs.
So certain markets continue to do quite well.
But the Pemex and oil market really just has not improved here.
And I think until there is some investments that are brought in ---+ whether it's third-party investments or partnerships that Pemex may have ---+ it's hard to find when this is going to turn.
But we have heard that there might be some budget loosening here, which would bode well for more wells to be drilled.
But at this point we are really not anticipating much of that.
Sure.
Helium is definitely looser than it was a year ago.
You had a combination of more sources coming on, coupled with customers being much more conservative in how they are using helium ---+ whether it's more helium reclamation projects, some small ---+ very limited, but small substitution where feasible.
So what you've seen is, I think, the helium market went from being very tight, to in balance, to now you've probably got a little bit more supply than demand.
And you are especially seeing that in some of the electronics vendors in Asia, so that is on a volume basis part of the Asia challenge as well.
But I think from a sourcing perspective, we're still very comfortable with our ---+ we have a very broad level of sourcing that's got a pretty good average cost that we can still be competitive in the market.
So still a very good business for us.
It just goes in these cycles of being very tight to not tight.
And I'd say right now it's more than imbalanced, and it's created a bit of a headwind year over year in volumes given that.
So first, as far as the assets, we are running them quite hard, actually.
We've been loading the assets much quicker than expected.
The two on-site ones were strict facility fee approaches, but they are both running quite well right now.
So from the perspective of, if you are in the country and you have the assets, we are actually running them quite well.
I think to your point, the geopolitical situation is challenging in the sense of ---+ we just don't know looking forward where it will go.
The country of Russia itself is facing stagflation right now.
But all in all, I'd say we are still fairly happy with what we have on the ground there.
I think the bigger question for us is incremental investments we just need to be cautious on.
But we are still looking, and we are still pursuing opportunities there.
We are just even more selective, I'd say, than we have been.
And frankly, the contracts and the way we established them coming into Russia several years ago have really played out well for us ---+ and not just protection from the ruble, but also just some of the terms and conditions around some of the uncertainties you face in this country.
So I would say while we were a bit disappointed on some of the execution costs and overruns we had in building, the actual demands have played out fairly well.
And it's still a geography that we are intensely looking at for growth.
Yes, <UNK>.
I think, first, just from the calculation itself, as you can imagine, a substantial portion of our debt is dollar-based.
We just did two euro issuances, but for the most part that debt is dollar-based.
And the EBITDA is ---+ more than half has foreign currency impact.
So right now that metric is being a little bit stressed (technical difficulty) and it is thus being inflated a bit because of foreign currencies.
So I sort of look at more retained cash flow some of my kind of coverageability and a few different metrics in addition to that one.
But all in all, I would answer your question as such that I'm fairly comfortable with our net debt levels.
We did increase debt a little bit in Q1.
We decreased debt a little bit in Q2.
But I am fairly comfortable that where we are at is not an issue either way.
And if we see some opportunities, we may raise debt a little bit, whether it's for growth or buybacks.
But nothing that material in either direction.
No.
Sorry ---+ just to clarify, no, it's not all cash.
It's about half; you will see in the Q.
We do break out cash and non-cash.
About half is cash.
No.
I think with this charge, a little over two-thirds were in the emerging markets.
So China, Brazil.
So when you do that math of the average salary, you do need to take into consideration this is a US dollar number on emerging market foreign currency salaries.
You're welcome.
| 2015_PX |
2015 | SSTK | SSTK
#Sure.
I will jump in, this is <UNK>.
The Penske deal is super important for us.
Penske along with our Rex acquisition cemented our entry into editorial, and gives us a pretty good head start.
We continue to build that business out.
And Rex is doing well, and we are talking to a lot of our enterprise customers that need this content.
The other great thing about Penske is that it is exclusive to us.
It used to be with one of the other companies in the space, which you know about.
And they trust us today to grow with them to sell their content, and to build an editorial offering that is differentiated and customer centric, which is not what it was before.
And we look forward to building out editorial, and we look forward to it being a good part of our business.
For the Red Bull deal, same thing.
Content is coming towards us in different ways and better ways, and we are finding that we use the most amazing content out there.
And their owners are realizing that Shutterstock is the place where we know the future of the customer, and we will be able to sell it the best.
Again, Red Bull is an exclusive deal with us, and so these are important deals for us.
Thanks.
We have time for one last question operator.
We have time for two questions, sorry.
I will jump in on the video part, and then hand it over to <UNK>.
The video world is still evolving.
We were the first in this space to build a crowd source marketplace for video.
We've learned a lot, we continue to learn, it grows well.
And we continue to see more and more still image buyers move over to video as the tools become easier to use.
Not only do they move over and start using some video, but they continue to integrate it in with the other images that they're using too, so we see crossover back and forth between the two products.
Audio is important to video, and that's why we made that PremiumBeat acquisition and that's why we continue to focus on audio also, because video needs audio.
And it's a great product for us.
On the LTV, we see this is really fairly steady.
The higher price points on enterprise, the higher price points on video, the higher price points on our offset collection, are all significant.
And they are offset, if you would, by some higher marketing spending.
However, as I mentioned before, gross margin dollars, contribution margin dollars, are higher.
And we're still seeing four to five times the lifetime value of a customer versus the cost of acquiring that customer.
And so we feel a positive trend, and certainly one that we need to be mindful of and treat with the same fragility as anybody would treat any customer as we go forward and make sure that we are continuing to press hard on maintaining that ratio, if not improving it.
Now we have time for one last question please.
We do not detail that usage.
Once again, it is also an evolving landscape where you have customers who are either shifting among subscriptions.
We are seeing a nice uptake of the 350 product from on-demand customers.
And once again, we continued to, as <UNK> said, as we have done for the past 13 years, we continue to make sure we have an appropriate offering for customers based on their usage and need patterns over time.
Thank you very much, everybody, for joining us today.
We appreciate your time, and if you have any follow-up questions, please let us know, we are here to answer anything you might need.
Thank you.
| 2015_SSTK |
2016 | LNC | LNC
#It's pretty hard.
I keep saying there's a hint of the DOL in the reduced sales.
But, in fact, the reduction in sales was not that much different between qualified and nonqualified plans.
So we think what we don't know is how much more qualified sales there would have been without the disturbance of the rules.
But just again, mathematically, qualified sales actually decreased a little bit less than nonqualified sales.
But again, it's what was the upside opportunity that was missed that I can't put a number on.
You know, that's a very difficult question to answer, and I would hesitate to speculate.
What I do think is there's greater transparency because of all the technology that's available.
There's trends around best interest requirements.
So, it will be interesting to see how regulation develops.
But from my perspective, and Lincoln's perspective, we'd have to continue to do and offer products and compensation that's in the best interest of our clients, and is consistent with regulations.
And that's what we'll continue to do.
Yes, <UNK>, it comes pretty quickly.
I mean, you don't make that $1 sales and so you don't have put the capital up.
So, from that regard, it comes immediately.
And I think you saw some of that in the first quarter buybacks, where we did $200 million.
As I noted, that was an aggregation of a number of issues, including the strength of our capital position, but also including the fact that we did see annuity sales running at a little bit lower levels.
You bet.
We haven't, <UNK>, really updated that at all.
I would say, as the proportion of business that is employee-based becomes a bigger piece of the book, that that has a modestly lower loss ratio.
So, over time, you would expect that target to trend down a little bit.
When you look at the quarter itself, we came in at 69.6% for the quarter.
You know, it's really ---+ you start to try to split the ---+ split these things to a pretty much finer level than you truly can.
But when I look at the actual experience in the quarter, there are three primary items that really drive loss ratios, if you're talking about disability insurance.
You have incident rates.
You have terminations, and you have the average sized claim that comes on the books.
When I look at those three items and how they impacted the quarter, once again, you are starting to split these things pretty fine, but it's probably about a 1 to 2 points better than we would have expected for the quarter.
So, that 69.6% had a little bit of favorability in it but not too much.
I guess somebody earlier today mentioned that there is 1,000 pages worth of regulation.
There will be some manageable cost increase.
Over the years, I've seen a lot of, for example, when SOx was introduced, I've seen a lot of people worried about the increased cost of managing it.
I think most companies who are effective in how they implement the requirements of new regulations, can do it on an economically manageable basis.
And certainly at Lincoln, we think we can implement whatever we need to on a manageable basis.
<UNK>, I'm not certain I agree with the conclusion that the DOL regulations caused the reaction of lowering compensation.
Let me come back to the examples that we shared in our comment letters with the DOL, and take a look at the difference between an annual advisory fee ---+ let's say 1% ---+ which is not even available to smaller sized customers; it would be 2% or more.
So if you have a 1% annual fee, I think the breakeven point on a full upfront commission on annuities versus that 1% fee is in four or five years.
And so, it ---+ again back to the contract language, what's in the best interest, based on this product that's being sold, what's in the best interest of the client and a long-term contracts upfront compensation, may very well be the answer as to what the best interest is.
Now, broadly speaking, I think ---+ the financial services industry is moving toward, in total, more pressure on fees, more transparency.
But I think that's an independent issue from the Department of Labor.
These questions are hard to answer sort of in a general statement.
So let me come back to a very real differentiation in the fixed annuity market.
There is a segment of the market that focuses on less liquidity, so that surrender charges and commissions are higher.
But then, that value proposition comes along with investing longer and presumably paying a higher crediting rate.
Now, we don't participate in that market, and so we don't pay ---+ we have a more liquid, lower-commission product, which is appropriate for our distribution channels and what's Lincoln's view on consumer value is.
So, you're going to have to look at each situation like that.
And I don't think that you can automatically come to the conclusion that a less liquid, higher-credited-rate product with a higher commission is going to automatically be litigated versus the kind of products that we sell.
<UNK>, yes.
I made that exact statement or script.
I would tell you that I would make that statement at any point in time, any time we have an amount of capital come along.
I mean, we have capital and we are always prepared for any economic uncertainties that would come along.
I mean rest assured, I will go back to my other comments that we will be very active in buying our stock back, both in the second quarter and for the full-year 2016.
Fully expect, as I said, to go above the 50% to 55% of operating earnings long-term guidance.
And part of that will be because of the $400 million of capital that we were able to generate from that transaction.
I think that the ---+ I shouldn't say think ---+ what we say is that our long-term margin expectation is 5% to 7%.
We had originally thought we'd get to that earlier, maybe the full-year 2017.
But because we had higher ---+ lower persistency than we expected and we've had declining premium, our loss ratio ---+ excuse me, our expense ratio isn't where it needs to be.
And so I think we are looking out to the lower end of that range latter part of 2017 or even 2018.
Now, if sales, which could happen, moved along properly priced and more robust, let's say 4% or 5%, which is sort of the industry average, that could occur sooner.
<UNK>, it's ---+ we have, obviously, as we do with any claim that comes in, spent a lot of time analyzing these things and specifically this quarter, because it was an item that impacted the quarter results.
We have spent time looking at each and every one of those claims, <UNK>, analyzed them down to ---+ gone back to the underwriting that was done.
And when you do all of that analysis, it truly looks like a blip.
I mean I think you have to remember that we insure nearly 2 million people.
We write, on an annual basis, 40,000 to 50,000 new policies on any given year, and you are going to have quarters where things like this happen.
I mean, the claims were spread across a wide variety of reasons.
Weather it was ---+ whether it was cancer or gunshots or whatever it was, you just had a wide variety of reasons that got in there, <UNK>, and truly looks like a blip.
I think with mortality, you always have to go back to what are your longer-term trends when thinking about what your best estimate of what your next quarter is going to be, as opposed to what happened in the last three months.
<UNK>, I'd just ---+
Yes, if I might add, in the short-term, something different about the people underwriting or your underwriting policies and practices would have to change for there to be something ongoing that's different.
And that hasn't happened.
So, we are pretty comfortable with the remarks that <UNK> has been making.
You know, it's a different story than is there some bigger trendy than, say, for example, older age mortality.
But I don't have to add any ---+ I don't have anything to add on that point either.
<UNK>, some of this stuff is arcane, but my understanding is that so long as a change is not made to an existing policy in terms of what that policy has been ---+ the payments and so on and so forth ---+ so long as there is not a change, there is no reason to go back and do anything different.
If it's the equivalent of a new sale, in the way that ---+ if something changes that is essentially the equivalent of a new sale, that would be a different story.
As to the broad question of hedge funds versus private equities, our intention is similar.
I don't know what the magnitude of the other insurers change would be, but we'd expect to move more toward, as a percentage of the total, private equity than hedge funds.
We'll do that over time.
Right now our percentage of alternatives ---+ the percent of alternatives of the total investment portfolio is about 1.2%; carrying value at $1.1 billion.
That compares to the industry averages of closer to 3.2%, 3%.
So we feel as if there is room for us to grow modestly The aggregate size of the alternatives investment portfolio, as we shift some of our hedge funds into private equities.
Yes, we are happy to disclose that.
It's about a third of the $1.2 billion ---+ $400 million.
And I guess we'd expect that to come down to $250 million over time.
Great.
Thank you.
And thank you all for joining us this morning.
As always, we will take your questions on our Investor Relations line at 800-237-2920 or via email at [email protected].
Thank you all, and have a good day.
| 2016_LNC |
2016 | SNX | SNX
#Thank you.
As we've come just beyond our first anniversary in our relationship with Dell, I can tell you that everything is going at or above the plans that we are tracking very well to expectation.
We continue to see a lot of growth opportunity there.
It's not just earning our fair share of business with Dell was is already legacy in the channel, but Dell has been making proactive movements to shift a lot of their business that had gone direct into the channel.
So we've seen movement there, in particular on the PC side of the business, with increased focus on the enterprise side as well.
Both present probably bigger growth opportunities to SYNNEX than it would to some others that had legacy relationships, so we do view that as all upside incremental growth opportunity for us.
With EMC, because we were not an EMC partner prior to the Dell relationship, that has also increased our incremental upside that we see and that really does help us round out some of our overall enterprise offering as well.
We're optimistic on our relationship and growing our business with Dell.
This is <UNK>.
No.
It sticks out in Q1 just because of the way the relation plays to revenue but we're going to overcome it and offset it in full 2016.
Okay.
Thank you very much, Laura, and again, I want to thank all of you for joining our call today.
Happy new year to all of you and we look forward to engaging with you in the coming weeks.
| 2016_SNX |
2017 | OGS | OGS
#Good morning.
This call is being webcast live, and a replay will be made available.
After prepared remarks from our speakers, we would be happy to take your questions.
A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934.
Actual results could differ materially from those projected in any forward-looking statements.
For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.
Our first speaker this morning is <UNK> <UNK>, Senior Vice President, Chief Financial Officer, and Treasurer of ONE Gas.
<UNK>.
Thanks, <UNK>.
Good morning, everyone, and thank you for joining us.
Net income for the fourth quarter 2016 was $42.3 million or $0.80 per diluted share, compared with $39.2 million or $0.74 per diluted share for the same period last year.
Investments made in our systems led to new rates, including the effect of the Oklahoma rate case and various other various rate filings in Texas over the past year.
Residential customer growth in Oklahoma and Texas also led to our positive results.
Operating costs for the fourth quarter were higher compared with the same period last year, reflecting an increase in environmental remediation expenses, outside services, and IT expenses, partially offset by lower employee-related expenses.
Last month, the ONE Gas Board of Directors declared a dividend of $0.42 per share, an increase of $0.07, or 20%, compared with the previous dividend of $0.35 per share.
As a reminder, our targeted dividend payout ratio range is 55% to 65%.
Full-year 2016 net income was $140 million or $2.65 per diluted share, compared with $119 million or $2.24 per diluted share for 2015.
In 2016, our results were impacted positively by new rates and residential customer growth in Oklahoma and Texas.
We averaged 12,000 more customers in 2016, which is an increase of approximately 0.6% compared with 2015.
Operating costs overall were relatively flat in 2016 compared with 2015.
In mid-January, we announced our 2017 earnings per share guidance of $2.87 to $3.07 per share, with an expected earned ROE of 8.1%, compared with 7.7% earned in 2016.
The improvement in ROE is primarily attributable to our recently completed rate cases.
With our updated capital plan, in which we spend more than two times depreciation, we expect our regulatory lag to average approximately 100 basis points.
Also included in that announcement in January, we updated our five-year net income and EPS guidance range of 5% to 7% annually between 2016 and 2021.
Our previous guidance focused on 2015 to 2020, which included a growth rate of 5% to 8%.
With 2016 EPS increasing by 18%, our outlook for 2020 and 2021 is in line with our previous estimate.
At December 31, 2016, our current authorized rate base, defined as the rate base established in our latest regulatory proceedings, including full rate cases and interim rate filings, was approximately $2.9 billion.
Considering additional investments in our system and other changes in the components of our rate base that have occurred since those regulatory filings, we project that our rate base in 2017 will average approximately $3.1 billion, with 41% of that being our rate base in Oklahoma, 32% in Kansas, and 27% in Texas.
Our capital expenditure guidance for 2017 is $350 million, with more than 70% targeted for system integrity and replacement projects.
Our five-year capital plan is expected to be in the range of $350 million to $380 million annually, which is an increase from our previous range of $305 million to $325 million.
The primary driver of this revised plan is a continued focus on acceleration of pipe replacement and system integrity projects.
Now I will turn it over to <UNK> <UNK>, ONE Gas President and Chief Executive Officer.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
As we began our fourth year of being a standalone publicly traded Company, approximately 95% of our rate base has completed a full rate case review, the results of which have positively impacted our 2016 results, and have been Incorporated into our 2017 and five-year guidance.
2016 began with new rates in Oklahoma, our first full rate case in Oklahoma since becoming a standalone company.
In Kansas, we reached a settlement with the Kansas Corporation Commission last fall, with new rates being implemented January 1, 2017.
This was also the first rate case in Kansas since the separation, and the first full rate case to go into effect since January 2013.
In Texas, we consolidated several jurisdictions during the past year, and have reduced the number of our jurisdictions to six from 10.
During 2016, we completed rate cases in our new Gulf Coast, central Texas consolidated, and West Texas jurisdictions.
We remain focused on being a premier natural gas distribution company, with safety continuing to be our top priority.
We are committed to reinvesting in our systems, as evidenced by our updated five-year capital guidance of $350 million to $380 million per year, providing this safe and reliable natural gas service our customers expect.
We will continue to evaluating our distribution system by utilizing a risk-based analysis to further strengthen our ability to make data-driven decisions about pipeline and facilities replacements, continuing to spend capital prudently, to lower the risk in our systems.
As I previously mentioned, during our first three years our regulatory activity included 95% of our rate base going through a full rate case review.
As we move forward, specifically for 2017, we will have an annual PBRC filing in Oklahoma, a GSRS filing in Kansas, and in Texas, a rate case in the Rio Grande Valley, and [COSAS] or GRIP filings in the other jurisdictions.
We will also remain focused on leveraging technology and improving our processes to become more efficient as an organization, in order to reduce costs to sustainable levels.
I'd like to now take this opportunity to thank our 3,400 employees for what they do every day.
I continue to be proud of their dedication and commitment to meeting the needs of our customers, so they can enjoy the benefits of natural gas.
Operator, we are now ready for questions.
Hi, <UNK>, this is <UNK>.
A couple of things occurring there.
As you recall, when we separated, we had the stay-out provision in the State of Kansas where we could not have any new rates go into effect until January 1, 2017, outside of the normal, or the annual, GSRS filings.
And so we completed that rate case, reached a settlement with the Commission last fall, and those new rates did go into effect January 1 of this year.
So as <UNK> was describing, we have now had about 95% of our rate base go through these different filings, so that's really caught us up, so to speak, to reduce from that 100 basis points to 150 basis points, close to around 100 basis points.
We will continue to file our interim filings, whether those are PBRCs in Oklahoma, it's the GRIP filings and COSAS in Texas, it's the GSRS filings in Kansas, or rate cases up there.
So it's just more of the same, continuing as we go.
We're in the process of completing that filing, and we will make that here in the first quarter, and we will just have to wait until we get to that point.
Thank you.
Thanks, <UNK>.
Thank you all for joining us this morning.
Our quiet period for the first quarter starts when we close our books in early April, and extends until we release earnings in early May.
We will provide details on the conference call at a later date.
We look forward to seeing many of you at some upcoming investor conferences next week.
Other than that, have a great rest of your day.
Thank you.
| 2017_OGS |
2015 | AXP | AXP
#Well, all fair questions, <UNK>.
We went into 2015, as we began the year in January, with an assumption that we would be continuing our very long-term partnership with Costco.
We set marketing plans and we set budgets, and we set the management teams off to execute on that plan.
When we changed that plan in February and decided to go down a different path and concluded that we think in the long run, we can generate more value for our shareholders with the path we've now gone down, we really had to do a little bit of a reset.
We managed the Company for the long term.
We want to be thoughtful when we choose to do something as dramatic as we've done, go to our shareholders and say we're going to ramp up spending this year and it's going to result in not a lot of earnings growth.
And in fact, EPS could even be down a little bit this year.
We want to be really thoughtful about the way we deploy those resources.
And so, while we began to deploy them in the second quarter to be as thoughtful as we wanted to be, reality is it's taking us until the third quarter to get fully ramped up.
So we think that's the right way to run the Company, the right results, and as we said beginning back in February, we're stepping away a little bit from overly focusing on each individual quarter.
Well, look, the rewards environment in general has always been competitive, and it's pretty competitive right now.
What we really try to focus on, <UNK>, are a couple of things.
Number one, ultimately this is about broad customer value proposition; rewards is one component of that.
We have a brand.
We have a reputation for security and trust and service.
We try to leverage those things.
Second, we have a very broad portfolio of products in the US, and we do that because we think there's tremendous value in making sure you're delivering to different customer segments the things they value the most.
Whether it be cash-back rewards products; things that use our membership rewards program, which is of course still by far the largest and most diversified rewards program; or our many co-brand products.
By focusing on the broader customer value proposition, by making sure we're being really thoughtful about how we segment the different customer groups and produce something that they're going to most highly value, we think we can get to the best possible result both for both our card members and our shareholders without having to compete dollar for dollar on every single aspect of every single product.
So we feel good about some of the latest things we've launched.
And certainly the big launch in the last 12 months was around the EveryDay Card last year.
That card has performed better than we had anticipated.
It has reached a little bit different demographic, which is exactly what we were trying to do.
So we're pretty pleased with that.
So very good question, <UNK>.
So two things.
There was a sequential decline here Q1 to Q2 from 4% to 2%.
That decline, actually, relates to one product with actually maybe one large customer.
It's an airline fuel-buying product, very, very low-margin product.
As an old airline CFO, I'd point out the airlines are a little flush with cash right now, and so they're minimizing their use of these products, which help them out with cash flow.
That's what caused the drop from 4% to 2% as you go from Q2 to Q1.
Now, 4% is still a low number, and as I said last quarter, boy, as we have really scrubbed our customer base, all I can tell you is it is US-driven, not international markets.
It is very broadly spread in terms of a slowdown in just the organic growth spending trends amongst mid-size and larger clients.
It's TV-oriented and seems to be a very broad spread.
So you can draw different conclusion from that.
Is this companies tightening TV budgets as they think about the economic environment.
Is it a little bit of peer pressure on the airlines.
We have lots of different theories, and you can add your own.
But those are the facts as we see them.
We're always very cautious, <UNK>, about reading too much into trends that occur over a couple of weeks.
So I would say, no, we'll just have to see how Q3 plays out.
Well, of course, <UNK>, it's very, very early days here.
We have just announced the product.
It's available with a small number of initial websites, with a longer public list of people who will soon be adding it.
Certainly we have done some pilot sites before we launched it.
And, of course, the key here that everyone is trying to get to with these products is you're trying to get to a much higher percentage of people who go all the way through to the end and buy what they've been looking at in any particular online or mobile experience.
And I would say we, and the couple of merchants we had doing pilots with us, were very encouraged by the results that we achieved in terms of improving those rates of getting people through to the final step.
So when you think about the economic arrangements, obviously can't comment on specific economic arrangements, but what this is really about and the real pot of gold that everyone is chasing here is can you get those rates up significantly.
And to the extent you can prove that you can, then the economics take care of themselves for everyone.
And that's what we're seeking here.
Now, I will go back to where I started.
It's very early days.
We're going to have to see how things progress here, but we are encouraged by the early results.
We think we have a product with some very interesting features relative to some of the other alternatives.
It is very simple.
It is very quick, but we'll have to give you an update as time goes on.
So let me take those one at a time.
So start with the DOJ, so you are correct.
The judge's order became effective at the beginning of this week, and we are in the process of following that order.
One part of that process is notifying all of our merchants of their right to steer, and that will be happening per the order in the next several weeks.
There's other aspects to it, but that's certainly one of the most important parts.
As we think about the order, I think the first thing I would is when ---+ as we sit here and think about it today, we believe that in the near term, the financial impact of this order is within the financial outlook that we provided at investor day, reiterated it again today.
Clearly, in the longer term, we're going to have to see how the marketplace reacts to the order and think about what impact that's going to have on our business model.
So that's where we are with the DOJ.
Much more straightforward question, yes, we took a restructuring charge last year that involved about 4,000 employees.
We are well into that; however, there's a significant portion still to come.
Some of this involves fairly complex moves as we right shore Interestingly enough a lot of this is moving from one non-US location to another non-US location in some of our operations.
That has to be done very thoughtfully, and so there's a very experienced team at doing this who is involved in that process, but they won't be done until much closer to the end of this year.
Two good questions.
So on FX, essentially what it built into our multi-year financial outlook, to use broad strokes, is roughly the rates you see today.
So to the extent ---+ because it is hard to imagine, these may be famous last words, that you could have another move as dramatic as you have had in the last 12 months beyond where we are today.
If you do, that will be a tough head wind for us that we'll do our best to manage.
I'd just remind you that the movement of the US dollar so far, so fast against so many currencies all at once, as it's done in the last nine months, you have to go back quite a number of decades to find another move like that.
So it could happen, but we'll have to see.
On credit, you're correct, we built in both in the back half of this year as well as into the 2016 and 2017 outlook some modest uptick and steady uptick in the provision and growth of the loan provision, because clearly we have a very steady track record now in growing our loans above the industry average.
What happens if that is more benign.
Well, that will be a very good thing.
What I would say in terms of the bottom line is what we are trying to be true to at this point is the financial outlook that we provided to people and making sure we're really well positioned to demonstrate and to execute upon once we've lapped all the FX, once we've lapped all the co-brand changes, once we've lapped Costco in the US, demonstrating to people that the business model and financial model that have produced 12% to 15% EPS growth rates is in place and is working well.
And so, if credit is a little bit more benign, we will frankly look to see whether we are operating within the financial outlook that we have and whether we have other growth initiative funding that we, in fact, think it could be for our shareholders very profitably redeployed, or whether we want to take it to the bottom line to make sure we feel comfortable that we can come in with the outlook we've provided.
There's always a lot of moving pieces.
We'll have to see where they all come out.
But hopefully, <UNK>, that gives you at least some sense of how we will think about things.
Well, <UNK>, I've got to say, this is the one where I hope you're right, and I hope that's a signal, but all I can do is tell you is what we are seeing in our corporate business.
And I'd remind you, it is a ---+ while we do lots of things in the GCP segment, the biggest component is still tied to, more or less, T&E-oriented spend by mid- to large-size companies.
So I have read some of those same comments that you just referenced.
I will have to see whether they show up in our results over time.
Certainly through June 30th, it would be hard to see that.
| 2015_AXP |
2017 | ORN | ORN
#Thank you, <UNK>, and welcome to our call this morning.
I'd like to begin by thanking our 2,500 coworkers for their hard work, dedication and commitment to our company, as well as the generous support and outreach provided during the recent hurricanes, as they helped coworkers, family, neighbors, schools and charitable organizations to collectively clean up and move forward.
I'm extremely proud of the way our team has responded to these devastating events.
Excluding the one-time impacts we experienced during the quarter, all operations performed well and we experienced solid drivers for overall growth of the business long term.
As you are aware, during the third quarter, we experienced unprecedented impacts from three major hurricanes ---+ Harvey, Irma and Maria ---+ which affected over 85% of our operations.
This resulted in ongoing project delays, the delayed start of newly-secured projects and had a significant impact on our third quarter results.
Specifically, the impact was approximately $16.5 million in EBITDA during the third quarter.
However, because of the destruction caused by these hurricanes, we are experiencing higher demand for our services in the marine segment and we expect to see additional opportunities related to the storm effects over the next couple of years.
As an example, the rain event in Texas, due to Hurricane Harvey, brought significant levels of siltation into Texas ports and waterways driving increased need for dredging services.
To date, we are processing and working on multiple emergency call-out projects and are ready to meet our customers' needs.
While our business this quarter was significantly impacted by the storms, the underlying fundamentals of our business remain healthy and strong, and we continue to see good (inaudible) opportunities going forward.
Currently, our backlog remains at high levels with some increasing job margins in solid-bit opportunities.
As we look ahead, we will continue executing on our strategic vision of being the premier specialty construction company focused on meeting the needs of our customers across the infrastructure, industrial and building sectors while building our market share and enhancing shareholder value.
We will continue to execute this strategic vision through organic growth, greenfield expansion and strategic acquisition opportunities.
Specifically, as we increase our service offerings, we will continue to deploy capital to high return, high free-cash-flow businesses with a focus on increasing our return on investment capital.
We expect demand drivers to continue to lead the high-quality-bid opportunities across the infrastructure, industrial and building sectors.
The infrastructure sector, which today our marine segment services, continues to provide both public and private opportunities to maintain and expand marine facilities on U.S. waterways.
Throughout our operating areas, market fundamentals remain positive and we are seeing pockets of margin expansion.
As I previously mentioned, we anticipate increased bid opportunities in the near term related to the third quarter weather event.
This should provide an additional catalyst for increased asset utilization.
Additionally, private sector bid opportunities continue from downstream energy customers as they expand their waterside facilities associated with refining and storage.
Also, recreational demand continues from private-sector customers as local marinas are being expanded and remodeled, and bid opportunities related to cruise lines remain promising as we track projects related to new destinations or refurbishment of existing destinations in the Caribbean.
As we have mentioned before, volatility in the marine segment has been much greater than anticipated and we have and will continue to take the necessary steps to address idle labor and equipment costs because of this increased volatility.
However, the underlying fundamentals of this business remain sound with solid demand drivers, bid opportunities and a solid backlog.
Additionally, during the third quarter, permits related to the delayed project we discussed on our prior call were received.
This work has commenced as planned and is progressing well.
The building sector, which today our concrete segment services, continues to have solid long-term demand drivers as well.
The markets we currently serve continue to retain their positions as leading growth areas for business and population.
Population growth throughout our markets continues to drive new distribution centers, office expansion, retail facilities, multifamily housing units, educational facilities and medical facilities.
In Houston, we are experiencing some tightening in the market, but we expect to continue to maintain market share.
We are focused on expanding our market share in the Dallas-Fort Worth market, including adding structural opportunities.
Finally, we expect to continue to see solid growth in the Central Texas market as we continue to expand with fundamentally strong end-market drivers.
In the industrial sector, we will continue our greenfield expansion by combining talent and resources from the marine segment and concrete segment to continue to pursue foundation work inside the industrial environment.
The massive long-term, petrochemical-driven opportunities along the Gulf Coast provide significant potential to expand our addressable project opportunities.
In fact, the U.S. is on pace to become a net exporter of natural gas by 2018 as a result of the shale revolution which has led to increased domestic natural ---+ production of natural gas.
This will lead to an outpaced growth in the petrochemical industry, which should account for more than half of the construction spending in the manufacturing sector.
In closing, our fundamental business drivers remain solid.
We are working to reduce the volatility in our business by executing our strategic plan and focusing on complementary services with high returns.
While the severity of the third quarter weather impacts were unexpected, we will focus on meeting the opportunities these events create while continuing to right-size our marine fleet and reduce overhead cost.
We believe we have a strong business with good, long-term drivers and opportunities for solid shareholder returns.
Now, I'd like to turn the call over to Chris to review the financial results in more detail.
Chris.
Thank you, <UNK>.
And thanks for joining us.
For the third quarter of 2017, we reported a net loss of $5 million or an $0.18 loss per diluted share.
These results compare with a net income of $4.7 million or $0.17 earnings per diluted share in the prior year period.
Excluding impacts from the storm <UNK> mentioned, the income for the third quarter 2017 would have been $7.3 million or $0.26 earnings per diluted share.
Contract revenues for third quarter 2017 were $140.2 million, of which 49% came from the marine segment and 51% came from the concrete segment.
Third quarter 2017 revenues from the marine segment decreased 17% compared to last year.
This decrease was primarily driven by weather events that <UNK> mentioned earlier.
Third quarter 2017 revenues from the concrete segment decreased 12% from the prior-year period.
This decrease is also primarily driven by the impacts of hurricanes, particularly Hurricane Harvey in the Houston and Central Texas markets.
In total, 26% of our consolidated third quarter of 2017 revenues were generated from federal, state and local government agencies, while 74% were generated from the private sector.
This compares to 28% of consolidated revenues being generated from federal, state and local government agencies and 72% from the private sector in the prior year period.
Consolidated third quarter gross profit was $7.8 million or a gross margin of 7.7%, which compares to prior year gross profit of $24.2 million or a gross margin of 14.7%.
During the third quarter 2017, we saw decreases in consolidated EBITDA and EBITDA margins due to the weather events.
Third quarter EBITDA was $2 million or 1.5% EBITDA margins.
This compares to third quarter 2016 EBITDA of $18.1 million or 11% EBITDA margins.
Excluding the impacts from the weather events, third quarter EBITDA would have been $18 million or a 13% EBITDA margins.
SG&A expenses for third quarter 2017 were $16.5 million as compared to $15.3 million in the prior year period.
SG&A was 12% of revenues, up from 9% in the prior year quarter.
This increase is primarily driven by the inclusion of the recently-acquired Central Texas Concrete <UNK>.
Going forward, we would expect SG&A as a percent of revenue to decline as revenue growth outpaces SG&A expenses and as we continue to reduce our overhead costs.
For the first quarter of 2017, we bid on $752 million worth of opportunities and were successful in approximately $110 million.
This resulted in a 15% win rate for the quarter and a book-to-bill ratio of .
79 times.
On a year-to-date consolidated basis, our win rate was 19% to book-to-bill of .
88 times.
As of September 30, 2017, we had a backlog of work under contract at $383 million, which compares to $388 million or relatively flat as compared to the prior year period.
Of our September 30, 2017 backlog, $199 million is related to the marine segment, while $184 million is related to the concrete segment.
Additionally, we are the apparent low builder or have been awarded subsequent to the end of the third quarter an additional $140 million worth of opportunities.
Of that, $100 million is related to the marine segment, while $40 million is related to the concrete segment.
In total, (inaudible) we currently have over $520 million of projects in backlog and low bids.
This level of activity gives us optimism about where we are headed for the remainder of 2017 and 2018.
Now, turning to the balance sheet, after making payments during the quarter of $15 million on a revolving line of credit, we have approximately $2.7 million of cash on hand and access to approximately $49 million under our revolving line of credit.
We ended the quarter with approximately $82 million in total debt outstanding.
Subsequent to the end of the quarter, we drew $20 million on a revolving line of credit to fund ongoing working capital needs.
We believe that our combined liquidity position is adequate for general business requirements and for servicing our debt going forward.
Year to date, the company has produced approximately $32 million of cash flow from operations and paid down approximately $22 million of total debt.
Since entering into our credit facility, we have reduced our total debt outstanding by $67 million as of September 30, 2017.
As we go forward, we will continue to focus on paying down debt with excess free cash flow.
As a result of the weather events experienced during the third quarter, we amended our credit agreement to provide more room with regard to our leverage ratio requirement as well as some other minor changes, including an add back of the weather-related events during the third quarter of 2017.
Regarding leverage ratio, going forward, our leverage ratio cannot exceed 3.0 times our (inaudible) 12-month adjusted EBITDA basis.
By making this amendment, we provide adequate cushion within our covenants going forward.
We are pleased with the continued support from our lenders and look forward to continuing a long relationship with our bank group.
Finally, our bonding program remains solid and is more than adequate to support our bid activities.
Turning to our outlook, we continue to see strong demand for services across our business.
As <UNK> mentioned, while the weather events have caused short-term disruptions during the third quarter, they will provide a catalyst for increased demand drivers in the future.
We are seeing this increase in demand for certain services now and expect to see additional demand in the future.
Our elevated backlogs (inaudible) remains at near record level and we are optimistic, given the same sitting opportunities we continue to see.
Currently, we have $970 million worth of total business outstanding of which $295 million are related to the marine segment, $675 million are related to the concrete segment.
As we look at full-year 2017 guidance, we recognize the volatility of marine-segment experience this year, plus the weather events during the third quarter has led to changes in the (inaudible) of cost, and, therefore, has led to changes in the goals we set for the year.
We expect the fourth quarter will see increased activity and a return to normal profitability levels with higher asset utilization and solid project execution.
Our goal is and always will be to deliver profitable returns for our shareholders.
The company is proactively adapting to the changes in our market and we are focused on growing profitable business lines.
Orion has a strong future and we are adapting to reduce volatility in our earnings and results.
As we look at 2018, we will continue to adjust our business to reduce volatility.
Demand from the weather events plus ongoing strong demand in our in markets will provide a catalyst for some bottom-line improvement in 2018.
This bottom-line improvement should expand more significantly in 2019 and beyond.
Overall, we remain optimistic about our prospects for long-term profitable growth and we remain committed to delivering improved results as we move forward.
Additionally, we look forward to continuing to expand our infrastructure, industrial and building sectors as we adjust the business where necessary to deliver improved shareholder value.
With that, I'll turn the call back over to the operator to begin the q-and-a portion of the call.
Thank you.
We thank you all for joining us on the call today, and I look forward to speaking with you next quarter.
In the meantime, if you have any questions, please feel free to reach out.
| 2017_ORN |
2016 | SFNC | SFNC
#Thanks.
Well, first of all, I think we're starting to get some pretty good traction with regard to loan growth, <UNK>.
We've said all along that our goal is to get our loan-to-deposit ratio up to the 90% range.
It's a little over 80% today.
If we keep feeding the pipeline like we did over the last quarter, we'll get a lot closer to 90% over the next year.
Even though the yields on those loans are pretty low, they're better than any other alternative we have today.
So we're very optimistic about that.
We're also very optimistic about some of the new initiatives we have in our non-interest income lines of business, particularly credit card.
We have a new leader in that group who has 40 years of payments experience.
We've been through some pretty significant studies on ways to enhance that program.
I think we'll see significant progress in 2017 in our credit card portfolio.
I would tell you that the regulatory scrutiny has not let up.
And as we get bigger, we will expect more of that.
That's one of the reasons that we have beefed up audit and compliance, because for Simmons Bank safety and soundness has always been a cornerstone.
But there is, as you know, a lot of emphasis today on consumer compliance, and we're in tune with that.
So we would expect that our internal language will shift a little bit just from growth to growth and compliance.
Our business unit managers have done a very good job of establishing their risk metrics within their units.
But that's a new wrinkle in our operation; it's taken a much higher level of interest today than it ever has been and I really don't see that decreasing.
As far as headwinds go, our ability to attract the talent that we need in markets, our ability to grow in some of the key markets, may be a little slower than we would like.
We're not going to rush and make a bad decision; we're looking for the right people.
And I think our track record has proven that our patience pays off.
The team we have in St.
Louis and the team we now have in Northwest Arkansas and in Kansas City, are just exceptional.
And for the long haul, that is in the best interest of the Bank.
So, we will continue to look for excellent talent in all of our markets and quite honestly, we've had pretty good success in attracting what we consider to be the best of the best in those markets.
We'll continue that track.
I don't know if you have any specific questions about any other headwinds that the industry may face.
Be glad to address that if you do.
No, we think we can get there and 12 to 24 months.
That would certainly be our goal.
As you can probably tell, our cost of funds has come down, so we're not being really aggressive out in the market today as far as trying to gather high-priced deposits.
So we've got plenty of liquidity to work with on our balance sheet today to grow those loans to a 90% loan-to-deposit ratio.
Sure.
Thank you.
Thank you very much and thanks to all of you for joining us on our conference call today.
We appreciate your support and we will look forward to visiting at the end of the next quarter.
Thanks and have a great day.
| 2016_SFNC |
2016 | GS | GS
#I think we don't target a mix, as you know.
We focus on the clients in those businesses where, as you know, we have leading market positions; and so we feel good about that.
I think it's a bit more of what your expectation for the environment is.
We control the micro issues we can focus on: our client engagement, expenses, capital management.
But a lot of the things are outside of our control.
And I would say that in aggregate, when you look at the vast majority of our businesses, this is not an extraordinary environment.
Despite the fact that third-quarter performance was strong on a relative basis, there were lots of challenges regionally.
You could certainly envision an environment that was significantly better from where we are today.
You've heard me say this a lot, but, we root for growth.
And an environment of negative interest rates in vast parts of the world is not indicative of a world that is growing at a great pace.
So you can see much better environments than we have today, and we hope that ends up being the case.
Just like I think they could change always pretty quickly for the negative, and we tend to be more contingency planners, you could certainly see things break for the high side.
Obviously, rates could move back into positive territory, which would be an indicator.
And there's been speculation in the market that we might be more on the cusp of that in the United States.
I think the most important takeaway is whether or not we move into that environment in the near term, we are incorporating all those current factors into how we are running the Firm today which, in a pretty muted environment, we are able to grow revenues, demonstrate a double-digit ROE.
And we truly believe we are well-positioned in the franchise, with significant operating leverage, if the environment improves.
So we feel quite good about our position.
But we are rooting for better environment for everybody.
So that's perfectly consistent with what we are able to generate.
Of course, we don't have any legacy infrastructure or cost structure.
This is all a white sheet of paper for us.
So we'll see how it evolves, but that is certainly achievable.
So it's a great question.
I would say that, broadly speaking, and this won't be completely inclusive.
But I think if you define our technology strategy as focused on client engagement and those tools and services we can deliver to clients that provide differentiated value to those clients.
And you see us doing that in our capital markets businesses, and obviously you see us creating that with Marcus.
Two, there are times when we feel like, given our core technology skills, we are in a position to develop technology which would be better enhanced outside of the Firm, ultimately, even though we've incubated it in the Firm.
Symphony would be a great example of that.
We feel like, as an information sharing platform with better security, better compliance controls, we felt like that was something better utilized by a broad range of market participants.
And lastly, our own technology internally is quite important for making us more efficient, and adapting to regulatory change, and managing our risk.
And that's obviously been very core to what we do.
If we look across all three of those different platforms, if you will, for lack of better language.
I would say the most important thing, in addition to controlling the Firm, is our client engagement.
And Marcus reflects that trend as it relates to consumers.
So it's more than exceeded our expectations.
I think in the past quarter, we picked up another $1 billion of deposits.
And so the momentum there feels quite good, and the team has done an excellent job of transitioning the platform into Goldman.
Okay, great.
Thanks, <UNK>.
This is completely consistent, <UNK>, as you know.
You have been following us forever in terms of broadly speaking, and it may not be the case in any given year.
But broadly speaking, we've encouraged you to expect that compensation and benefits expense will lag revenue moves.
So you've seen it through the year to date; 41% is our best estimate.
But revenues are down 15%; compensation benefit expense down 13%.
In environments where revenues are up, base case, you should expect a lag in that direction also, particularly given how much we have emphasized operating leverage with you.
We like it.
So three of the four segments are up this year, obviously.
The one segment, which we've worked hard to unpack for everybody, is investing and lending.
And this would very naturally fall into the lending segment.
Obviously, to the extent to which down the road as an activity in and of itself, if it had material contribution, we could talk about highlighting more.
But I think it will get a lot of attention as it grows anyway.
It's pretty exciting.
Since there are no more questions, I just really want to take a moment to thank all of you for joining the call.
Hopefully, I and other members of senior management will see many of you in the coming months.
If any additional questions come up, please don't hesitate to reach out to <UNK> or the team.
Otherwise, please enjoy the rest of your day.
And I look forward to speaking with you on our fourth-quarter earnings call in January.
Take care, everyone, and thanks again.
| 2016_GS |
2016 | QLYS | QLYS
#We have been essentially growing the VM in the 20% range, and these other ones around 30% growth rate.
Again, it varies today, because today because we do big upsells today, it varies, well not anymore again, this is a business which has become, which is a good thing.
Which has become a little bit more lumpier in the sense that we do these bigger upsells, both in WAS, both in policy compliance et cetera.
It varies from quarter to quarter now.
So the revenue guidance for full-year hasn't changed.
And we still expect to increase our expenditures in [absolute] dollars sequentially in the rest of the year.
So really, at this point, we're still relatively early in the year, we've got a new CFO onboard, and we just thought it would be best ---+ better judgment to maintain our EPS guidance for a full-year.
No, that's not something that we are going to provide in detail, because we talked about it having an impact in Q1, and it's going to have an impact on the rest of the year, as well.
But given the momentum of the business, the uncertainty of timing on larger deals, we have left our revenue guidance as is, as well.
This is something like, as I said, we are still relatively early in the year, and we will look at this as the year progresses.
Thank you very much, so again, we are looking ---+ we have a very strong pipeline.
As I mentioned in the last call, we are now seriously looking at some potential acquisitions or partnerships, or OEM relationships, so we could accelerate some of the engineering developments that we currently have, or accelerating our entrance into new markets.
[Part of our] corporate development.
So I thank you for attending our Q1 earnings call, and we look forward to seeing you, all of you in early June, at the D.
A.
Davidson Technology Forum in New York City.
At the Bank of America Technology Conference in San Francisco and the <UNK> Baird conference in New York City.
And with that, good afternoon.
Thank you.
| 2016_QLYS |
2018 | ABG | ABG
#Thanks, operator, and good morning, everyone.
Welcome to Asbury Automotive Group's First Quarter 2018 Earnings Call.
Today's call is being recorded and will be available for replay later today.
The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at asburyauto.com.
Participating with us today are <UNK> <UNK>, our President and Chief Executive Officer; <UNK> <UNK>, our Senior Vice President of Operations; and <UNK> <UNK>, our Senior Vice President and Chief Financial Officer.
At the conclusion of our remarks, we will open the call up for questions, and I will be available later for any follow-up questions you might have.
Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements.
Forward-looking statements are statements other than those which are historical in nature.
All forward-looking statements are subject to significant uncertainties, and actual results may differ materially from those suggested by the statements.
For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2017, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today.
We expressly disclaim any responsibility to update forward-looking statements.
In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measure on our website.
It is my pleasure to hand the call over to our CEO, <UNK> <UNK>.
<UNK>.
Thanks, Matt.
Good morning, everyone.
Welcome to our first quarter 2018 earnings call.
The first quarter marks a solid start to 2018.
During this quarter, we achieved record EPS of $1.93, a 22% increase over last year's adjusted EP<UNK>
From an operating perspective, our success was driven by enhanced F&I PVR, continued growth in parts and service and disciplined expense management.
Our plan for the remainder of 2018 is to focus on the aspects of the business that we can control, specifically parts and service, used cars, F&I and overall expense management, while continuing to intelligently deploy capital towards the highest return, be that strategic investments in our existing business, notably our omnichannel capabilities, acquisitions or returning capital to shareholders.
This quarter, we repurchased $20 million of our common stock, and we acquired a Honda dealership in the Indiana market, which should generate approximately $120 million in annual revenue.
In addition, in the second quarter, we plan to close 2 acquisitions in the Atlanta market, which combined should generate approximately $120 million in annual revenue.
I would like to share our thoughts on these acquisitions.
The Honda store represents our second location in the Indiana market, after the Chevrolet dealership that we acquired last year.
We view Indiana as an attractive market opportunity based on our assessment of dealer concentration, consumer demographics and market growth potential.
The Chevrolet store is performing in line with our expectation, and this gives us confidence to acquire the Honda store, which, similar to the Chevrolet store, represents a well-run operation that we acquired at a price that should lead to a good return for our shareholders.
The 2 pending acquisitions are a different situation.
These are currently underperforming stores.
We are confident that by applying our existing brand recognition, management expertise and omnichannel capabilities, we can successfully turn these stores around.
Given the turnaround situation, we expect to generate a higher return to compensate for the additional execution risk.
I will now hand the call over to <UNK> to discuss our financial performance.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
We are pleased with our operating performance in the first quarter.
Note that this quarter, we adopted the new revenue recognition accounting standard ASC 606.
This new accounting standard impacted revenue recognition for parts and service and F&I.
The net impact of ASC 606 was to reduce revenue by approximately $1.9 million and reduce gross profit by approximately $1.1 million.
There is no impact on our cash flows.
We have not adjusted the results to normalize for the impact of ASC 606 this quarter.
Overall, compared to the prior year first quarter, gross profit increased by 2%; gross margin of 16.5% was 30 basis points lower than last year; SG&A as a percent of gross profit improved by 20 basis points to 69.4%; operating margin of 4.5% was 10 basis points lower than last year; adjusted net income increased by 20% to $40.1 million; and our earnings per share increased by 22% to a record of $1.93.
In Q1 of 2017, adjusted earnings excluded a $900,000 pretax gain on legal settlements.
This is equivalent to $0.03 per share.
As a result of the recently passed Tax Cuts and Jobs Act, our effective tax rate was 24.9% for the first quarter of 2018, down from 36% in the first quarter of 2017.
Turning to expenses.
SG&A as a percentage of gross profit for the quarter was 69.4%, an improvement of 20 basis points over last year.
Our SG&A expenses reflect continued investments in our omnichannel capabilities, offset by a focus on efficiency and cost control, plus a redirection of certain cost towards digital technology initiatives.
We are beginning to see the benefits of these investments in terms of enhanced productivity and an improved customer experience.
This year, we expect to invest in excess of $10 million in omnichannel capabilities.
While the investment will run through our income statement on the SG&A line, it is nevertheless a real investment for which we expect to generate a very favorable return.
This investment has an immediate impact on current year earnings.
However, we will offset this by managing overall expenses so that total SG&A is in line with our previously issued guidance for the year of 69% to 70%.
<UNK> will talk more about some of the exciting things that we are doing in a few moments.
A little more information about the adoption of revenue recognition accounting standard ASC 606.
In the case of parts and service, the new revenue recognition standard resulted in a decrease in revenue of $1.3 million and a decrease in gross profit of $500,000.
In the case of F&I, the new revenue recognition standard resulted in a decrease in F&I revenue and gross profit of approximately $600,000, which is equivalent to a PVR reduction of approximately $13.
With respect to capital deployed, in Q1, we spent $3 million on non-real estate-related capital expenditures, $36 million on acquisitions, $20 million repurchasing our common stock and $18 million purchasing real estate.
At the end of the quarter, our total leverage ratio stood at 2.9x and our net leverage ratio at 2.4x.
From a liquidity perspective, we ended the quarter with $5 million in cash, $29 million available in floor plan offset accounts, $107 million available on our used vehicle line, $237 million available on our revolving credit lines, and we also have unencumbered real estate with a value of around $200 million.
Looking towards the second quarter of 2018.
On April 6, we experienced a significant hailstorm at our Honda store located in Irving, Texas.
While we are still in the process of fully assessing the damage, our initial estimate is a cost of approximately $1 million associated with damaged inventory.
This will adversely impact us in the second quarter.
I would now like to hand the call over to <UNK> to walk through our operating performance in more detail.
<UNK>.
Thank you, <UNK>.
My remarks will pertain to our same-store performance compared to the first quarter of 2017.
Looking at new vehicles, our new unit sales were down 2%, while SAAR was flat from the prior year.
While our margin in the luxury and domestic segments increased compared to the prior year, we experienced declines in the margins for mid-line imports resulting in an overall new car margin of 4.5%, 30 basis points lower than last quarter and 40 basis points lower than last year.
Our total new vehicle inventory was $724 million.
Despite lower unit sales, we reduced our day supply from prior year quarter by 8 days to 66 days.
Turning to used vehicles.
Our used vehicle unit sales increased 1% and our gross profit margin of 7.3% was up 60 basis points from last quarter, but 70 basis points lower than the prior year.
We are beginning to see the benefits of the used car enterprise software we implemented in Q4 2017 at all of our stores.
This was the first time we saw an increase in used vehicle unit sales since Q2 2017.
Our used vehicle inventory of $150 million is at a 29 days supply.
Turning to F&I.
Our team continues to deliver strong results.
Total F&I gross profit increased by 2%, and gross profit per vehicle increased by $44 to $1,559.
As <UNK> mentioned in his remarks, the gross profit per vehicle was adversely affected by the adoption of the new revenue recognition accounting standard.
Turning to parts and service.
We grew our parts and service revenue and gross profit by 3% despite an 8% decline in warranty.
This was achieved with a 5% increase in customer pay.
The improved used vehicle sales caused our reconditioning work within parts and service to increase by 4%.
Again, parts and service results were adversely impacted by the adoption of the new revenue recognition accounting standard.
I want to take a moment to give you some more details on our omnichannel strategy.
We're investing in our web and mobile presence to be well positioned in the future auto retail model.
Some developments include the following: first, we're building a centralized brand certified team to manage all our digital traffic.
The team currently supports 25% of our stores, and we are planning for them to support the entire company within the next 18 months.
Stores participating in the program are experiencing a 20% increase in conversion rates coupled with enhanced sales efficiency.
Second, PUSHSTART, our online sales tool, enables customers to purchase vehicles online, get instant financing approvals and receive driveway delivery.
This quarter, we saw further growth and are now up to 7% of our vehicles sold started through PUSHSTART.
Third, we continued to grow the traffic in our digital and parts service scheduling tool.
And for the quarter, online appointments were up 65% from the prior year.
Fourth, we've applied our omnichannel capabilities to online part sales.
And in our initial test market, we have significantly increased sales.
We are extremely excited about these initiatives and proud that we've been able to maintain our industry-leading SG&A management while investing in the future.
In conclusion, we would like to express our appreciation to all of our teammates in the field and in our support center, who continued to produce best-in-class performance.
We will now turn the call over to the operator and take your questions.
Operator.
Rick, this is <UNK>.
The manufacturers change their incentive programs quarterly, and we've got about ---+ in the ---+ specifically, in the mid-line imports, we got about 72% of that available money, which certainly affected our margins in that segment.
Specifically, the Nissan stores, we saw a significant decline in both volume and margin.
And when 58% of our volume comes from mid-line imports, that certainly affected our margins.
Not what we saw at Nissan.
I think as a company, we've gotten better with the tool.
This quarter, certainly the results reflect of that.
A lot of transparency in the used car market as far as pricing.
So we're really focusing on our cost of acquisition and making sure we're competitive there.
Absolutely, Rick.
I'm going to go back and touch on the margins and then I'll finish it up with the acquisition piece.
As <UNK> touched on with Nissan, all the brands are cyclicals and they have highs and lows.
As a company, we're doing a great job managing through it, and we have great people in the field.
While our volume was backwards year-over-year in Nissan, we actually outperformed our competitors within the markets that we do business in.
It's just one of those cycles with the brands that makes it difficult, and we certainly have a lot of Nissan stores.
From the used car perspective, we're actually pretty happy with the quarter, above our guidance that we gave from the last call, but certainly down year-over-year and are excited to see our teammates in the field really adapting to the new software.
And we by no means have maximized the opportunity yet, but we're directionally correct and happy with where we are at.
On the acquisition standpoint, this year, we've been lucky to see a lot of deals, but we're really very disciplined and strict and thoughtful about how we look at each acquisition.
We don't believe getting bigger is always necessarily better.
So we really want to be wise in how we deploy the capital and really make sure when we look at an acquisition, that it's going to create a great return for our shareholders.
So very disciplined, seeing a lot more activity, significantly more than last year.
We anticipate that to continue.
But I think you'll see us be our traditional, very slow and making sure it's a good acquisition for Asbury as a whole.
Rick, it's <UNK>.
I'm not sure I'm following your question.
.
Well, Rick, as I stated in prepared remarks, our leverage ratio is currently 2.5x, which is a little bit less than our target range of 2.5x to 3x.
And obviously with acquisitions, we get the EBITDA associated with that acquisition as well.
So we think we have significant capacity to do value-enhancing acquisitions.
Yes, <UNK> can jump in after me.
This is <UNK>.
I would say, we're up in luxury both in volume and in margin, and we like where we ended there.
So ---+ and it was kind of paced well the whole quarter.
Domestic, we don't have a lot of domestic stores.
You can see by our unit count.
But we're happy with our performance there as well.
This is a situation where with the brand that we already mentioned, it's a quarterly target, the numbers were stow, it's no secret that the brand went into '18 with a lot of '17 product on the ground.
So it had a material impact.
And when your quarterly objective is tied to that number and you miss that target, it's going to have a material impact on your PVRs and margin.
On the customer ---+ this is <UNK>.
On the customer pay, we're really focusing on increasing our technician headcount.
And when we do that, we see a material difference in the gross.
So that's really the focus operationally is to make sure we have the tech headcount to service the business.
As far as the part sales go, we're doing in a test market.
It is online.
It can be ---+ we're shipping parts and people are still picking up in stores.
So it's both.
<UNK>, this is <UNK>.
I'll tell you, we're feeling the pressure on technicians, and we're confident if we had more technicians, that number would be higher.
And that there is more out there.
We just have to acquire more technicians.
Sure.
We all experience turnover.
But year-over-year, there is no material difference in turnover.
We have and have had empty bays for years without technicians in them.
Technicians are the hardest people to acquire right now.
And as we can hire them and fill some of these empty bays, the day they start we incrementally add gross profit to our books.
<UNK>, I'll do the best I can in answering them.
Please let me know if I miss it.
In all the decades of doing this, there is a lot of great vehicles out there.
Everyone's making better vehicle now and clearly like anything else, the hot products sell well at high margins and you don't have enough of them.
And then with other models within segments, they long in the tooth as far as not being refreshed and they are more of a push situation.
You can see in the quarter from our perspective and what you read, incentives are still very high.
Manufacturer has done a good job at cutting back some production, but it's not tight by any means, which is still keeping the incentives pretty high.
I don't know what the future holds with that.
But this market, I feel like it's almost like going back to the early 2000s where it bumps around a little bit.
January and February were a little bit bumpy on the SAAR, March came back and put a lot of tailwind in everyone's sail.
So I think you're going to have some of that as you go forward.
I think some months are going to be like, wow, it was pretty strong and other months are going to be like, well, is this the beginning where we're at.
I don't see a significant downturn coming.
But I see it more of being choppy or bumpy throughout the year.
Does that answer your question.
<UNK>, this is <UNK>.
We're currently about 1/3 of our total appointments are scheduled online.
We find the dollars per a payer order are as the same, and the customer satisfaction is as good as when the consumer comes into the store.
I think it's a little bit of both.
I think like anything when you book an airline ticket online, it's much more convenient for the customer.
It also alleviates the phone traffic coming into the stores where it's same thing if you call an airline, the experience tends to be not as good.
So I think it's really just a customer satisfaction and convenience.
<UNK>, to give you a little bit more color on that.
Some ---+ the other pieces that we've added to that is, it's sending text and videos and pictures of the cars and what's going on with your car and what's needed in your car, having the consumer pay for their bill online before they come to the dealership.
The more we can transact online and make it more efficient for our customers whether it's via text or e-mail, that's the direction we're going in.
So when you hear that 65% increase year-over-year, some of that is incremental-lift in business, but a lot of that is phone traffic coming off the traditional way of doing business and pushing it online.
So if we filled every bay we had and didn't invest $1 in brick-and-mortar, we would be up in excess of 30%.
And quite honestly, this is a little ---+ this is very frustrating on our end, but we actually govern the amount of business that we bring in because obviously level of service is our key barometer and differentiator in the industry.
So we can't afford to flood the business and have upset customers.
No question about it.
That's a great question.
It's a Chevrolet store and a Toyota store, 2 very solid brands.
We happen to have a Honda store that operates across the street from the Chevrolet store and next to the Toyota store that does real well.
Atlanta is a very tough competitive market and one of the most competitive markets in the United States.
We're lucky.
We have a good brand name, and we have solid leadership and great people in the stores that really generate great returns.
We're confident based on these strong brands and the locations of the stores and the team that we have in place, these will be very nice turnarounds for us.
From our books perspective, we shut it down on the 31st.
Some of the OEMs the way they report vehicles, those sales do carry in to April and cover the weekend you're talking about.
So from an OEM standpoint, reporting sales wise, those sales went into March.
From our book standpoint, the month ended on the 31st.
Correct.
Jake, dealerships, both parts, service and sale, most of your people in the dealership are productive people.
So their compensation floats up and down with their gross profit generated.
So you don't see that incremental lift.
The support staffs within stores are very light and an immaterial amount, I would say.
So it's really not an impact.
Yes, Jake, we don't provide that level of detail on our SG&A.
We rather look at the overall SG&A numbers.
We'll tell you that we're very data oriented in the way we manage our SG&A expenses.
We really look at the productivity and efficiency of the various parts of our business very closely.
And that be that productivity and efficiency and things like loaner vehicles, sales personnel, service advisors, et cetera and that's how we effectively manage our SG&A expenses.
We did feel some pressure in our margins with the used, kind of like I alluded to before, it's a very transparent market.
We price our vehicles to market-based price.
So when you're online and you're looking, the market kind of determines the price, and we really focus on our cost to acquisition and trying to maintain the margin by acquiring the inventory at the right price.
We really try to focus on the consumers that are already coming to us to purchase a new vehicle.
For every hundred customers that come in the door, we're trying to trade a good percentage of those vehicles.
We ---+ I mean, when you say storms, I'm assuming you're referring to the hurricanes, and that really only affected Texas and specifically Houston, which is really one store for us, so wasn't material.
We gave guidance of around 7% margin for the year.
So we're actually happy with where we came in the quarter.
To get at a higher macro level, last year, meaning '17 versus '16, was the big incremental lift of off-lease cars coming to market.
This year, it's up again, but not quite the impact it had last year.
So we'll ---+ I think we'll continue to see pressure throughout the year on used car pricing, but it's all about acquisition.
And the one benefit the dealership model has over CarMax or Carvana or anyone else, we have the ability to have relationships with our customers in our service departments and in our showrooms to acquire the car there.
We're not at an auction either online or in person.
And when you buy cars either way like that, the only way you acquired them is because you paid more for them than anybody else did, which puts pressure on the margin on the other side.
And as we've talked about in the past, we really look at that internal gross profit, and we are very happy that we're up 4% in the quarter with internal gross.
So we're ---+ again that holistic approach of a fair profit on the front end, a fair profit in parts and service and then F&I and that's a pretty good model for us if we can get the volume going.
Yes.
So Dave, it's <UNK>.
Having that capacity and being at the lower end of our leverage range allows us to be flexible and opportunistic, and such to the extent there is opportunities to deploy our capital in ways that can enhance the return for our shareholders, we can take advantage of those opportunities.
And should there be, as you gave an example of a larger potential acquisition at the right return that is certainly something that we would have the capacity to do, should there be opportunities to invest our capital in other areas to generate a high return, we will take advantage of that as well.
I think for quarter 1, which we're talking about, I mean, specifically, we had an issue with that manufacturer.
We did miss out on a lot of their incentive money, and we did feel some significant margin and pressure with the retail sales.
But the ---+ I can't stress enough, we missed the incentive money because we missed the volume target, but we actually outpaced our market competition.
So while we didn't do well, we went backwards in volume and missed the money, we actually fared better than the competitors within our market space.
This concludes today's discussion.
We appreciate your participation.
Have a great day.
| 2018_ABG |
2016 | OHI | OHI
#I can tell you that I don't know the specifics but it doesn't move the dial at all.
There were some properties that would be less, some more.
It's a mixed bag.
(multiple speakers)
It's mostly the purchase options pieces.
I think the non-purchase option properties, we are selectively trying to exit.
It's really a mixed bag.
Some of it's the entire operating relationship, they are small.
A couple of facilities that we're saying it's time for us to exit.
And then a handful of those held for sale are coming out of much bigger portfolios where it's selective properties.
As an example, we've got a handful in the Florida Medicaid waiver program that are not quality properties and we will likely exit.
Its out of a bigger portfolio so it's even harder to think about allocated rents of those properties and related coverages.
For the most part, those non-purchase option properties are going to have coverages that are below the 1.4.
Yes, it really doesn't move the dial because our senior housing coverages are strong.
Even though they are becoming a more meaningful percentage of if you pull them out, it's not going to move it 0.1, for sure
At some point we will look at dividing that up but it's just not material at this point and it doesn't move the dial.
I don't know why they're ---+ well, I guess if your business is IRFs and home health then you are going to focus on that.
I'm not sure why there is such a negative sentiment as it relates to SNFs because I look at the demographics, without beating that horse too badly, but if there's not a shift in how we deliver care, there is not even nearly going to be enough beds.
When you think about the number of beds in the IRF marketplace, it's not a dramatic number.
We have a dramatic number of patients being taking care of today in the SNF setting, with a lot more coming.
I think a lot of it ultimately becomes anecdotal.
If you are in the need of 24-hour nursing care, you're not going to go home.
We have to be very careful about anecdotally, here's a set of patients that can go from this setting to go home and IRF's better than SNF.
We can argue about that a lot.
I think it's been proven out that for many, many, many conditions IRFs versus SNFs, the amount of time, the lengths of say can be the same.
Yes, I think ---+ and just to be clear, we've talked about this in prior calls.
Our number one choice for allocation of capital is into the skilled nursing facility industry and to our current tenant base.
But we've had opportunities to expand into senior housing, whether it's here or in the UK, and we've taken advantage of it.
It still the same model, where we are focused on that operator relationship and our comfort level with the operator's capability to both run their existing business and identify new opportunities and to partner with them.
I think Maplewood here, and <UNK> mentioned we added a couple new relationships, and our relationship in the UK, the risk assessment isn't much different than you would have in the SNF world in terms of understanding the operating capabilities.
Then it just comes down to the risk in senior housing is principally competition and new building if you have the right product and the operating model.
Frankly, understanding that's not that difficult.
I think you've described it well.
The regional guys that are on the ground have relationships.
I would not discount their capability.
I wouldn't discount the fact that someone that's got 50 facilities doesn't have enough scale to get the benefit of an organization that's got 250 facilities.
I don't know that there's that much difference in the scale benefit, if you will.
Obviously, from a capital allocation prospective, we deal ---+ most of our relationships, we are the principal capital partner.
That's where we are able to source new opportunity.
We hadn't received any indication from our operator base of pressure from a coverage perspective, so we weren't surprised by that.
Interestingly, our Genesis portfolio continues, has and continues to perform pretty well as ---+ and obviously we are not a giant component of Genesis, but it's continued to do well.
Just a comment, I actually think that our portfolio is probably a better representation of the market, SNF market, then ManorCare plus Genesis.
You are dealing with two companies that focus on high acuity, post-acute disproportionately in the market.
In some regards, what we are seeing across the 80-plus operators that <UNK> pointed out, is probably a better proxy for what's going on.
We haven't seen ---+ if I recall correctly, they reported a 0.8% decline in revenue and a [2.8%] decline in census.
Maybe they were drivers.
They also reported some one-time transitional costs of $1.5 million.
Without knowing how they went from $37 million to $30 million of EBITDAR on, call it, $300-ish million of revenue, we don't know if it is expense driven.
The top line move down a little bit.
Occupancy moved down more.
I think we'd have to understand the component parts a lot better.
But we're not ---+ those drivers that were reported by Kindred, we have not yet seen in our portfolio.
Thank you.
Thank you for joining our call today.
<UNK> <UNK> will be available for any follow-up that you may have.
| 2016_OHI |
2017 | STI | STI
#Thank <UNK> and good morning everybody
Thank you for joining us this morning
Moving on the Slide 4, net interest margin improved 4 basis points, driven by higher loan yields as a result of the increase in short-term rates and a steeper yield curve
I'm pleased that net interest income increased $35 million sequentially and $96 million year-over-year as a result of higher NIM, strong balance sheet growth and our continued focus on optimizing our loan portfolio
Looking ahead, we expect the net interest margin to expand further by 5 or 6 basis points in the first quarter
From there, NIM trends will be dependent on the interest rate environment
We will continue to manage to a moderately asset sensitive balance sheet while being cognizant of opportunities to add duration if the yield curve continues to steepen
Moving on to Slide 5, you will see that non-interest income declined by $74 million sequentially primarily as a result of declines in mortgage
Mortgage production income declined by $40 million given lower refinancing activity due to the increase in long-term rates
Mortgage servicing income decreased by $24 million as a result of higher decay expense, which is recorded at loan closings and increased hedging costs given the more volatile rate environment in the fourth quarter
Assuming relatively stable rates in the first quarter, servicing income should return to a normalized run rate north of $50 million
Capital markets revenue also declined sequentially from our record performance in the third quarter
However was up a substantial 23% compared to the fourth quarter of last year
This is a reflection of the continued success we're having in expanding SunTrust Robinson Humphrey and meeting the capital needs of all wholesale banking clients
We also delivered a $41 million increase in other non-interest income which is primarily driven by higher client transaction activity within certain wholesale banking businesses notably structured real estate and SunTrust Community Capital
Lastly, we implemented our enhanced posting order process on November 1st, with actual results generally in line with our expectations
Let's move on the Slide 6. Non-interest expense was modestly lower this quarter, driven primarily by lower personnel related expenses and lower operating losses
Outside processing and software costs were $16 million lower, which included contract renegotiations we executed with a key supplier
Compared to the prior year, our expense base grew 8% as a result of four primary factors
The investments we're making in driving growth, our improved business performance, investments we continue to make in technology, and lastly, increased regulatory and compliance costs
As a reminder, personnel expenses should increase by $75 million to $100 million in the first quarter do the typical seasonal increase in 401K and FICA expenses, and also return to more normal accrual rates on certain incentive and benefits costs
Big picture, our philosophy is not to avoid expense growth if those investments can generate positive returns either from revenue growth or future expense reductions
For this reason, we believe the metric that is most representative of our discipline and focus on smart growth is not our absolute dollar expense level, but rather our full-year tangible efficiency ratio, which as you can see on Slide 7 declined a full 65 basis points relative to 2015 and more notably makes 2016, the fifth consecutive year of efficiency ratio improvement for SunTrust
Congratulations to all our teammates for their significant contribution to this ongoing success
Despite this improvement, we cannot rest while our task is still incomplete
Going forward, we are executing a number of tragedies to continue to make the company more effective and efficient
To be specific, first, in December, <UNK> outlined our plan to reduce the size of our branch network by approximately 10% over the next two years
We are accelerating this initiative
And will now execute the first 7% of that planned reduction by June 30th of this year
These savings will fund key investments in talent and technology for our clients
Second, we will look to realize returns from technology investments we have made in new loan origination platforms, particularly wholesale and mortgage, end to end operations, overall process automation, and cloud-based computing, so that our teammates are better equipped with the tools they need to increase productivity and we're able to reduce cost in certain areas
Third, we remain highly focused on managing our supplier relationships
As I mentioned earlier, we renegotiated a contract with a key supplier in the fourth quarter which drove a reduction in outside processing and we're looking for additional opportunities like this
Each of our businesses is highly focused on optimizing their supply relationships and making adjustments where the returns don't merit the expenditures or where we can bring the processes in house
And four, given the anticipated slowdown in mortgage production, expenses within this business will decline
Though this won't match up perfectly quarter to quarter as there is a bit of a lag effect
This set of strategies and activities combined with the positive momentum we have seen and should continue to see on the revenue side gives us increased confidence in our ability to achieve our sub-60% tangible efficiency ratio goal in 2019. Meeting this target does assume that the forward rate path will generally follow the current market expectation
But irrespective of rates, we're working diligently towards our goal of becoming more effective and efficient each year
For 2017 specifically, we expect a sixth consecutive year of improvement
This will require us to achieve an efficiency ratio between 61% and 62%, with where we land in the range somewhat dependent on the economy and interest rates
This improvement relative to 2016 is even more meaningful when considering that posting order changes, higher FDIC assessments and the acquisition of pillar are already known efficiency related headwinds for the year
Moving on the Slide 8. Overall asset quality remains very good and we made significant progress this quarter and working through our problem energy credits, which drove the 8 basis point reduction in the non-performing loan ratio and the 3 basis point increase in the net charge-off ratio
Net charge-offs were also modestly impacted by higher losses in auto and CRE
Some of which was due to normalization, while some was idiosyncratic and market specific
In aggregate, we have now taken approximately $160 million of charge-offs related to energy over the past five quarters, which is the vast majority of our total expectation
The ALLL ratio decreased 4 basis points from the prior quarter, primarily due to the resolution of energy credits
Provision expense remains stable as the decline in the energy ALLL was offset by higher long growth and the modest increase in non-energy charge-offs
Looking into 2017, we would expect the net charge-off ratio to remain within a range of 30 to 40 basis points for the full year as lower energy charge-offs may be offset by some normalization in other asset classes
With regard to the allowance, we expect a relatively stable allowance ratio, which should result in a provision expense that approximates net charge-offs, although there will always be some quarterly variability
Taking a look at loans on Slide 9. Period end loans increased a solid 1% from the prior quarter, primarily due to growth in consumer lending and C&I
As a reminder, we completed a $1 billion auto loan sale in the latter part of the third quarter which suppressed average loan growth
On a year-over-year basis, average performing loans grew $7 billion or 5% driven by consumer direct which is the result of our targeted efforts to grow LightStream, credit card and our other initiatives
We continue to see good success which not only drive loan growth but also improve the return profile of the company
D&I and commercial construction were also key drivers of our year-over-year growth reflecting generally positive momentum across our wholesale banking business
Overall, we're pleased with the solid 5% long growth we produced in 2016. Going forward, if economic growth does accelerate, we believe we have good relative opportunity given the investments we've made in our businesses combined with the above average growth profile of our Southeast and Mid-Atlantic footprint
Let's take a look at deposit
Our deposit momentum continued this quarter with average client deposits increasing 2% sequentially and 7% year over year, primarily due to growth in NOW and DDA accounts
More importantly, our growth is broad based across both CPWM and wholesale banking, which reflects the company wide focus on and success in depending client relationships
Rates paid on deposits were stable sequentially and up 4 basis points year-over-year, given the increase in short-term rates over the past year and a modest shift towards wholesale banking versus consumer banking clients
Looking to 2017, we remain highly focused on maintaining our deposit growth momentum while also ensuring that our approach towards deposit pricing focuses on maximizing the value proposition for our clients outside of the rate paid
Moving to Slide 11. Our estimated Basel III common equity tier-1 ratio on a fully phased-in basis was 9.5%, down 20 basis points from the prior quarter as we successfully deployed excess capital to our clients in the form of increased loan growth, closed on the acquisition of Pillar Financial and incurred the impact of a larger MSR asset
Tangible book value per share declined by 4% this quarter as the increase in long-term rates drove a decline in AOCI
Despite this, tangible book value per share still increased by 5% year-over-year given solid growth in retained earnings
Lastly, we grew the security portfolio by $1 billion on a net basis in the fourth quarter to ensure that our LCR stayed above the new 100% regulatory requirement
Going forward, the securities portfolio will generally only grow in line with the overall balance sheet
Moving to the segment overviews, I’ll begin with consumer banking and private wealth management on Slide 12. Net income decreased $18 million sequentially and $45 million compared to the full-year 2015, primarily due to a higher provision expense as a result of lower reserve releases related to our home equity portfolio
Revenue momentum in the segment has been solid
Most notably, net interest income was up 2% sequentially and 5% for the full year benefiting from strong loan and deposit growth and our balance sheet optimization efforts
LightStream in particular continues to be a tremendous success, growing approximately 70% compared to the prior year
Our clients continue to appreciate the simplicity, speed and convenience of LightStream, which has created high satisfaction rates resulting in good repeat and referral business
More broadly, our investments in digital continue to payoff, with self-service deposits, mobile usage, and digital sales all continuing to track upward
This progress combined with changes in branch traffic and our already strong and dense market position gives us further opportunity to optimize our network
Specifically by June 30th, we plan to close 99 branches and open eight new branches
So that on a net basis, our branch network should decline by almost 7%
This is even more notable when considering that over the past five years, we had already reduced the size of our network by 17%
Nonetheless, the branch system will continue to play a very important role in our delivery model both with regard to maintaining and building our brand and meeting the more complex needs of our clients
The latter of which is evidenced by the fact that almost three quarters of consumer needs are still met in the branches
Non-interest income declined 2% for the full year entirely due to lower wealth management related income, both as a result of lower trust and investment management income, which was negatively impacted by choppy market conditions in the first half of the year and lower retail investment income as we continue to make the strategic shift from more transaction-oriented business to managed money solutions for our clients
As we've said in the past, while this is a negative for near-term retail investment income growth, it is positive for clients and the long-term health of our business
Assuming reasonably stable market conditions, we would expect wealth management related revenue in 2017 to build from 2016. Expenses in CPWM increased 4% for the full year due to continued investments in our branch network and associated optimization efforts
Increased investments in technology and our growth businesses such as LightStream and higher operating losses
Bigger picture, CPWM made significant progress this year in optimizing the balance sheet, meeting more client needs, and advancing our omni-channel strategy
The savings generated from optimizing our branch network will allow us to invest in increased talent and technology thereby delivering more value for our clients, while also being a critical component of achieving our company's efficiency goals
Overall, we're optimistic about CPWM's ability to increase the financial confidence of our clients and communities, improve effectiveness and efficiency, and thus deliver further value to our shareholders
Moving on the wholesale banking on Slide 13. We had record revenue per both the quarter and full year due to strong execution across all lines of business
Specifically, revenue was up 4% both sequentially and for the full year due to growth in both non-interest income and net interest income
Net interest income was up 5% sequentially and 3% for the full year, as positive loan growth was partially offset by margin compression
Our 10% deposit growth is reflective of the success that our corporate liquidity product specialists are having in strengthening client relationships
Non-interest income increased 2% sequentially and 5% for the full year, primarily due to strengthen our capital markets business and more favorable economic conditions
Investment banking income was up 7% compared to 2015, evidence that we continue to see the results of our consistent focus on expanding and deepening client relationships and meeting the capital market needs of all wholesale banking clients
More specifically, our M&A and equity-related businesses, which have been key areas of investment for us continue to grow faster than the rest of the platform, another proof point that our clients increasingly view us as a trusted strategic adviser
Further research rankings from institutional investors continue to improve giving us a larger share of investors trading commissions, validating investment and talent in this business
Lastly, capital markets income from non-CIB clients was up 24% compared to last year as we are working better together as one team to become the preferred advisor to our commercial, CRE and private wealth climes
Net income was down 9% for the full year entirely due to the higher provision expense for energy, a trend that began to abate in the fourth quarter
Lastly, we closed on our acquisition of Pillar Financial in December, and as a reminder Pillar will increase wholesale’s annual revenue by roughly $90 million beginning this year
Pillar’s efficiency ratio is roughly 80% to 85% and while this will be dilutive to the overall efficiency ratio, the acquisition of Pillar will be accretive to our capabilities, net income and ROE
Welcome to our teammates at Pillar and we look forward to partnering with you to drive continued success for our clients
In conclusion, while market conditions can drive quarterly variability, our differentiated business model and wholesale banking continues to deliver strong results and we expect to see further growth in 2017, particularly if economic growth accelerates and client sentiment remains strong
Moving onto mortgage, unsurprisingly revenue in the quarter was down 23% compared to third quarter as higher interest rates created a more challenging backdrop for the business
Mortgage production income declined 40% sequentially as application volume declined 30% and gain on sale margins compressed given the more competitive environment
As a reminder, the majority of our production income is recorded at [indiscernible]
Servicing income also declined as decay expense which is recorded as loans pay off increased, and the more volatile rate environment made hedging more expensive in the quarter
However, as I noted earlier, both of these trends are somewhat temporary and servicing income should bounce back in the first quarter as rate volatility abates
For the full year, total revenue increased 7% as increases in both production and servicing income more than offset slight decreases in net interest income
We grew our servicing portfolio by 7% year over year as a result of portfolio acquisitions
In the fourth quarter, we acquired another $9 billion of UPB of servicing, $3 billion of which was reflected in our year-end servicing portfolio and $6 billion of which will transfer in the first quarter
Net income was down $32 million sequentially and $104 million compared to the full-year 2015. In both cases a higher provision expense contributed to the decline
While the asset quality of the mortgage portfolio continues to be strong, reserve releases are abating
Overall in 2016, the mortgage business benefited from its investments in improving the client experience, smart market share growth across production and servicing and lower rates creating value for our clients and contributing to the bottom line performance of the company
While the higher interest rate environment will create challenges for this business looking into 2017, growth in our servicing business, targeted market share gains, and reduced expenses will help to partially mitigate the decline in market refinance volumes
With that I'll turn it over to <UNK> for concluding remarks
Well, rising rates are obviously helping
That's a positive and what's a little bit different this time compared to the rising rates we saw a year ago was that this time, we've got rising short and long-term rates
And so both of those are helping us because we’re relatively balanced in our exposure across the rate curve, but along with that, we also got some nice loan growth
We've had a little bit of mix change across our loan portfolio
That's helping us particularly well and because we're able to provide our clients I think with really good value across our product mix, we're able ---+ we've been able to manage deposit rates and showing clients value across the relationship outside of rate paid
And so we’ve been able to manage to pay them relatively well also
So I think all of those things have been helping our NIM, Matt
Our overall sensitivity is about 2% and so for $5 billion of interest income, you're looking at about $100 million per 1% increase
So a quarter of that for 25 basis points, but remember we model our beta on our asset sensitivity using a beta of around 50. If your view of beta for the next 25 is substantially lower, our ---+ then you would model asset sensitivity rates higher than that
Let me give you just a quick rule of thumb if that will be helpful to you
For every ten points of beta below our modeling, our asset sensitivity goes up about another 2%
So we’re 2% at around 50. We’re 4% at around 40. We’re 6% at about 30. Does that help?
Yeah
Michael, let me add to that also, as <UNK> said on the rate curve, we're just assuming the forward curve, so that right now when you look at market expectations for ’17, the forward curve picks up two rate hikes, June and December, the December one doesn't really help us much obviously
So it's really basically only the one in June
And as you pointed out, headwinds in ’17, the ones we’ve noted are pillar and FDIC expenses in terms of the expense side
On the revenue side, we've got the full year posting order and the decline in mortgage business across the country
So we've got, we know we've got expense headwinds, we know we've got revenue headwinds, but despite all of that, we still think we can make the company more efficient knowing what we know
So from a capital ratio perspective, what we've said in the past is that we think, given our relatively low risk profile, which continues to show up in CCAR after CCAR after CCAR in the Fed numbers, we think we can operate the company with a common equity tier 1 ratio that starts with an 8, somewhere in the 8. If you look at us today at 9.5, I think that does give us capacity to deploy capital, whether that is via increased production doing more client business, as you saw, this quarter, a little bit of it went toward the acquisition of Pillar, which will be helpful for ROE and net income growth going forward
So we think we can deploy some capital, but we think we can also return capital
And when you look at us over the last several years, you've seen a pretty steady increase from SunTrust, both in dividend and buybacks year after year
We expect that in ’17, we'll be able to do that again
In context of your comment about CCAR ’17 and ’18 and what might happen, we are waiting right now on the instructions to come for CCAR ’17. So until those come and hopefully those will come very soon, until those come, we won't know exactly what the instructions are and what CCAR looks like and how much of the improvement can show up in ’17 or ’18, but over the course of the next two years, I do expect that banks our size with our relatively simple business model, we will be able to continue to increase the repatriation of capital toward our owners
Well, the difference in premium and this quarter relative to last quarter was $3 million, slightly less premium and the effect that that had on NIM for us this quarter was one basis point
So we got 1 basis point advantage in NIM Q4 versus Q3 with rates moving a little bit higher in Q1, we might get a little bit more benefit in premium in Q1 also
In terms of the rest of the year, what you see from us and I expect kind of the same pattern this year relative to last year, when there is a rate hike, you see NIM for us improved and then in the quarters where there is a rate hike, as liability rates catch up, as beta catches up and as our portfolio, just new loans roll off, old loans roll off, you see NIM grind down a couple of basis points
And that’s kind of the pattern I would expect to see for us again, a rate, a NIM increase in the quarter, we get a rate hike and a grind down in the quarters where we don't
Well, we obviously do continue to invest in all regulatory and compliance costs and I expect that we will continue to do so in ‘17. So I think that cost curve is just going to continue to go up generally for the industry
We're not going to be any different in that base relative to anybody else
And in terms of headcount overall, we did have a little bit of a headcount increase in Q4, but remember that the Pillar acquisition closed in December
And so a substantial number of that headcount increase that we get in Q4 was actually as a result of growth, which is going to help us in revenue in 2017.
That’s a little bit of the composition of the balance sheet
When you have a negatively convex balance sheet with mortgages on it, what will happen as rates climb is you will become a little bit less asset sensitive, just as a result of the math in the models, which is certainly what we're seeing
What's interesting though is because this is just math, it doesn't consider as much sort of human behavior as we actually see in reality
So if the economy does better and our clients feel better about those prospects and they move up or they trade up, the asset sensitivity that we're showing that comes out of just the math model as a result of rates, we’ll be understated
So that change you see is primarily rate related, but I think if ---+ it can be offset by improvements in GDP and consumer confidence
Overall, we manage our swap portfolio kind of between $15 billion and $20 billion of notional
And remember that portfolio is there, basically, just the hedge against our floating rate commercial loans, so that our balance sheet doesn't get too short
And notional, we're still sitting between $15 billion and $20 billion
No dramatic changes in that overall book or view
We are modestly asset sensitive
We expect to stay modestly asset sensitive
Good question, <UNK>
So on the first one, we've actually had really good success in deposit retention historically at SunTrust
Think about deposit retention, north of 90%, 12 months in
So 12 months after we close the branch, as those clients move to a different one, we’re still able to retain greater than 90% of those deposits
And we feel pretty good about our ability to do that this time around
And in terms of rate rises and how that affects client behavior, I think the real question, sub-question there is how fast they come
If rate rises come very fast, i
, we get four this year, that actually has the potential to affect client behavior somewhat I think
But if rate rises come at a very measured pace, as [indiscernible] has signaled, and we get only 1 or 2 per year, I think that client behavior doesn't change that much in that type of environment
So the duration in our overall securities portfolio right now is only about four years or so
And we kind of typically keep it in that 2.5 to 4.5 range most of the time
So we're in the upper part of that range right now and I wouldn't expect it to change much from here
We actually were able to take advantage of the higher rates we saw in the latter part of the quarter as we invested into that portfolio and grew it for LCR purposes to get higher yields from the new investments we made
So overall, we feel pretty good about that portfolio right now, <UNK>
In terms of AOCI and the effect that’s going to have on the portfolio, yeah, as rates go up, absolutely
The unrealized gain turns into an unrealized loss
Those securities sit there and the result of that is simply that we end up getting a higher NIM overtime as opposed to realizing it upfront
So I’m not expecting much of a change in overall capital ratios as a result of this and even if there is a 10th or 2, here or there, it's really not going to make a difference in terms of our overall capital strategy, <UNK>, if that's where you’re headed, because we're still substantially above where we think we need to be in terms of operating the company
<UNK>, look, you're completely right about that
We were pleased to see Governor Tarullo’s speech at Yale and the kind of comments he made about opening up capacity for relatively smaller and relatively simpler bank like SunTrust, given our business model
So we're pleased to hear that
I think we've got the capacity to do exactly as you say
We do have the capacity to do all of those three things that <UNK> noticed
We think we can grow
We know we can and so we've got capacity to do that
We would certainly like to be able to increase dividends and increase buybacks
We've got a really good history of doing that over the last several years
We've heard from our shareholders as to what their preferences are and we continue to elicit feedback from them as to how they like to do it
And I think over the next couple of years, you can expect to see us do all of those things
One, grow; two, increase dividends and three, increase buybacks
| 2017_STI |
2015 | SWKS | SWKS
#Well, it's <UNK>, it's a little too early to be specific about September.
As you know, second half is the strongest part of the year and much of our business and it's usually up sequentially high single-digits.
I think that the traction we have in China and the position we have with our SoC partners or our baseband partners will allow us to continue to ride that 4G wave and we expect to have a very strong second half in China.
But as Liem mentioned, there's also competition from foreign brands and fortunately we're well-positioned there as well.
I think we'll have less volatility given OEM share shifts.
I do expect the second half, the LT upgrade cycle to begin to March towards a ---+ call it a conservatively a 225 million to 250 million number for 2015.
We haven't seen much of a change in the competitive landscape.
Specifically with respect to Marotta, they're not a new competitor.
They've been around for long time and their strength has traditionally been in passive and soft filters and in some modules, particularly on the receive side.
We do come across them in a limited number of fairly niche segments and we've been quite successful competing head-to-head.
We haven't seen any change in the competitive landscape.
And our confidence that we can continue to leverage more content and benefit from increasing complexity with more TAM is very solid for us.
Sure.
Obviously, we can't comment on that specific customer.
But in general, the architectures are getting much more complex, and we're very fortunate to have visibility out two and in some cases three years, in terms of the overall architectures that are being deployed to deal with all this complexity.
We see nothing slowing that down, so it's obviously a tailwind for us.
We're seeing more addressable content in those kinds of functions you typically think about (inaudible) powered by duplexers, Wi-Fi, switching, and control; but we're seeing an awful lot now in what we're able to produce in terms of complex antenna tuning, devices on the receive path, lighting, power management.
I will say that as an incumbent, we've been very successful and quite proud of maintaining and growing our footprint with each successive design with all our major customers.
It's been a steady [margin] effect.
It's hard to talk about it in one year cycles.
If you went back three years, we were very strong in multi-mode and discrete power amplifiers.
We had a lot of strong switch portfolio, and we were entering connectivity in our Wi-Fi portfolio and we did an acquisition in fact and we also bought a power management company.
And over the last couple of years, we've seen a huge increase in Wi-Fi connectivity, starting with our lead customers in flagship phones and now populating across the smartphone landscape.
That's been a huge upside for us.
I think we've got about 50% or more of that market, we just have the best overall solution.
We can shield it, we can integrate it, we can lessen some of the interference impact of having more and more Wi-Fi sitting side-by-side and next to more and more cellular bands.
We've seen our power devices, both at the display, at the camera flash, particularly dual-mode, that's been adding content for us.
So, an AC upgrade cycle is very important to us, power amplifier duplexes.
And we introduced SkyOne as an opportunity to really leverage the breadth of products in the system capability of the Company.
While that's become a diversified set of products within that family, it's really taking off in terms of been able to enable more filters, less filters, more switching.
Hard to say it's all the same.
As we commented on earlier, I think a 15% is a good market for existing TM growth.
I think we do much better than that because we're not only riding that wave of existing TM growth, but more functionality.
Yes, I would look at this way.
It's on a mix of mobile, non-mobile, it's a mix of integrated devices and non-integrated devices.
We see, if you look at our core market business plus our integrated mobile business, that's where we're very sticky, where our customers see a great deal of value, where there's more and more content for us and far fewer competitors, versus for example, a discrete PA.
So when look at that business, we like that mix of business growing to the vast majority of our Company.
That's what's happening today, our PA business continues to get smaller and smaller and smaller, our discrete business gets smaller and smaller.
We're overwhelming becoming a system solution provider.
M&A continues to be, and has been a central element of that, if you think about it.
The last few years we bought a Wi-Fi business, a connectivity business, we bought power and lighting business, we also bought a high-performance filter business.
Those have all been part of a vertical market strategy where we can add more value, but an effort, a concerted effort, to be more sticky and to compete on the basis of system performance where we have few, if any competitors, less on how good is our component.
Just one quick point, <UNK>.
If you look at the way we with the revenue, that broad market space is up 27% for the first half of this year versus last year.
And there aren't any diversified analog companies growing like that.
It's really got a lot of momentum behind it.
Sure.
We certainly expect growth in both segments.
We will deliver growth in both segments.
You have a great opportunity in smartphones, in our core markets in mobile as we've outlined with our global tier 1 and also the China cycle.
As <UNK> mentioned, it really is about a growing TAM and our ability to capture more and more of this with [skippy] system solutions.
On the broad market side, we're seeing a vast majority of the opportunities in new markets, automotive, wearable technology and then our core business in broad, includes infrastructure and axis points, all those segments are moving up and will continue to be upside for the second half.
In the last quarter we were up nearly 30% in the broad market business and of course if you track, the diversified companies they're nowhere near that.
So you can see that we're really focused on the right device categories, leveraging what we're good at, at mobile with some of these markets becoming interconnected in a wireless way or in a mobile way for the first time.
Just a specifically, the segments that you've got both broad markets and integrated mobile systems growing and our stand-alone paid business is down, but flat to down slightly.
So again, the growth is coming from those two areas, when you look at the guidance.
While, you know there's a tremendous amount of leverage still in the model.
The best way to handle that is, we've now given you new guidance on a baseline of what we just guided, the 48% margin.
And you're going to drop that through on whatever, how you handicap the top line growth, the 55%, the incremental margin.
So that is going to trend very quickly to 50% and beyond.
We're going to continue see leverage on our OpEx space.
I think we've got a proven track record of being able to do that.
When you layer those two things together, you're going to see you have some very attractive returns as you go forward.
Sure.
We're actually in the very early innings of deployment of that technology, we have a great opportunity to advance data rates with this technology.
Our customers love it.
It's a significant content boost to our mobile portfolio.
But in terms of what we're doing right now, we have a couple meaningful design wins, but there's a whole slate of opportunities that we're pursuing right now.
We're in sampling stage, we're in development stage, high degree of customization.
Also bring in technologies like filters and SOI switch, some really interesting things being brought together.
And as you look forward to more commentary on this as we go through the year.
On the switch business.
I think we were certainly seeing a lot of appetite for switching as you see more and more of these bands and traditional phones where you don't have a diversity architecture.
You're dealing with SOI or PM switching.
It's been a robust run in that technology.
Supply and demand are about in balance right now and we still continue to do quite a bit of business in that segment.
Yes, just on the margin piece of that.
We've got a lot of things that are driving that and continued strong top line growth volume, volume matters clearly in our business.
You've got this favorable mix towards integrated mobile systems growth, which have very nice attractive incremental margins.
Operation execution and the filters are part of it.
So there's multiple facets of the margin expansion.
The filters are part of it.
With respect to the receipts out on DRX, the interesting part there is obviously you have complex low loss switching, a lot of filtering.
The filtering is becoming very tricky and the need for very tight spacing in high-performance.
The other thing is that there are architectures that I think, will begin to look for in that receive path, the effication of very low noise amplifier that could be segmented around frequency bands.
So I think the content there is ---+ I'm glad you ask the question, I think it's very understated in most people's models.
I think it's going to be a big growth driver and the competitive nature is going to be very tough, because it's going to be a combination of active compounds, semi-conductors, passive devices and it's going to be an MCM.
I don't think it's going to be a slug of ceramic.
I think it's going to be a complex multilayer MCM that pulls all that together and as you know, we're quite strong there.
Yes, that's right.
And the capacity has been a little tight because we've just ramped it so fast.
I will say we've really been able to hire some terrific folks, we've put a lot of capital in place, the yields have come way up from when it was an asset owned by Panasonic.
So I'm actually thrilled with the performance of that team.
If you look at our capital expenditures and <UNK>'s comment on what to expect going forward, that's really in two areas, it's in filters and it's in modules.
So you should expect us to continue to ramp that up.
I think we'll do more than $1 billion this year.
In high-performance, soft filters, and I think next year it's going to be, hold on to your hats, I think the filter demand is going to be really high, and temp comp is really starting to tackle some pretty thorny system issues, we think we can deploy it in lieu of certainly a soft filter, and in some cases a bolt device.
Sure, Tony.
Certainly carrier aggregation is becoming more and more critical now as you go into these highly complex 4G phones, data rates are really in high demand and the complexity in the system goes up.
So we have tremendous solutions.
Some of our SkyOne Ultra technology is actually build in, in carrier aggregation capability inside of this complex PAD module.
That's one of the nuances of our architectures, how we take this complexity and not only manage the amplification, but also the switching and the threading together these bands that you see in carrier aggregation.
That's another market where we've got some design wins with the leading industry players, but we are starting to see more and more folks in China and other markets pick up the technology.
And on the CapEx, we spent $87 million in Q1 and $84 million in the past quarter.
So what we're seeing for the second half, and that split we're making those investments both for filter and module capacity, that's typically where you're seeing the spending.
Based on our outlook, we believe that we see second half levels probably somewhere what we've seen in the first half.
The thing with the CapEx investments for us is clearly [on of the enables] ---+ we just made a step function change in the margin, both new starting point and the incremental.
Part of the benefit you're seeing is from these CapEx investments that we're making.
So it's a very positive leading indicator for us.
We're spending that money, we've got very good visibility into volume and it's going to generate shareholder returns and benefits.
So it's a positive thing for us.
With respect to SkyOne, it's been a combination of upgrading existing customers and in many cases forging our initial engagement with SkyOne and new accounts.
We're seeing the platform count go up, we've got about 8 products in production right now and by the time we exit the calendar year, we'll probably have 10 more platforms in production.
Again, the ability to customize and put the specific bands, leveraging our filters in many cases, has been one of the differentiators.
So that portfolio is doing quite well.
It's really a turning point in our SkyOne architecture and our SkyOne traction.
With respect to Wi-Fi, Wi-Fi continues to be a leadership portfolio for us as Skyworks.
It hits the IOT space.
It's been hitting mobile.
We're seeing opportunities in media over the top boxes, we're seeing opportunities in automotive that we mentioned.
And we see the 11ac strength that we bring to market as one of our differentiators, and it will be a portfolio that grows well in the second half through 2016 and beyond.
Nothing in particular.
As we have ---+ as we've migrated our portfolio into the device that we've been describing in this entire call, whether it's SkyOne Ultra, SkyOne mini for the open market, China and so on and so forth.
They're really not products that are subject to the same kind of pricing dynamics.
So we see kind of gentle, low to mid-single digit pricing on a year-over-year basis for most of our devices.
I don't see anything changing there at all.
Sure.
In fiscal Q2, the March quarter, we were flattish, maybe down a point or two.
In the current quarter, in the June quarter we are seeing growth and it's coming across a number of platforms.
We do a really good job of working with all the chipset providers, MediaTek, [SpreadChum], Qualcomm.
We're seeing some success with names like Xiaomi and Lenovo and even [Whaway] GTE.
We feel really good about the second half in China.
Little bit of a bumpy start.
We were able to navigate through that with our heavy allocation towards 4G, but we're starting to see the momentum come back into that market.
Sure.
We speak a lot about China but in some of the developed nations, United States and Europe et cetera, LTE has been rolling for a while.
China is a great opportunity because you have nearly 1 billion subscribers and less than 20% are carrying a LTE product.
So there is a huge upgrade cycle.
That upgrade cycle will then create additional turnover in the years to come.
So that's why we make such an important distinction around the China market.
And if you think about it, you've got a band count increase for sure, you have a filter count increase that we can leverage in the modules.
You also have more switching ons, you have the carrier aggregation technology we talked about, the ability to deliver high-performance receive side technology with DRX, power management, and when you build this kind of an engine, invariable there's a Wi-Fi attached.
So we're trading opportunity against what were 2, 3 years ago 2G and 3G phones in China, that may have had 150 to 250 of content.
So that's really where you see that opportunity.
I think you should think about as being something that will sweep into all territories over time throughout the world.
And it's really the same dynamic that will drive an end from an ac implementation.
In 802.11, I think there's 5G behind it by the way.
We're doing architectures today that are sweeping millimeter wave functionality as the world looks for allocation of more frequency.
The problem is bandwidth at high-speed.
And bandwidth at high speed is only going to be solved as consumers demand it more and more and more, and carriers find it as a way to follow the money that you are going to see it sweep across the entire world.
And there will be a generation of technology right behind it, because it's all about bandwidth.
No, all of our top line's in dollars so the only impact we have is a dollar peso for our Mexicali expenses and a little bit now at the end with the filter acquisition.
Because of their liability position with the strong dollar that was actually favorable.
Not material, but we haven't had any, no.
We haven't had any.
Thank you.
You know, June's typically kind of that transitional quarter.
We're going to be up because as we have mentioned we see some strong growth in China, and we see some reasonable growth going to June in China.
We see quite a bit in our broad markets, continue to chug along and shows us sequential growth in year-over-year growth.
You know, I believe that we're in the enviable position of not needing to worrying too much about OEM share shifts.
Because if you look at the content and the tear down reports, whether they're MediaTek enabled indigenous OEM, Xiaomi, or if it's Samsung or others, we just continue to look to drive that content higher.
We're very well positioned.
I just don't worry too, too much in terms of Skyworks' overall financial performance about the overall OEM share shifts.
We're well positioned among the flagship models that I think you're referring to.
Well, it's been really around the home.
So if you think about it, if you look at the devices, thermostats, it really kind of started with smart meters and it moved into all kinds of categories from gaming, now lighting, the 802.11 ac space with these really complex home routers.
There's a huge opportunity for us, these media gateways that are being provided by the various cable and wireless service providers have many dollars of content for us.
So that's exciting.
I like wearables a lot because the consumer content there is high, and we've got a good entree with our low-power, Wi-Fi and switching products.
Automotive has been is a bit of a sleeper, we've had high dollar content with high-margin, but only recently do you start to see with the advent of the smart automobile, it's kind of a connected hub environment that exists in the car.
We're seeing a lot of design activity there and a lot of very high-margin wind, so it's no longer trivial amount of our revenue, it's becoming rather meaningful.
Operator, we will take the next question, please.
Everything that we talked about is important.
The volume helps, the strong top line is always going to allow us to improve the incremental returns.
The favorable product mix is probably right now with the value add proposition you described, that's probably slightly ahead of some of the operational executions.
They're both critical and important and when you add filters in, they're all driving that.
But I would say the number one driver is going to a system solution and the value add to the customers.
Our ability to package solutions, which really drives the cost down for us so at the end of the day, that's probably the number one, but they're all important.
You need them all to move the increment to 55%.
A philosophical question.
Okay.
Well, the discontinuities have been ---+ maybe ongoing for the last several years.
We're are seeing the need to have more direct engagement with our customers, with field folks and business unit people who have a much broader set of experiences around how to optimize the overall system performance right from the SoC to the antenna and back.
That's been new for us, so we have been kind of upgrading our capability, hiring a lot of folks, so that's a discontinuity.
I think we've got it under control.
I think capital really isn't the issue because fortunately for us the investments we've made in these complex multichip modules really are allowing us to kind of dovetail into a nice mix of internal production versus external production.
Keep that flexible model, but we're really able to leverage what our customers want and use an MCM type approach for much of it.
And I guess in terms of skill, so the skill upgrade cycle we've been going through has been ongoing for a while.
Probably the biggest discontinuity for us that we needed to solve and we're well on our way to hopefully doing that, is we really needed to have more of a filter passive offering within our active portfolio, and that was a change for us.
That hasn't been traditionally our skill, we've avoided those discrete markets because they've tended to be very gross margin challenged, but now it's part of an overall system solution they become an integral set of capabilities for us.
That was a discontinuity that we're continuing to work through.
Yes, that's right.
That's a good question actually because while at the same time you've got heat dissipation, you've got more bands, you've got more things amplifying that want to interfere one another, there's a tremendous amount of pressure on size, both the x and y axis.
It's a challenge.
It's a fun challenge for our engineers but you have arsenal of capabilities, as you say, to shield and mold and overmold to thin and so on.
So yes, it is a challenge.
It is an opportunity because it's really hard, if not impossible, to architect using a set of components, no matter how good those components are.
You need to find a way to create a module or set of modules and ICs that interplay well together that can drop on that PCB and not add a lot of height and multi-layers.
We can do in-house, which is unique.
The discrete PA's will continue to grow through this year and into the foreseeable future.
It's certainly got the lowest growth rate and so the dollars are going to grow year over year.
It's going to become a smaller and smaller percentage of our total revenue mix that's clearly ---+ that's been happening every quarter.
But they will grow.
There's still growth there.
I think it's even simpler than that in a sense, <UNK>.
It's really all about the capability of streaming and being able to do it with multiple high-performance, high-speed bands, high-speed paths do that antenna.
So first of all, the filtering is more bands to filter on the receive side and those filters have to have ---+ be able to accommodate tighter spacing, with what they call really tight skirt if you will, in using filter lingo.
That means you're going to have a very high performance filter, even on the receive side which is a lot higher dollar content.
In the past, you could take a passive duplex and it was good enough, it's nowhere near good enough.
The other thing is, because of the performance it's starting to disintegrate the low noise amplifier that receive power boost that you need because it needs to be narrower band around the desired frequency, and to introduce less loss you can do on a typical bolt.
So that adds a lot more device category capability for us.
That's really what is.
You think of it if you got a stream video on that phone over multiple bands, you can't do it through a sloppy duplex or in a lossy switch.
I think the application of the real benefit here is substantial increase in data rate.
Think of it as a milow architectural for receipt.
And it has a radical improvement in performance, now it's not cheap.
It's a lot of complexity, it is a lot of value, but we're seeing the high end customer adapt this quickly and we're also seeing a lot of opportunity in mid tier.
So that's essentially the benefit that we see.
It is a share gain opportunity.
First and foremost it is not part of the SoC.
It is in the domain of the analog module combination of compounds, semiconductor passive and integration at multilayer things like PCBs and LTCs.
It's not the domain of the SoC.
And there aren't many companies ---+ you've got companies that can do a duplexer, a company that do a passive or could do a switch.
Not very many companies can pull together at the right price point and have the kind of performance sensitivity that we can.
Well, maybe we can do this one with <UNK>.
We said in the last quarter that it was up 27% year over year, so it's been growing very rapidly.
Much of that is connectivity, it's the upgrade cycle to AC, it's new device category throughout the home on the factory floor and the automobile.
It's kind of all of that.
It's in the market, so if you think about that from a product perspective, Wi-Fi, Bluetooth, switching, creating connectivity and the applications that it's serving now is this proliferation of IOT, whether it's media devices, automotive, machine and machine wearables, energy management, and we're seeing that roster expand each and every quarter.
So it's a combination of the great technology and then also hitting a market that's on a growth rate.
No, it's accretive to the line with incremental returns at a minimum.
Depends on the specific application, but it certainly doesn't bring that number down.
Thank you everyone for listening and participating and I look forward to seeing you soon.
| 2015_SWKS |
2016 | LTC | LTC
#<UNK>, there is a recognized cost of turnover.
So, as the salary levels go up, if you can reduce turnover, you're still going to be better off.
Right.
And, <UNK>.
Are you asking the operators when they're looking at new deals or LTC.
If you're looking to add a facility to your portfolio, what type of returns are you looking for.
Got it.
It's an interesting question, <UNK>, because I recall one of our first meetings with <UNK> and Isaac in this conference room when we were talking about Anthem and starting to build memory care properties and we were so impressed with their focus on the care, they had already developed a prototype, just looking at numbers which was the pro forma of what they ---+ the industry could be doing and Anthem in particular.
I told <UNK>, I said there is going to come a time in your development if this happens when people are going to be throwing money at you like crazy and we understand that we do not finance with one type of financing vehicle.
<UNK> has more properties than are financed by us.
We expect that sometime Anthem ---+ it's appropriate for Anthem maybe to finance in a different way whether it's to get debt to own their own properties or something, but one of the things that we have with our operators is an understanding of their health is our health.
And so if it makes sense for a different capital structure for our operators we are all in support of that.
Sure.
Thank you, and thank you all for attending and I just need to remind you that in order to invest in these two quality operators, you have to buy LTC since they are private.
So, thank you all for attending this morning and we look forward to talking to you after the second quarter.
Thank you.
| 2016_LTC |