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maec-2020

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2016

NSA

NSA #Thank you, <UNK>, and welcome, everyone, to our first-quarter 2016 earnings conference call. This morning, I'll start with a brief overview of our quarterly results, and then provide an update on our strategic initiatives, including our recent acquisition activity. <UNK> <UNK>, our CFO, will review our recent results and balance sheet, and will close by updating you on our 2016 guidance. And <UNK> <UNK>, our Senior VP of Operations, is here with us today, and will be available to answer questions about our operations. After our prepared remarks, we will open up the call to analyst questions. Once again, our first-quarter results were very strong, as we continued to execute on NSA's unique internal and external growth strategy. Our first-quarter core FFO per share grew by 19% year over year to $0.25 per share, and we produced an 11.3% increase in same-store NOI over the prior year. We also continued to grow our portfolio significantly, as we acquired 39 properties year to date, including 14 properties from Hide-Away Storage of Sarasota, Florida, who we added as our seventh PRO. Year to date, we've already closed on over $260 million of acquisitions, including new PRO stores, captive pipeline stores, and third-party acquisitions. We continue to have great success at funding a large percentage of our acquisitions by using our operating partnership unit equity, as the acquisitions year to date included the issuance of almost $100 million of new OP and SP unit equity. And we are currently in discussions with a number of prospective sellers and PROs with very large equity positions in their properties. Finally, post quarter end, we enhanced our access to capital through the recast and upsizing of our credit facility, which now has a total capacity of $675 million. As a result of this very strong start to 2016, we are updating our core FFO guidance for the year to between $1.04 and $1.08 per share. Tammy will discuss this in more detail in a few moments. Moving on to our portfolio and strategy, we continue to execute on all fronts. Including our recently completed acquisitions, NSA currently owns 315 self-storage properties in 18 states, comprising approximately 146,000 units and almost 19 million rentable square feet. The self-storage sector remains strong. We are seeing steadily increasing demand in most of our markets, which continued to benefit from above average employment and population growth, and only seeing the impact of new supply in a few markets and submarkets. We continue to successfully grow same-store occupancy, as we keep closing the occupancy gap with our public REIT peers. Our first-quarter same-store portfolio's average occupancy was 89.2%, which is an impressive 440-basis-point gain from the same quarter of the prior year. We expect to grow our occupancy further as we use our national marketing platform and our call center to drive strong conversion of new leads heading into the seasonally strong second and third quarters. Additionally, our new revenue management system, which allows us to optimize rate and occupancy, is now operational in 117 stores in 19 markets with four different PROs. We are pleased with the positive results we have been seeing so far, and so are our PROs who are integral in testing and implementation of this data-driven tool. We believe the rollout of this system was an important contributor to our 9.1% same-store revenue growth this quarter over the first quarter of last year. And we will add more stores to the system throughout the balance of the year, as we continue to tweak the metrics for optimum performance. Within the self-storage space, our differentiated strategy of external growth drivers has allowed us to significantly grow our portfolio and broaden our presence through acquisitions, with almost 20% unit growth year to date in 2016 and almost 50% growth since the end of first-quarter 2015. We believe our strong acquisition pace will help us continue to scale our national marketing platform and our call center, vendor relationships and corporate overhead, and ultimately, drive strong growth in FFO per share. During the first quarter, we acquired 17 self-storage properties for a total of $89 million, which added 7,600 storage units and 1.1 million square feet to our portfolio. Subsequent to quarter end, including the addition of properties from our seventh PRO, Hide-Away, we acquired 22 self-storage facilities for an aggregate investment of almost $174 million, which added 1.7 million square feet and over 15,000 storage units to our portfolio. With our acquisitions so far this year, we've expanded our presence in our existing markets, entered the Indianapolis market, and significantly expanded our West Florida market exposure with the addition of Hide-Away. The three components of NSA's external growth strategy ---+ captive PRO pipeline, third-party acquisitions, and addition of new PROs ---+ is firing on all cylinders. As we move through 2016, all components of our growth strategy are enhancing shareholder value. Our captive pipeline of assets, which are PROs already managed but we do not yet known, currently totals almost 100 properties, valued at over $700 million. We continue to benefit from our PROs relationships, as they add to their properties under management, which in turn, expands our pipeline of potential transactions. Additionally, our PROs have long-standing local market relationships and are incentivized to source new acquisitions for NSA. These third-party acquisitions, which are very often off-market transactions, have totaled over $210 million since our IPO and over $110 million just this year. Given the fragmented nature of the industry, we believe we have a long runway for future third-party acquisitions as well. Finally, as demonstrated with our Hide-Away transaction early in the second quarter, we continue to recruit new PROs to add to our platform. These PROs bring valuable operational expertise and local relationships to NSA, in addition to contributing large portfolios of self-storage assets. Before I turn the call over to Tammy, I'd just like to say again how pleased we are with our first-quarter results. Our expanded same-store pool is performing very well, and our acquisition pace is stronger than ever. And with the recent recast of our credit facility and the addition of substantial new OP equity, we have significant additional capacity for future growth. I'd like to thank the entire NSA team for their continued hard work and dedication in helping us achieve these outstanding results. I'll now turn the call over to Tammy. Thanks, <UNK>. Today I'll review our first-quarter results, discuss our balance sheet and liquidity position, and will close with comments on our updated outlook for 2016. For Q1 2016, we reported core FFO of $12.5 million or $0.25 per share, up 19% from Q1 2015. This growth was driven by our strong acquisition activity over the past year, robust organic growth in our same-store portfolio, and reduced interest expense. Turning to operational results, our 2016 same-store portfolio of 222 stores represents about 80% of our stores at the beginning of the year. Q1 same-store NOI was $20.4 million, 11.3% better than Q1 2015. Our same-store growth was driven by both rate and occupancy increases, with average occupancy growing by 440 basis points, and rent and revenue per square foot up 3.9%, driving our same-store revenue increase of 9.1%. Same-store property operating expense increases were below budget, but were still up by 4.8%, primarily driven by increased advertising spend and property tax increases, particularly in California, Oklahoma and Texas. We budgeted higher expense increases in Q1, with lower expense growth in the last three quarters, and still expect full-year OpEx growth to be in the range of 3% to 4%, as we guided in our last call. We are also pleased with the 1.4% improvement in our NOI margin this quarter compared to Q1 last year. We achieved double-digit NOI growth in Oregon, California, Georgia and Washington, while NOI growth in Texas, North Carolina and Oklahoma was below the portfolio average, though still positive. Oklahoma is still seeing some pressure from increased supply that was constructed while the oil industry was booming. And the Fayetteville market continues to be weak due to the impact of reduced military deployment, negatively impacting overall results in North Carolina. Finally, as we have discussed on recent calls, Oklahoma and West Texas have been affected by softness in the energy markets. However, we do continue to benefit from our portfolio's focus on states with projected strong population and job growth. And the diversity of our portfolio limits our exposure to any single market that may be experiencing pressure. Now let's turn to our balance sheet and liquidity position. With the completion of the amendment to our credit agreement last week, and including all of our acquisition activity year to date, our total debt outstanding is approximately $730 million. Today, about 60% of this debt is fixed rate mortgage financing, or fixed with swaps. In the near term, we expect to swap additional variable rate debt, reducing our overall interest rate exposure. Our weighted average interest rate is just under 3%, and our weighted average maturity is now nearly six years. We continue to effectively use multiple sources of capital available to us to fund our growth. As you know, we actively use our OP and SP unit currency, and we continually evaluate various alternatives to optimize the flexibility of our balance sheet to position us conservatively for the long term. Now that we've passed the one-year anniversary of our IPO, we are S3 eligible, and plan to file a shelf registration in the near term. This year alone we've funded over $250 million of acquisitions with a combination of the issuance of nearly $100 million in new OP and SP equity, along with funding on our revolver in the assumption of long-term mortgage financing in connection with the Hide-Away transaction. As I mentioned, we recently recast our credit facility, expanding total capacity to $675 million, bringing terms to market and extending maturities significantly. We reallocated a component of our borrowings to five- and six-year term loan tranches, meaningfully increasing our financial flexibility. We are also evaluating proposals that would allow us to term out substantially all of the remainder of our revolver balance, providing additional flexibility. Now I'd like to update you on our current thoughts with respect to a few specific areas for the remainder of 2016. Based on our current outlook for NSA's growth prospects, and our positive view on self-storage fundamentals, we are tightening our core FFO range, now anticipating core FFO to be in the range of $1.04 to $1.08 per share for the year. This higher mid-point is driven by anticipated same-store NOI growth of 7.5% to 9.5%, and anticipated total aggregate acquisitions between $400 million and $550 million this year. This concludes my prepared remarks. And with that, we now welcome your questions. Operator. Hi, <UNK>, this is <UNK>. I think in general, most of our acquisitions are in small chunks, one to three properties at a time. In the larger transactions that you do see out there, they tend to be highly marketed transactions and the pricing on those gets to be quite steep. We've been fortunate with our PRO pipeline and our PRO relationships to be able to source considerably better deals at better pricing. Certainly we would look at portfolios if they make strategic sense to us, but that's not the main focus. We do see most of these acquisitions will be in smaller chunks. I would say overall that our PROs have been successful across the board at sourcing deals because they all have these long-standing relationships. One thing to remember is the average length of our PROs being in the industry is over 30 years, so these guys know almost everyone in their local markets. I would say overall we've certainly seen each PRO bringing properties for underwriting. We've been a little bit selective in some markets that we ---+ staying away from some markets that we think might start to show some over-building in the future and focusing on some that we think might have higher growth. But overall it's been a very diversified addition of properties. I think right now based on what we're seeing, we're prepared to leave the guidance where it is, in the 20 million to 22 million range. Thanks, <UNK>. Hey, this is <UNK>, appreciate the question. Oregon and California have been really strong for us for the last 12 months; we see a lot of demand. The supply has not necessarily kept up with demand, so we're able to drive both occupancy and rate. And some of our best occupancies are in those markets. As we hit that ceiling on occupancy, we're really pushing the rate that much harder in those markets. So we like those markets. We expect them to continue to be successful for us this year. We'll add another 20 stores this month and then our objective is, frankly, to roll it out to the entire portfolio around probably year-end or so. We expect to continue to look for markets and opportunities where we can get the best ROI on the system. We're still in a testing mode so we're figuring out where it's best served to be deployed. We're very pleased with the results that we've seen so far. It's driving both occupancy and rate and it's definitely contributing to our revenue growth. We expect to see that continue and amplified as we add more stores to the system. I think one thing to notice on that too, <UNK>, is that we have four of our seven PROs on it so far. So we not only roll out stores but additional PROs, and so that takes a little bit more effort. But we feel a very positive about it and even our new seventh PRO that we just added, Hide-Away on April 1, we feel like by the end of the year they should be able to be on the system. Well, I would say overall that pricing continues to get tighter. The most attractive markets, the largest markets with the class A properties and the biggest markets, I think, the cap rates have bottomed out there. But every other market we're seeing continued tightening of cap rates overall. This is where we've had to rely greatly on the relationships that our PROs bring to bear to be able to get good deals out there. I would say, not necessarily any markets that are bigger in terms of opportunities than others, but certainly the low cap rates in the industry as a whole has made a number of folks consider selling that weren't before. And then we also, frankly, have the aging of our ownership group. As the industry ages, we see a lot more owners that are at the age where they are looking to sell their properties and that's a great, great feature. One of the things that we notice is there is a huge number of CMBS loans maturing in the next few years in the industry. Most of those are typically with one to three property owners. Those are a great source of acquisitions because an owner there might be getting older and he has to look at either refinancing his property or selling it. And so that gives us some great openings. Hi, <UNK>, it's <UNK>. We are very pleased with what it's doing for us. We think the system is working well. It's a very valuable tool. Since we're still in the implementation phase and in sort of a testing mode, we don't want to be too specific at this point. I think once we've got a full year of results under our belt, we can be a little more specific about the direct benefits of the system but for now we're sold on it. We think it's going to continue to drive revenue and occupancy going forward. One thing, <UNK>, this is <UNK>, I would comment on that also that we did increase our guidance on our same-store NOI and a significant part of that relates to the impact we are seeing from our revenue management program. But to be honest, it works better in some places than others and that's part of the tweaking that we're doing as we customize the proprietary system. So I'll describe it as a tool because that's exactly what it is. We have provided the tool. We developed the tool and we give it to our PROs for them to implement and for our PROs to use. At the end of the day, they are the ones who are vetting the system and operating the system. We help them a lot. We provide analytical support; we obviously provide the software support. But it is their system to use and it's theirs to use to drive revenue. So it's just like everything else we do, we provide the tools and the PROs operate. Well, it's not a question of deviating from the system. We don't see the system as the end-all, be-all. We see the system as a tool. The tool is used to make decisions and to make good decisions; it is not there to make decisions for us. So we don't even think about it in terms of deviating from the system, we think about it using the tool to make decisions. Well, obviously Internet is a big deal for us. Scale matters. We've made a lot of great investments in our internet platform over the last year. We've got five of our seven PROs up on our platform; we'll have the sixth here very shortly. And then of course Hide-Away will join us on the platform very soon. We've seen great gains in terms of year-over-year traffic on the platform. We've seen a lot more leads coming through it. 45% of our traffic is coming from mobile, so we think that's been very successful. And as with everything, we still think internet is probably driving 60%-plus of our leads at the end of the day. They don't all necessarily rent or reserve through the internet or through the call center but ultimately they do find us on the internet and that drives a lead or a rental. No, I don't ---+ We have plenty of people who find us on the internet and then walk in. We have people who find us on the internet and then call our call center or call the store directly. So it's not as easy as saying that this many rentals came from the internet. It's a lot more amorphous than that. No, I think that's about right, <UNK>. It was pretty close to $80 million. As I mentioned in my prepared remarks, close to $100 million in year to date and the $250 million of acquisitions we've completed. It is obviously hard to predict how much equity we will issue with each acquisition. When we bring on a new PRO they tend to have more equity and higher percentage of equity as a component of the total transaction. But we are seeing plenty of sellers who are very interested in taking our OP unit equity and diversifying and doing some estate planning. So we've been very fortunate in that regard. And that's what makes it so hard for us to predict, <UNK>, is that we have some ---+ I mentioned we have some sellers that we are talking to that have a lot of equity. If the guy's owned properties for a long time, it's not uncommon, if these are highly successful properties, that they might have something like 20% debt and 80% equity on these properties. And in a lot of those cases, the opportunity to take our OP equity is a really big financial advantage for them from a tax standpoint, as well as a diversification standpoint. But it's very hard to predict because it varies a lot from seller to seller. I think that was the revolver that you were seeing in 2017. So that's all been pushed out with the recast. Thanks. Hi, <UNK>, this is <UNK>. The addition of Hide-Away by itself would typically not make much of a change in the conversion ratio. In fact, normally right upon issuance it might slightly drop a little bit. But basically, the conversion ratio really moves based upon significant increases in same-store performance. As same-store performance is really strong, that's the reward that a PRO receives for delivering that performance as it slightly increases that conversion ratio. But realistically the Hide-Away won't really change it much and so it'll mainly be driven by how strong is same-store performance going forward. Typically not. Hi, <UNK>, it's <UNK>. We are obviously taking a balanced approach when it comes to driving revenue growth. Both occupancy and rate are contributing about evenly right now on the revenue management side. We obviously take into account the current occupancy of a store and a price type when we make decisions about what to do with pricing in that store and what to do with in-place rate changes to current customers. So it's completely dependent upon the store and the price type, how hard we push rate. And we're very cognizant of occupancy dynamics and we will not necessarily sacrifice occupancy for rate. We're always looking to maximize revenue, that's the equation at the end of the day. Thank you. Hi, <UNK>, this is <UNK>. In general, we don't see a lot of difference between us and most of the industry. Although it does vary from location to location. On an overall average we'll have between 15% and 20% of our customers that will come from the commercial sector. Certainly that sector has been stronger lately. That was the sector that got hit the worst in the downturn in 2009 and 2010 and it has come back in a strong way, overall. But it's still true that 80% of our customers are essentially residential, whether that be residential homeowner, residential apartment dweller, renter, student, military, that's really the bulk of our customers. But the commercial market is strong right now; I'd call it pretty stable. We don't have any specific candidates for disposition right now. We continually look at those and in terms of more opportunities related to a potentially a higher and better use where that property might be able to be sold at a really low cap rate and we can move the funds through a 1031 exchange into another self-storage facility. Since NSA is relatively young as a Company, most of these properties we've only owned for a couple of years. So certainly selling the properties or selling properties isn't a major focus for us. We look at it on an opportunistic basis and I can say right now we don't have any specific ones that are slated to sell right now. But we always keep our eyes open for those kinds of opportunities if there's someone that'll pay us a 3% cap rate or a 2% cap rate, we're certainly willing to listen. All right, thank you. All right, thank you again, everyone, for joining us for our first-quarter earnings call. As I said, our first-quarter results were very strong, as we realized meaningful growth in our same-store portfolio. And our robust acquisition activity has exceeded even our expectations. Our efforts over the past year are translating into really meaningful increases in revenue and core FFO and we believe we have a considerable runway for future growth. So we look forward to seeing many of you at NAREIT in June and thanks again for your time this afternoon.

2016_NSA

2015

TTWO

TTWO #Greetings and welcome to the Take-Two Interactive Software second-quarter fiscal-year 2016 earnings call. At this time, all participants are in a listen-only mode. (Operator Instructions) It is now my pleasure to introduce your host, Mr. <UNK> <UNK>, Senior Vice President of Investor Relations and Corporate communications for Take-Two Interactive. Thank you, Mr. <UNK>. You may begin. Good afternoon. Welcome and thank you for joining Take-Two's conference call to discuss its results for the second quarter of fiscal year 2016 ended September 30, 2015. Today's call will be led by <UNK> <UNK>, Take-Two's Chairman and Chief Executive Officer; <UNK> <UNK>, our President; and <UNK> <UNK>, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I would like to remind everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the Company's annual report on Form 10-K for the fiscal year ended March 31, 2015; and Form 10-Q for the fiscal quarter ended June 30, 2015, including the risks summarized in the section entitled risk factors. I would also like to note that unless otherwise stated, all numbers we will be discussing today are non-GAAP. Please refer to our earnings release for a GAAP to non-GAAP reconciliation and further explanation. Our earnings release and filings with the SEC may be obtained from our website at www.take2games.com. And now I will turn the call over to <UNK>. Thanks, <UNK>. Good afternoon and thank you for joining us today. I am pleased to report that during the second quarter we delivered better-than-expected revenue and earnings growth. Our results were led by the blockbuster launch of NBA 2K16, continued robust demand for Grand Theft Auto V, and strong growth in recurrent consumer spending. The launch of NBA 2K16 was the most successful in the history of the series, with over 4 million units sold-in during its first week, including strong digitally delivered sales that approximately doubled year-over-year. According to the NPD Group, adjusting for days in market, NBA 2K16 had the best launch month of any sports game during this new console cycle. The title also has been a hit with critics and is the highest-rated sports game of 2015 on Xbox One, according to Metacritic. Virtual currency for the NBA 2K brand continues to exceed our expectations and has been a significant contributor to revenue growth. During the second quarter, recurrent consumer spending on NBA 2K grew by nearly 120% year-over-year, benefiting both from online play and the My NBA 2K companion app. With the holiday season approaching, demand for NBA 2K16 remains strong, and consumer engagement has been outstanding, with more than triple the number of games played online versus last year's release. I would like to congratulate the teams at 2K and Visual Concepts for once again surpassing their high standards for excellence and delivering a stellar addition to our industry-leading basketball series. More than two years after their initial launch, Grand Theft Auto V and Grand Theft Auto Online continue to exceed our expectations, particularly as the installed base of new-gen consoles expands. During the second quarter, Grand Theft Auto Online was once again the single largest contributor to recurrent consumer spending. Rockstar Games continues to support this vast online world with rich array of new content ---+ most recently the release of Ill Gotten Gains Part 2, Freemode Events, Lowriders and the Halloween Surprise. This ongoing release of new content has been a key driver of players' strong engagement with Grand Theft Auto Online and has significantly enhanced recurrent consumer spending. Grand Theft Auto Online now has over 8 million active users per week, which is more than it had at the same time last year. These results underscore the continued strength and vibrancy of this unique and groundbreaking entertainment experience. A variety of other titles from our diverse portfolio also contributed to our second-quarter results, led by NBA 2K15 and offerings from the Borderlands and WWE 2K series. During the second quarter, digitally delivered revenue grew 57% to $141 million, driven by better-than-expected growth in both full-game downloads and recurrent consumer spending. Recurrent consumer spending grew 39% year-over-year and accounted for 20% of our net revenue in the second quarter. In addition to virtual currency for Grand Theft Auto Online and NBA 2K, recurrent consumer spending was enhanced by a variety of other offerings. These included downloadable add-on content, particularly for the Borderlands series, Evolve, and WWE 2K15; WWE 2K SuperCard, which was updated with new content; and NBA 2K online, which remains the number-one PC online sports title in China and continues to generate profits every month. Digitally delivered revenue, especially recurrent consumer spending, remains a high-margin growth opportunity and a key strategic focus for our organization. We expect digitally delivered revenue to grow in fiscal 2016, driven both by higher full-game downloads and recurrent consumer spending. As a result of our outperformance in the second quarter, we are increasing our financial outlook for the full fiscal year. Our holiday season already is off to a great start, and we anticipate a strong back half to fiscal 2016. Today, Take-Two's long-term potential to generate revenue growth, margin expansion, and returns for our shareholders is greater than ever. Our Company's strength reflects our unparalleled creative assets, sound financial foundation, and unwavering commitment to delivering the highest quality interactive entertainment experiences. I will now turn the call over to <UNK>. Thanks, <UNK>. I would like to begin by congratulating 2K and Visual Concepts for their record-breaking launch of NBA 2K16, which once again raised the bar for our annual basketball series. In addition to delivering even more true-to-life NBA experience, the team has done an exceptional job keeping consumers highly engaged with the title after their initial purchase. I will now discuss our recent releases and pipeline for the remainder of fiscal 2016. On October 8, 2K and Cat Daddy Games extended our portfolio of action-packed mobile entertainment experiences with the release of NHL SuperCard. This collectible card battle game challenges players to build teams of current and legendary NHL players, train them, and test their skills in exhibition, season, and rivals-based action. On October 9, 2K and Firaxis Games launched Sid Meier's Civilization: Beyond Earth ---+ Rising Tide, a massive expansion pack for the sci-fi title from our award-winning Civilization series, which has captivated fans for nearly a quarter of a century. Rising Tide has earned rave reviews from top critics, including a 9 out of 10 from both Game Informer and GameSpot. The pack enriches the Beyond Earth experience by offering a robust array of expansion content with even more strategic ways to shape humanity's future on an alien planet. On October 27, 2K released WWE 2K16, the latest installment in our popular sports entertainment series. The title enjoyed a successful launch, including significantly higher review scores versus last year's release. For example, IGN scored WWE 2K16 an 8.8 out of 10, stating that the title is as close to a fusion of performance and competition as a wrestling game has ever gotten. WWE 2K16's strong reviews are among the best ever received by the series, and reflect Yukes's and Visual Concepts's ongoing commitment to improve its quality with each annual release. In keeping with our focus on driving recurrent consumer spending, WWE 2K16 is being supported with a robust array of downloadable add-on content, and we are already seeing strong attach rates for its season pass. We have had an excellent start to the holiday season, and our marketing campaigns are in full swing. Whether it is physical or online retailers, we will have a significant presence at all key points of purchase. We believe that interactive entertainment will be a must-have category during this holiday season, and we expect the installed base of new-gen consoles to continue to grow. With our industry-leading portfolio of offerings, Take-Two is well positioned to capitalize on these positive trends. Looking ahead to our fourth quarter, on February 5, 2K will launch XCOM 2 for PC, the sequel to the 2012 Game of the Year award-winning strategy title XCOM: Enemy Unknown. Developed by Firaxis Games, XCOM 2 will feature deep replayability and offer a high level of modding support. Last month, the title was featured at the second annual Firaxicon event in Baltimore, where the development team hosted panels and unveiled more of the game's aliens and enemies. Consumers who pre-purchase or preorder XCOM 2 will receive the Resistance Warrior Pack that provides increased soldier customization options. An important component of our strategy is to promote consumer engagement with our brands, and we intend to support virtually all of our upcoming titles with innovative offerings designed to drive recurrent consumer spending. We also released new content for recent titles, including additional free updates for Grand Theft Auto Online. Turning to our online initiatives in Asia, we continue to make progress on Civilization Online, our free-to-play mass multiplayer online game developed in partnership with renowned South Korean-based studio XLGames. The title is expected to enter open beta shortly, which will help to usher in its commercial launch during the current fiscal year. In addition to Korea, we plan to bring Civilization Online to Taiwan, Hong Kong, Macau, and China through our publishing partnerships with GameFirst and Shihu 360. Looking ahead to next fiscal year, significant buzz is already building for Mafia III, the next installment in our successful organized crime series. Last month, the title was featured on the cover of Game Informer magazine, which included an in-depth 12-page story that highlighted the game's key characters, evocative New Orleans settings, and bold new direction for the series. Mafia III currently is in development at 2K's Hangar 13 studio and is planned for release during fiscal 2017. 2K and Hangar 13 will reveal more details about the title in the coming months. In addition, we announced today that Battleborn, a groundbreaking new first-person shooter from 2K and Gearbox Software, the creators of Borderlands, is now planned for launch on May 3, 2016. We believe that extending development by a few months will allow the team enough time to fully realize the creative vision for Battleborn and enable them to deliver the best entertainment experience possible. 2K recently revealed Battleborn's competitive five-on-five multiplayer modes, which will complement the game's cooperative story mode. Early next year, Battleborn will have an open beta across all platforms, for which PlayStation 4 owners will receive early access. We very much appreciate consumers' interest anticipation for Battleborn, and we are confident that the game will be well worth the extra wait when it launches in May. In addition, our worldwide development teams are working on numerous unannounced projects, including new intellectual properties and offerings from our established franchises. Our robust development pipeline extends years into the future and promises to captivate audiences and set new benchmarks for creative excellence. Quality remains our watchword and is the foundation of our relationship with our consumers. Everything that we do is based upon this commitment, which has been and continues to be our path to long-term success. I will now turn the call over to <UNK>. Thanks, <UNK> and <UNK>. On behalf of our entire management team, I would like to thank our colleagues for delivering another strong quarter for our Company; and, to our shareholders, I want to express our appreciation for your continued support. We will now take your questions. Operator. Well, we have talked about some upcoming releases. We talked about Battleborn, of course; we talked about Mafia III. And we have titles that we have been bringing in every year, NBA 2K and WWE 2K. And, of course, we have recurrent consumer spending in our catalog. So the market has a lot more visibility into our Company than ever before. We have also said that we expect to be profitable on an ongoing basis, and we've been overdelivering compared to our expectations for some time pretty regularly. So I hope that gives the market some confidence about our view of our business on a going-forward basis. Also, since 2007 we have successfully launched one new hit property every year in addition to bringing back our beloved franchises over and over again. And while there is no guarantee we will be able to do that, it certainly is our goal to continue to launch a new titles, and new hits, and new franchises in addition to bringing back sequels of existing franchises. Today we have 11 titles that ---+ with one individual release that has sold at least 5 million units. We have over 40 titles that have sold at least a couple million. So we think it is the best collection of owned intellectual property in the business. So I guess I probably have to use the caveat: past performance is no guarantee of future success. On the other hand, our strategy speaks for itself. And while we do allow our labels to make product announcements, and our product announcements are tailored to marketing, not to analyst calls, we are very proud of our past success, and we think we are well positioned going forward. Yes, they ought to be, for a couple of reasons. Recurrent consumer spending is by definition a higher-margin business. The shift to digital distribution is a higher-margin business. And so those two things matter; and, obviously, catalog is a higher-margin business. And as catalog becomes a more reliable and a more important part of our business, that is higher-margin. So <UNK> talked about a margin expected in the upper 40s. That is a very significant change from what this Company looked like just a few short years ago. The effect of new content is it increases engagement. And when we have more engagement, we have more recurrent consumer spending. I guess that stands to reason. We don't release the actual statistics around that, the actual data around that. But we do have 8 million or more active users weekly for Grand Theft Auto Online. So it is continuing to outperform our expectations, and we are very gratified by those results. To your question about the percent of purchases that come through digital distribution, for frontline it could be 20% of our revenue, could be a bit more than that. For catalog it is a much higher figure. For PC it is a much higher figure. In terms of potential areas like eSports or VR, obviously they are very different ---+ we were an early ---+ we made an early bet on eSports. We have a position in Twitch, which was sold to Amazon. It was a very small investment for us, but it was quite successful. We have made our games available for eSports competition, but that has been more a marketing experience than it has been revenue-generating. We think it is a very exciting space. It remains to be seen what the nature of monetization can be for companies like ours. But it is certainly a good thing, and creating another form of engagement just speaks to the robust nature of this entertainment experience. And it is just another reflection of how important interactive entertainment is today to consumers. I have talked about virtual reality before. There will be virtual reality headsets hitting the market. There will be software hitting the market. It does remain to be seen how consumers feel about that, what the nature of an interactive entertainment experience is in VR, and how comfortable that experience is. We have said that we are involved in R&D in the space. We find it really fascinating. Our creative folks find it fascinating. But there is not much to be said until we see how that market develops. If the market develops in a way that is consistent with the kind of intellectual property we have, we expect to be there, and we expect to well in it. But I think it is too early to call. And finally, in terms of WWE, it continues to develop well. I would just like to make the note that the Metacritic scores are significantly higher this year than last. That is gratifying, because we are focused on improving the quality of the title. It seems to be doing very well and certainly exceeding our expectations. I think the answer is both businesses are stable and successful. We are really not talking about changes except to say that Grand Theft Auto Online continues to perform well and continues to exceed expectations. And NBA 2K Online in China also continues to perform well and is generating revenue and profits. But we are not giving more detail than that. Yes, this is <UNK>. In terms of the industry dynamics that really are vivid for us, I would say it's that there is ---+ when you deliver a title that excites consumers, they seem to like to stay engaged. That engagement can be monetized in recurrent customer spending if you do it right. So we are driven by the idea of delighting consumers, and then we focus on monetization, not the other way around. We think it is crucial for a high-quality entertainment company. That is our compact with our consumer. There is no question, though, that the market is now open-minded with regard to ongoing engagement and ongoing spending, even after an initial release. The second dynamic that is relevant is the shift to digital distribution, which does generate more margin dollars for us and does mean that there is an opportunity for catalog to remain vivid, even if it doesn't make sense to have discs on shelves. So those are both good things. And then <UNK> will talk about taxes. The $20 million tax benefit is a new addition to our guidance for the third quarter and for the year. And you also asked about WWE; it is <UNK>. Look, obviously the game is ---+ we are thrilled the way WWE has launched this year. The game is better than last year. I think both the critics and the consumers are acknowledging that. It's is really too early. We obviously have not announced anything about how we are doing, but we are very excited about it. And WWE 2K15 grew 40% over WWE 2K14. And we think this is a better game, so we're obviously very hopeful and excited about this year. So our convert, we have a ---+ the $250 million convert matures in December of 2016. So right now, it doesn't make economic sense to take it out. But we will evaluate it when it matures and see what the Company's position is with our cash, and what our potential uses are for it, and we will make a decision at that time on how we want to close out that convert. The other question on Battleborn ---+ we don't without specific title-by-title numbers in our guidance. But our guidance overall went up. We have the tax credit, as we just previously mentioned. But our second-quarter did much better than we had expected. Also the forecast for our other titles for the remainder of the year is very strong, and that more than offset the Battleborn move out of the year. Yes, obviously there is enormous learning to be had in our experience with NBA 2K Online in China, but I was not sure I could capture it in a few short sentences on this call. But we had no experience in massive multiplayer, no experience in China, and no experience in free-to-play before we launched that title. Now we have a great deal of experience. And we developed in partnership with a phenomenal Company, Tencent. So I would hope that we would apply all of that learning to the launch of Civilization Online. And we are feeling pretty good about it as we head to an open beta. It remains to be seen, but it is looking pretty good. In terms of our commitment to Asia, it remains very strong. It is a growth area. And what's exciting about it is businesses which may be not that interesting in the US ---+ for example, massive multiplayer games are very tough, very competitive, very expensive business in the US ---+ can be very interesting opportunities in Asia, which is why we are pursuing them over there. And then with success, we do have the opportunity to bring those around the rest of the world, potentially even including the US. So we think that strategy remains sensible. We have done exceedingly well throughout Asia since we opened our headquarters in Singapore a number of years ago. We were in the same position, which is we have a significant amount of cash. We've got a very strong balance sheet. So in addition to returning capital to the shareholders, and we just did that ---+ we just bought back about 1 million shares of stock on what now, in today's market, looks like favorable terms. We have the ability to support organic growth, which has really been the story around here. We have grown very significantly organically. And, of course, we can support inorganic growth as well to the extent that we maintain our discipline and we focus on accretion to shareholder value. We are very focused on accretion. So there is no update to the strategy. The strategy remains the same. We remain open-minded on the one hand and disciplined on the other. We are not giving any more detail, except to say that the title of GTA V and GTA Online continues to do well and continues to exceed our expectations. <UNK>, we don't comment on allocation of any of our resources. We are pleased that we had another great quarter. We attribute it to continued tight focus on our strategy of being the most creative, the most innovative, and the most efficient Company in our business. And our results are driven first and foremost by the creativity of thousands of developers who we are lucky to have here in the shop and by the many people who support those activities to make sure that we do a great job marketing and distributing their titles, and also running our business day-to-day. So, once again, thanks to our colleagues. Thanks to our shareholders, and thanks to those who joined the call today. We appreciate it.

2015_TTWO

2015

ABC

ABC #Given that we're approaching the top of the hour, operator, we'll take one more question. Steve, I'll start and certainly you can jump in. Brand inflation is ---+ I called out that our LIFO is pretty significant and, again, that's driven off that brand inflation, because we just carry so much brand inflation ---+ brand inventory. But it's ---+ I called out, <UNK>, that it's in the mid-teens and that's up over the last few years. We used to be kind of 10% to 12%. At least for the inventory that we carry for our customers and our mix, it may be different for others, but at least for our inventory, we're kind of in the mid-teens. And I really can't comment on how long that will last or kind of go forward. I just know what we have experienced. Our LIFO is based off of our drug company and their inventory, our specialty businesses, not on LIFO. So they don't factor into that. But they have also ---+ as an aside, they have also seen some ---+ some price increases on the brand side in that business as well. Those ASP drugs, they tend to be smaller and maybe more frequent. That increase is there, but it's harder in ASP environment to take a double-digit price increase because your customers would be underwater. But it's also just newer therapies coming in and comparable therapies that have been in the market for a while, looking at their price opportunity. So nothing really that different than maybe a little bit stronger than we had expected. So please tell me that we're still looking at the GAAP numbers, <UNK>, so. No, we did our monthly review for the Drug Company and we look at ---+ we don't just look at the revenues. We look at units and we are very focused on this in our key area of how we value customers is around compliance with contracts. So ---+ and honestly some of the customers that are most interesting to us, Post, Walgreens, World, are the ones where we have big generic opportunity. So we are very focused on this. <UNK>, I see you have an additional comment. Yes, I would just say, <UNK>, remember that we do carry a fair amount of generic inventory, but as we've talked about in the past, generic price increases are on a relatively lower percentage of that inventory. And you just never know how that is going to impact your inventory, which items are going to increase. It's not across the entire portfolio where, with brand, it tends to be ---+ at some point during the year, it tends be across the portfolio. On ProGen, we're very bullish about the value that we provide. And, again, it's a very innovative model and Peyton and her team are focused on driving that everyday value and creating value for the suppliers along, too. I think it's not all about pricing. So it's about quality of supply. And some of the recent generic launches we've been able to get our customers supply which has been very much appreciated by them. I think that's wraps up, <UNK>, the last question. I'll just end by saying that we're proud of the nine months that we reported for fiscal 2015. These are definitely stellar numbers that our associates have produced. So let me just wrap up by saying that passion, innovation and partnership drive everything we do at AmerisourceBergen. Our work is centered on being strategically relevant, economically competitive and easy to do business with. We believe our relationships with our customers and suppliers are excellent and we do not take them for granted. Rather our goal is to tirelessly look for continuous improvements in our offering to our customers to enhance patient access and adherence. We appreciate your time this morning and hope you have found this information useful. Thanks very much. Thank you, Steve. And before we go, I would like to highlight that we'll be attending the <UNK> W. Baird Healthcare Conference in New York on September 10 and also the Morgan Stanley Healthcare Conference in New York on September 16th. Thank you for joining us today and with that I'll turn it back to the operator.

2015_ABC

2017

DEA

DEA #Good morning. Before the call begins, please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Act Reform of 1995 (sic) [Private Securities Litigation Reform Act of 1995] and is making this statement for the purpose of complying with the safe harbor provisions. Although the company believes that its plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, it can give no assurance that these plans, intentions, expectations or strategies would be attained or achieved. Furthermore, actual results may differ materially from the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation, those contained in Item 1A, Risk Factors, of its annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 2, 2017, and its other SEC filings. The company assumes no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website at ir. easterlyreit.com. I would now like to turn the conference call over to <UNK> <UNK>, Chairman of Easterly Government Properties. Thanks, <UNK>, and good morning. I would like to begin by highlighting the company's achievements in the third quarter of 2017. This quarter, we announced and closed on a 169,000 square foot FBI field office located in Salt Lake City, Utah. The Class A, LEED Gold certified, 4-story, single-tenant facility is located on a 7.5 acre campus and overseas Federal operations in all of Utah, Idaho and Montana. FBI - Salt Lake City is 1 of 56 FBI field offices strategically located throughout the United States and serves as a regional headquarters, directing 18 satellite offices, also known as resident agencies, located throughout Utah and the 2 surrounding states. The build-to-suit construction was completed in 2012 and is 100% occupied by the FBI through October 2032 for initial, noncancelable lease term of 20 years. Upon closing of this important government-occupied facility, Easterly Government Properties now owns 7 of the 56 FBI field offices, thus making Easterly the single largest private owner of FBI field offices in the country. As we mentioned on prior calls, Easterly is also under contract to acquire a VA outpatient facility that is located just outside of South Bend, Indiana. The outpatient facility is now complete and is seeing local veterans on a daily basis. We expect to close on this property in the coming quarter and look forward to welcoming this highly important, mission-critical facility into our growing portfolio. As a reminder, the VA - South Bend outpatient clinic is very similar to VA - Loma Linda, but on smaller scale of 86,000 square feet. The outpatient facility is leased to the VA for an initial 15-year noncancelable term. Once the VA- South Bend acquisition is complete, Easterly will own 2 new, state-of-the-art Class A VA outpatient facilities, totaling a combined 414,000 square feet of leased space, all backed by the full faith and credit of the U.S. Government. While on the top of the VA, the nearly 328,000 square foot Loma Linda outpatient care center has had its first full quarter of operations under Easterly's ownership, and we are pleased to report everything is going well in the state-of-art Class A facility. In fact, our asset management team recently received a number of requests from the VA to make tenant-funded enhancements, valued at over $1.5 million, to this almost brand-new facility. Our asset management team is doing a wonderful job of addressing the needs of our tenants, and at quarter-end, we're managing 16 active value-enhancing tenant-funded projects across the portfolio. Turning to development, Mike Ibe and his team have made meaningful strides in building the pipeline of development opportunities that we expect will serve us well for the next several years. Development opportunities are not only accretive, as we add real value to both the government and our shareholders, but they also give us longer, valuable leases, many even in 20 years in duration, which can provide earnings stability and additional opportunities to be opportunistic in managing our liabilities. As you may recall, we have 2 active development projects underway, both to be occupied by the FDA. The first is a 70,000 square foot laboratory located in Alameda, California. We are pleased to report that we have completed the initial demolition of the current site and now have all shell permits and the first-stage TI permits in hand. We are working hand in hand with the GSA and FDA to incorporate some design changes to make sure the facility functions to the highest and best use of tenant agency. The estimated completion date for this project is the first quarter of 2019. The second laboratory located in Lenexa, Kansas, just outside of Kansas City, is roughly 53,000 square feet, and we are currently finalizing the design intention drawings. We anticipate an early third quarter 2019 completion for this laboratory. Upon completion of these 2 facilities, 2 brand-new, noncancelable 20-year leases will commence. Our acquisition team is constantly sourcing new, high-quality opportunities that mirror our average portfolio building size and drive FFO growth. We have a robust pipeline of bull\xe2\x80\x99s-eye opportunities that fall within the $20 million to $40 million acquisition range and remain in constant contact with developers looking to sell properties so that they can move on to their next development project. To reiterate, our target market includes buildings leased to a single tenant of the U.S. Federal Government. They are often the result of a design build award and are usually over 40,000 square feet in size. If a building of this nature is occupied by the right tenant, fulfilling the right mission and meets the traditional real estate underwriting requirements, then we will evaluate a potential acquisition. These bull's-eye elements are very important from a re-leasing perspective as we look to achieve renewal rates at an increase in the high teens to low 20s. Finally, to summarize our acquisition and development activities since third quarter of 2016, we have acquired 5 new assets, soon to be 6, adding 700,000 square feet to the portfolio. We welcomed 2 new tenant agencies to the portfolio, the VA and OSHA, and we've grown our relationship with the existing tenant agencies like the U.S. Courts and the FBI. We were awarded the development rights for a brand-new, state-of-the-art FDA laboratory in Lenexa, Kansas, marking 2 active development projects for the company. Through this growth, we have reduced the age of our portfolio and extended the average remaining lease term despite the progression of time working against us. As the company's CEO, I'm quite proud of all we have accomplished in the past year. With that, I'll now turn the call over to <UNK> for a discussion of the quarterly results and earnings guidance. Thank you, Bill. Today, I will touch upon our current portfolio, discuss our third quarter results, provide an update on our balance sheet and review our 2017 and 2018 guidance. Additional details regarding our third quarter results can be found in the company's third quarter earnings release and supplemental information package. As of September 30, we owned 46 operating properties, comprising approximately 3.7 million square feet of commercial real estate. The weighted average remaining lease term for our portfolio was 6.9 years, the average age of our portfolio was 12 years and our portfolio occupancy remained at 100%. In addition, over 97% of our annualized lease income was backed by the full faith and credit of the United States Government. For the third quarter, net income per share on a fully diluted basis was $0.02, FFO per share on a fully diluted basis was $0.32 and FFO as adjusted per share on a fully diluted basis was $0.28. GAAP measures and reconciliations to GAAP measures have been provided in our supplemental information package. Turning to the balance sheet. At quarter-end, the company had total indebtedness of $539.9 million, which was comprised of $59.3 million outstanding on our unsecured revolving line of credit, $100 million outstanding on our unsecured term loan facility, $175 million on senior unsecured notes and $205.7 million of secured mortgage debt. Availability on our line of credit stood at $340.8 million. As of September 30, 2017, Easterly's net debt to total enterprise value was 33.3%, and its net debt to annualized quarterly EBITDA ratio was 6.1x, pro forma for a full quarter of operations from FBI - Salt Lake City, which the company acquired on September 28, 2017. On September 11, 2017, the company physically settled the forward equity sales agreements entered into on March 27, 2017, by issuing 4.945 million shares of the company's common stock in exchange for approximately $92.7 million in gross proceeds. The forward equity sales agreements were entered into in conjunction with the closing of an underwritten offering on a forward bases and the announcement of the VA - Loma Linda and VA - South Bend acquisitions. As noted on the second quarter earnings call, the company recently completed $175 million private placement of senior unsecured notes and $127.5 million mortgage financing on the VA - Loma Linda outpatient care facility. These 2 capital market activities meaningfully extended the average maturity of the company's liabilities and shifted its ratio of fixed versus floating rate debt. The company believes the strength of the execution on both its private placement senior notes and the VA - Loma Linda mortgage speaks to the superiority of the company's portfolio and the high credit quality of its underlying tenant, the U.S. Government. Turning to the company's guidance. For the 12 months ending December 31, 2017, the company is narrowing its guidance for FFO of $1.26 to $1.29 per share on a fully diluted basis. This guidance assumes acquisitions of 385 million in 2017, including the OSHA-Sandy acquisition completed in the first quarter; the VA - Loma Linda acquisition completed in the second quarter; the FBI - Salt Lake City acquisition completed in the third quarter; as well as the announced VA - South Bend acquisition, with an anticipated closing date in the fourth quarter of 2017. The company is also introducing its 2018 guidance of FFO per share on a fully diluted basis in a range of $1.31 to $1.35. This 2018 guidance assumes $250 million of acquisitions and between $75 million and $100 million of development-related investment during 2018. The company's 2017 and 2018 FFO guidance is forward-looking and reflects management's view of current and future market conditions. As previously announced, last week, our Board of Directors declared a dividend related to our third quarter of operations of $0.26 per share. This dividend will be paid on December 21, 2017, to shareholders of record on December 6, 2017. This increase in the dividend is consistent with our pattern of growing the dividend by $0.01 every other quarter since IPO, and we expect to continue targeting future dividend growth commensurate with earnings growth. Finally, before turning the call over to the operator for questions, allow me to step back and look at how far we have come since this time last year. Since the third quarter of 2016, we have grown our FFO by 7% while extending the duration of our liabilities and maintaining a conservative balance sheet. Our average debt maturity has been extended by over 80% to 8.5 years, beyond our average remaining lease term of 6.9 years. Additionally, 1 year ago, our debt structure was 77% floating and today is 86% fixed rate. Using the strength of our growing portfolio, we have been active in the capital markets to term out our debt, both through the unsecured private placement market and with the secured mortgage on VA - Loma Linda. We raised equity accretively in connection with the announcement of VA - Loma Linda and VA - South Bend, thus increasing the liquidity of our stock. And we commenced an activate ATM offering program. It's been a great year for the company and we would like to thank our capital providers for their ongoing partnership. I will now turn the call back to the operator for questions. Bill, maybe this one is for you. Can you talk about what you've seen in terms of yield trends over the last months or quarters. Has there been any tightening or loosening of yields versus where you sort of first came out a couple of years ago. Good morning, Manny. We have not really seen much in the way of change. We'd except at some point that, that would happen, but it is definitely lagged. I mean, we're basically purchasing those sort of bull's-eye properties at the same rates we were ---+ we have been purchasing for the last several years. And <UNK>, I got a couple for you. One, just your thoughts on longer-term leverage targets. You're over 6x now, is that something you're comfortable with. And for next year's guidance, the $75 million to $100 million of development spending, is that just related to the 2 projects that you've mentioned earlier. Or is there a new a project or two assumed in that. Sure. So on your first point, Manny, we remain consistent in our ---+ on our comfort level with 40% to 50% leverage on triangulating to 6 to 7x on an operating bases, not moving that target. And then with regard to the development guidance, that $75 million to $100 million, correct, that is ---+ that relates to FDA Alameda and FDA Lenexa. I think that having been in this business for a while and we saw the huge amount of construction during the 2005 to 2007 time frame, which obviously slowed down massively. We are beginning to see some of the picking up at this point. I will say that we have won, actually, every single mandate since we've been public that ---+ for projects that would fit within our bull's eye. Obviously, can't guarantee that will go on forever, but we're beginning to see, obviously, some new laboratories in the FDA and a few other projects beginning to percolate up. And obviously, we're keenly interested in addressing those needs for the Federal Government. Not really. I was out there for the opening, which was a spectacular day in South Bend, Indiana, about 3 ---+ 4 weeks ago, I guess. We're just getting through some punch list items, and as soon as those are cleaned up, it's an absolutely gorgeous facility, we will take ownership and look forward to serving the VA for 15 years to come. <UNK>, good morning. Alameda is now targeted for early 2019, as we said earlier. Obviously, the GSA and the tenant and us are ongoing in just making this facility even more functional for the FDA. And its yield is still consistent with that 50 to 75 basis points premium to where we're acquiring. I would tell you back to our leverage targets, and that's 6 to 7x. I think that's correct, and we continue to ---+ obviously, we're renegotiating and dealing with the government on 3 properties right now and have renewed to, which we discussed before, very successfully. The DEA warehouse is 25% up, and Social Security facility, but you are correct. Yes. I think, actually, of more interest to us, and I've said this in prior calls, which doesn't necessarily seem to make as much sense, but we buy most of our properties off market, in fact, way more than half. And as we see a modest increase in interest rates, we believe that we're going to see a ---+ even though we have a very strong $350 million and $700 million overall in our active pipeline, but we're actually going to see an uptick in the opportunities going forward as a lot of these owners feel that maybe they've reached the point that it would make sense to depart with their property. So <UNK>, anything you have to say on the tax. I think the retention of 1031 exchange is also certainly helpful and beneficial as we ---+ as our public-grade currency is useful to sellers.

2017_DEA

2015

PCH

PCH #<UNK>, we had two conversations going on at once. <UNK> wanted to correct something before your next question. I meant second-quarter not third quarter on the tax benefit, sorry. No I don't think so. We still view the dividend as very significant and supported by the business, we hopefully can continue to grow it. It's probably taken a bit of the pause given the collapse we've seen in earnings from our wood products business, which bleeds over to lower log prices in our resource business but certainly the dividend is still a highest priority. For sawlogs we anticipate a similar sort of drop. Largely driven by the mix issues that I spoke about earlier. Hardwood prices have come off and hardwood is a mix percent in the fourth quarter and is going to be lower. Those two factors will drive prices lower by about 12%. Southern softwood sawlogs are flat. Pine sawlogs are flat. I don't think we've seen in a lack of interest. The amount of capital still is there and I think is evidenced by recent transactions that were just completed for quality timberlands that are unencumbered by supply agreements or don't have poor site index and so on, I think the recent transactions have continue to support Southern Timberland trading, call it $2000 an acre for quality timberlands. Well we never say no to anything if we can create more shareholder value by selling it would certainly consider it. The businesses we think have a ---+ they have a really nice fit with out timberlands especially in Idaho and Arkansas where we are really kind of naturally hedged because about half of the volume goes from our land to the mill so when log prices are weak we capture the returns in sawmill business and vice versa. We like that aspect of it and it's important that the mills operate and are well-maintained by somebody that doesn't have to be us, but I think we have done an okay job with it and we continue to, the last benchmarking we did our mills were still first quartile margin performers and suspect they are still in that same ZIP Code, so I think the business I think has served us well. Thank you, Phyllis. And thanks to all of you for your interest in Potlatch. That wraps up the call for today. Thank you.

2015_PCH

2017

EGOV

EGOV #Thank you, <UNK>, and thank you for that awesome introduction. Welcome to our first quarter earnings call. Although I am very honored to be recognized as a Doer, Dreamer and Driver within the digital government industry, it is not a recognition I can claim credit for. The real credit goes to each and every NIC employee and government partner. They are the ones who innovate day-in and day-out. They are the ones on the frontlines driving true change and how citizens and businesses interact with government. It is their success that garnered the attention of the industry and I applaud them. I also congratulate them for making a difference everyday. Just a few weeks ago, I had the opportunity to meet with our great group of government partners as we welcomed them to Little Rock, Arkansas for our 2017 Partner Conference. The theme of the meeting was Together Building the Government of Tomorrow, Today. Tomorrow, during our Annual Stockholders Meeting, I will share more about how the future really is taking shape today. And how we're evolving NIC strategy. However, this theme Together Building the Government of Tomorrow, Today, also sums up the first quarter of 2017. There were several ways we advanced digital government across many states, and we truly are shaping the future of government interaction across the country. First, you may recall that last year at our Annual Stockholders Meeting, we introduced to you the Gov2Go, the digital government assistant that learns about you, tracks your government interaction and notifies you when it's time to complete a transaction. During the first quarter of 2017, we continued to expand this platform. We recently added Gov2Go Pay, which enhances the platform with one-click payments. This allows citizens to enjoy the same, quick-purchase convenience as they do today to major online retail sites, like Amazon. In addition, I am pleased to announce that Nebraska became the latest state to deliver digital government services via the Gov2Go platform. The initial 8 services available on Nebraska, include alerts and reminders for property taxes, state income taxes, border registrations, state park permits, electrical license renewals, pesticide dealers and product registration renewals and weighing and measuring device registrations. I am very pleased to see the convenience of Gov2Go, reach even more citizens. And I absolutely know this will transform how people interact with government in the future. I also have good news to share regarding progress with the federal Recreation One-Stop or Recreation. gov. You may recall nearly a year ago, the U.S. Department of Agriculture Office of Forest Service awarded Booz <UNK> Hamilton, the contract for Recreation One-Stop support services, which provides reservation services for federal recreational areas and facilities through Recreation. At that time, we announced our teaming agreement with Booz, and our intention to sign a subcontract with them to provide certain services related to the contract. However, you'll also recall upon the initial contract award, the incumbent provider protested it. That protest went through several stages, including with the recent ruling by the U.S. Court of Federal Claims in favor of the government. The protest is over, and we believe there are no additional hurdles to be cleared. During this protest period, we have begun building out our team in anticipation of this day, and are working to establish the final timelines with Booz and our Recreation. gov federal partners aiming for target to launch the new solution in October 2018. Once Booz's prime contract with the federal government and our subcontract with Booz are finalized, we will provide some color on our financial projections for this service on future earnings calls. Until that time, I would just say, we are obviously pleased to see this exciting partnership move forward. While we're bullish about what the future may bring with these new developments, it was a collection of several tried and true services, such as motor vehicle inspections, motor vehicle registrations, payment processing, property tax payments and business registration filings that drove healthy revenue growth in the first quarter of 2017 as well as solid same-state growth from Interactive Government Services. In fact, IGS revenues were up 10% over the first quarter of 2016. Steve will dive into more financial details in a moment, but overall, I am pleased with our growth this quarter, as well as all of the new developments on the horizon. A few weeks ago, our government partners left Little Rock expressing their confidence in NIC and their belief that we are doing the right things to drive digital government innovation across the United States. This reaffirmed to me that we are delivering the best services possible to our partners and these services continue to drive healthy financial results and provide steady growth for our company. With that, I will turn the call over to <UNK> <UNK>, NIC's Chief Operating Officer for additional insights into our operations. <UNK>. Thanks, <UNK>, and good afternoon to everyone on the call. NIC produced healthy financial results for the first quarter of 2017, earning $0.21 per share compared to $0.19 in the prior year quarter. Results for the quarter include certain discrete tax benefits that positively affected EPS this quarter, resulting from adoption of the new accounting standard for stock-based compensation. The new rule simplifies several aspects of accounting for stock-based compensation, including the related impact on accounting for income taxes and the deductions we recognized when restricted stock awards vest. When such awards vest, if the stock price has risen since the date of the awards were granted, we recognize what are referred to as Excess Tax Benefits, which are tax deductions over and above those we expected to realize when the awards were first granted. With the adoption of the new rule, Excess Tax Benefits generated when awards vest are now recognized as a reduction to the provision for income taxes. Previously, we recognized such benefits in additional paid-in capital in the balance sheet. In other words, there used to be no effect on the income statement, but now there is. This resulted in a $500,000 reduction in our income tax provision, increasing earnings per share for the first quarter by approximately $0.01. It also contributed to the lower effective tax rate for the quarter of 34%, down from 37% in the prior year quarter. Keep in mind that the opposite could happen in future quarters if we had a tax deficiency, which would increase the provision for income taxes and lower earnings. Because we currently grant most restricted stock awards to executives and management-level employees in the first quarter of every year, we currently expect most Excess Tax Benefits or tax deficiencies to be recognized in the first quarter of each year when awards vest. Finally, this change was purely a GAAP accounting rule change and does not change the cash taxes that we ultimately pay. One final note on taxes for the quarter. The lower effective tax rate was also impacted by favorable benefits related to the domestic production activities deduction, which you may recall we began recognizing in the third quarter of 2016. Moving on to the core financial results for the quarter. During the first quarter of 2017, total revenues grew 6% to $83.2 million, with portal revenues of $77.2 million, up 5% over the prior year quarter. Total same-state portal revenues grew 5% for the quarter. Breaking down the components of same-state revenue growth, same-state IGS transactional revenues grew 10% this quarter, mainly due to the consistent deployment of new services and increased adoption of existing services across several portals, including motor vehicle inspections and registrations, property taxes and business registration filings among others. Same-state DHR transactional revenues were up 1% for the quarter. And finally, same-state software development revenues decreased 31% for the quarter. This was somewhat anticipated as we cycled against an exceptionally strong quarter of 25% same-state T&M growth in the first quarter of last year, driven by select number of large projects in a few states. As I mentioned, last quarter, in my prepared remarks on our 2017 guidance, we currently expect same-state T&M revenues to be somewhat of a headwind this year after an unusually strong year of nearly 20% growth in 2016. Results for the first quarter of 2017 also included revenues of approximately $1.6 million from the company's newest portal in Louisiana compared to approximately $200,000 in the prior year quarter. In addition, revenues from the Tennessee portal contract totaled approximately $1.8 million for the current quarter compared to $2.3 million in the prior year quarter. Our contract with the State of Tennessee expired on March 31, 2017. We have concluded the transition of all services to the state and we do not currently anticipate any additional revenue from Tennessee. Next, software and services revenues grew a healthy 15% for the quarter, again driven by continued strong performance from the Pre-Employment Screening Program, which we manage for the U.S. Department of Transportation, Federal Motor Carrier Safety Administration and from other payment processing services. Our growth for the quarter produced operating income of $21.1 million, up 4% from the prior year quarter, resulting in an operating income margin of 25%, down slightly from 26% in the prior year quarter. Moving on, factoring in the incremental spend we will make in Wisconsin to build out the new title and registration processing system throughout the rest of the year, that <UNK> just mentioned, we remain comfortable with the revenue and earnings guidance ranges for full year 2017 that we shared with you on our last earnings call back in February. Recall that our guidance includes approximately $4 million of investment, mainly for Gov2Go and the enterprise licensing and permitting platform that we intend to use in Illinois and elsewhere in certain portal states. Contract negotiations continue to progress in a positive direction with the State of Illinois and once they are concluded and the contract is signed, we will share more financial color with you on our future earnings call. Furthermore, as <UNK> just mentioned, once Booz <UNK> Hamilton's prime contract with federal government and our subcontract with Booz are finalized, we will provide more color on our financial projections for the Recreation One-Stop award on our future earnings call. In conclusion, I was pleased with our financial performance in the first quarter of 2017, and I know we are doing the right things to develop and deploy new innovative solutions with our government partners that we expect will continue to grow the company and keep us at the forefront of the digital government evolution. With that, I'll turn the call back over to <UNK>. Thanks, Steve. I agree, I too was pleased with our results for the quarter. After networking and collaborating with our partners a few weeks ago at Little Rock, at our partner conference, I am confident we have built strong lasting partnerships, and are developing the types of innovative services, citizens and businesses want and deserve. With that, operator, we will now open the call up to questions. Thank you. That's right. You got it exactly right. We won't recognize any more revenue in Tennessee for the rest of the year. So what we recognized in Q1 is it. And we've not reflected any revenue in our guidance yet from Illinois. There is certainly a possibility that could be the case for you to get a contract signed and progress on that. But at this point, we have not. The deal with these contracts is each state is different. Actually, beneath, every contract is different. We can't even speculate on the time because every state has different approval processes. They have to go through different individuals that have to sign off on it. And all I can say is it's progressing nicely, and I am confident that things are moving in the right direction. I understand your frustration and trust me, you know me, I'd love to be as transparent as I can. The problem we've got is, Booz hasn't negotiated with the federal agency yet, okay. And so and we haven't finalized negotiating with Booz until that happens and we are pretty much, I don't want to use the word gag order, but we're pretty much ---+ we can't talk about it. Even if ---+ I thought coming off that I could share some with you. I'm not allowed to talk about it until they finish what they're doing. So I can't speculate. I can't talk in my sleep on this one. First, you had mentioned, obviously the Illinois relationship. I'm curious if you could just talk about the feedback so far from the customer regarding the platform. Well, the issue that we've got right now around here is that, we're in the process of negotiating with them. I mean, clearly, they were very excited about it because we went through the present ---+ the RFP. We went through the orals with them and we've had conversations. I mean, this is what they need and it's a solid platform that we think we'll be able to use in many locations. But beyond that, there's really not a lot I can tell you 'til we finalize our discussion with them. But then given you're developing this platform that they're going to use, once you do move into contracts, will you still have the typical startup costs that you see in the state. Or does this kind of take care of some of those startup costs. <UNK>, this is Steve. Certainly, we're going to have incremental startup costs beyond what we're spending right now. We are building the licensing and permitting platform that we will ultimately use in Illinois, but we're also going to use in at least one other state to replace a legacy system and potentially in a couple of other states. But certainly, once we sign a contract, we will then have some incremental spend for folks that will be dedicated to Illinois. So yes, we'll also have kind of some of the typical startup in terms of staffing up a local team for Illinois. Great. And then congrats with Booz <UNK> behind you, I know that process is super frustrating. And I won't ask any numbers questions. But you mentioned, October '18 is the launch. I'm curious, is it possible that you can recognize revenue before the launch. Or is that whenever it launches at the first time you might generate revenue on that contract. Again, I can't even speak to this. I'm not allowed to speak of this until ---+ and you can understand that, I've got restrictions from Booz <UNK>, I've got restrictions from the federal agency. I mean until we get through this, I am just prohibited from talking. Okay. On the Tennessee revenue, can you tell us where that was, is that IGS, DHR or something else so we can kind of think about where the revenues can come out of in the second quarter. Can you remind us. It's a little bit of both. I would say, that it's a combination of DHR and IGS, and a little bit of software development kind of project management in total. Okay. And then finally, every quarter, I'll ask it for many years now, obviously, just curious if there are any new RFPs that are in the pipeline right now. No. There's no RFPs that are in the pipeline right now. I mean, we're having great conversations across the country, but that's where it stands. So I guess, more specifically, there are no RFPs on the street today that are ---+ I just want to clarify whether it's in. Well, we ---+ Joe, we haven't yet kind of provided guidance there yet simply because, again, we haven't signed our contract there. In our current guidance, we are projecting for the year about $2.5 million to build out that licensing and permitting platform that's going to be used there and in other states. But we haven't yet provided guidance. And there is no startup expense ---+ incremental startup expense in our guidance at the current time for Illinois. Yes, I'll answer that, this is <UNK>. Couple of things, #1, don\xe2\x80\x99t take the fact that there is not an RFP on the street as if there is not a pipeline active and that we are not working numerous opportunities out there, okay. So I just want to dispel that a little bit. We're in great conversations, several places across the country. M&A is a great question, and it's one I get, as you imagine, on a regular basis. We constantly are evaluating opportunities that are out there. Things that we think can either bring value to NIC with ---+ whether that'd be a technology we don't have, whether that'd be contract vehicles that we can find value in, whether that brings a revenue source for us. We always said we wouldn't grow our company by acquisition otherwise acquiring just to get some of this revenue because you end up chasing your tail when you do that. But we're always constantly evaluating what's out there, as you can imagine, people knock on our door a lot, and we get to see what's out there and see whether it fits or not. And so I can't say that there is something that we're actively looking at, I can't say that there's not. But what I can tell you, it is on our radar and we've made no (inaudible) about it. If we find the right opportunity, we do have the cash and the ability ---+ we're debt-free, and the ability to borrow money for that. But it has to be the right opportunity. Yes, I mean, I think a tax rate going forward like that for the rest of year is certainly fine and conservative, in that when we estimate our tax rate for the year, certainly when we did that in our guidance, we didn't take into consideration kind of some of these windfall tax benefits that we incurred here in the first quarter. But going forward, I think it's probably going to be closer to that rate than where we are today. Yes. Absolutely and we have mentioned that in our last call, I mean, we expect, this is going to be a 15-month startup phase-in period on this deal. So yes, we expect to incur startup expenses probably over little bit longer time period than we normally do for a typical portal opportunity. Well, as we go into the states where we are already partners, this is a platform that we're able to bring in and then start layering on top of that services. So we can get it out to more individuals and it'd be a more proactive manner of doing digital government. If we go into non-NIC states that something we'd have to consider. Yes, I mean, I would say that as we continue to build out the licensing and permitting platform in Gov2Go, we may see a modest progression in expenses over the rest of the year. But they weren't in terms of where we kind of planned them to be for the first quarter, I think we're in pretty good shape. Yes. So, <UNK>, this is Steve. We began recognizing that deduction in the third quarter of 2016. So we might see a little year-over-year benefit in terms of a lower rate because of that for certainly this first quarter and the next quarter in the second quarter. But then we should kind of catch up on a year-over-year basis beginning in the third quarter. Sure, no. I think what we said or what we certainly intended to say, was that kind of beginning in the second quarter, we expect to incur at least $300,000 a quarter for the rest of this year to build out the system. I think there is, we're targeting a pilot launch in mid-2018 and for launch shortly thereafter probably in the second half sometime in 2018. You there, <UNK>. Thank you, and thank you to everyone, who joined us this afternoon. We're excited to be celebrating our 25th anniversary this year. And during our 2017 Annual Stockholder Meeting tomorrow at 10:00 a. m. Central Time, I will share more about our plan to continue to lead the digital government services industry for another 25, 50, even 75 years or more into the future. We hope that all of our stockholders and investors will join the webcast by visiting the Investor Relations page of our website at egov.com or even better, come join us. We'll be at the Olathe Convention Center in Olathe, Kansas, just a couple of miles down the road from our Corporate Headquarters. With that, thank you very much. Look forward to seeing you tomorrow.

2017_EGOV

2018

FTK

FTK #Good morning, and welcome to the Flotek Industries Incorporated First Quarter 2018 Earnings Conference Call. (Operator Instructions) This conference is being recorded. At this time, I would like to turn the conference over to Matt <UNK>, Flotek's Executive Vice President of Finance and Corporate Development. Mr. <UNK>, you may begin. 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 Accounting Officer; and Josh <UNK>, Executive Vice President and our Head of Operations as well as other members of our leadership team. Our earnings press release was distributed yesterday afternoon 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 participants that during this call, some of the comments made 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, plans, believes, estimates and similar expressions or variations of such words are intended to identify forward-looking statements but are not an exclusive means of identifying forward-looking statements. These matters involve risks and uncertainties that could 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. Also, please refer to our reconciliations provided in our earnings press release as management may discuss non-GAAP metrics. With that, I'll turn the call over to <UNK> <UNK>. Thank you, Matt, and thank you all for joining today's call hosted from our Global Research and Innovation Center headquarters here in Houston, Texas. I'll begin with some introductory remarks followed by Rich for a financial review, then Matt, who will provide an update on our financial improvements and outlook. And then Josh will provide an operational overview. Finally, I'll end with closing thoughts before taking your questions. I'd first like to thank all the Flotek employees for their effort and our stakeholders for their persistence during this evolving but challenging period for the company. Crude oil prices are at a multi-year high. However, the energy industry has entered into a phase of capital discipline. In the first quarter, numerous companies have reported on the effects of weather, logistic bottlenecks and sand supply, and we were not immune to those events. We did see a sequential revenue improvement month-over-month during the quarter. However, our current run rate remains below our internal targets. We believe that what we call infrastructural challenges will continue for some time as more sand is being supplied in basin and shortages of workers and truck drivers will persist. By continuing to decouple or disaggregate more and more products, the operating companies are finding new sources of cash flow. Chemistry has become the new frontier in what is still the early stages of the unconventional technology progression. Just as operators pushed to decouple drilling markets years ago, they have now driven the decoupling trend within completions, as evidenced by diesel, sand and now chemicals. This is creating friction in legacy distribution and supply chain models. Our market positioning in chemistry solutions are ideally suited for this shifting business model as many times, we prescribe less chemistry than what has been pumped in the past while also accelerating cash flow for our clients through improved initial and sustained production uplift. We continue to be focused on what we can control, which is delivering an impactful chemistry experience to our clients and streamlining our operations while not compromising on our technical innovation, which Josh will elaborate on later in the call. An example of what we can control is our total SG&A run rate. This quarter, our SG&A is down more than 30% year-over-year, representing a $28 million annualized cost reduction. These structural changes are creating a more effective and efficient organization. Our CICT segment continues to execute at a consistently high level, which provides stability that helps counterbalance the current volatility in our ECT segment. The citrus market is tight, but again, due to the multi-decade experience of the Florida operations in purchasing strategies, we are extremely well positioned for both of our segments. We have and will continue to invest our capital expenditures that will reflect our confidence in growth opportunities with new products and markets in Flavors and Fragrances, both domestically and internationally. Although predicting the timing of a steady state of activity is challenging, our strong financial position and value-creating chemistry will enable us to continue to meet our clients' needs and requests as we evolve from being just a supplier to becoming directly connected partners. I'll now turn it over to Rich <UNK> to provide a review of our key financial information. Thank you, <UNK>. Flotek filed its Form 10-Q for the quarterly period ended March 31, 2018 with the U.S. Securities and Exchange Commission yesterday afternoon. For the quarter, we reported total revenue of $60.5 million compared with $80 million in the prior year period, a decrease of $19.5 million or 24.3%. On a sequential basis, quarterly revenue was down $12 million or 16.5%. Energy Chemistry quarterly revenue decreased 32.4% compared to the prior year period and declined 25.7% on a sequential basis. Our Consumer and Industrial Chemistry segment quarterly revenue increased 1.3% compared to the prior year period and increased 13% on a sequential basis. For the first quarter of 2018, we reported a loss from operations of $6.8 million. For the quarter, the consolidated operating margin was a negative 11.2%. The segment operating margins were a negative 0.4% in Energy Chemistry segment and a positive 12.5% in the Consumer and Industrial Chemistry segment. Corporate general and administrative expense for the quarter was $8.5 million, a decrease of $3.8 million or 30.8% compared to the prior year period. Our corporate G&A during the first quarter of 2018 was 14% as a percentage of revenue as we continued to progress our cost-reduction initiatives. Noncash compensation was $2 million in the first quarter. Segment selling and administrative expense for the first quarter was $7.1 million, a decrease of $3.2 million or 30.9% compared to the prior year period. Segment selling and administrative expense during the first quarter of 2018 was 11.8% as a percentage of revenue. For the quarter, research and development expense was $2.9 million, down from $3.1 million in the same period a year ago. For the first quarter of 2018, Flotek reported net income from continuing operations of $0.1 million, representing income of $0.00 per share on a fully diluted basis. This compares to a net loss from continuing operations of $0.7 million for the first quarter of 2017, representing a loss of $0.01 per share on a fully diluted basis. The ultimate impact of the 2017 Tax Act may differ from the amounts recorded at the end of 2017 because of additional regulatory guidance and changes in interpretations of the legislation. No changes were recorded in the first quarter of 2018. The company reported an income tax benefit of $7.7 million in the first quarter of 2018. At March 31, 2018, the company had accounts receivable of $45.3 million compared to $46 million at December 31, 2017. At March 31, 2018, days' revenue and accounts receivable was approximately 67 days. At March 31, the allowance for doubtful accounts is $0.7 million or 1.5% of the receivable balance. At March 31, 2018, inventories totaled $82.1 million compared to $75.8 million at December 31, 2017, an increase of 8%. At March 31, 2018, borrowing under our revolving credit facility was $39.7 million. Debt increased by $11.8 million during the first quarter to fund working capital needs and to fund negative net operating cash flow of $2.5 million in the quarter. At March 31, there was undrawn availability of $35.2 million under our revolving credit facility. During the first quarter of 2018, capital expenditures were $1.8 million. The Form 10-Q provides full disclosures of our first quarter 2018 results. And now I will turn the call over to Matt to address some of our financial initiatives that we are executing now. Thank you, Rich. I would first like to reiterate our disappointment in our ECT segment performance in the first quarter of 2018. We believe we can and should execute at a higher level and are working tirelessly to do so. One of the core tenets of our focus on controlling what we can remains on the SG&A initiative, which we aggressively put into place in late 2017. Our third quarter ---+ on our third quarter conference call last year, we laid out a series of targets in 3 key buckets relative to our fourth quarter 2016 benchmark. First, we committed to reducing executive salaries, incentives and benefits by at least 15%. Since then, they have declined more than 40% from that period. Secondly, expense accounts on a per-employee basis were targeted to be down by 30% or more and have since declined 48% per person and 52% on an absolute basis. Finally, we have eliminated a variety of professional fees, including contract labor by 49%, beating our 40% reduction goal in that category. We have exceeded our targets on these fronts and will continue to identify areas to maintain controls, and we will look to make further improvements, where possible, without sacrificing the growth of our business going forward. In the first quarter 2018, our cash SG&A of $13.7 million decreased by more than 30% year-over-year and was more than 10% below our internal target. To be clear, this has not been a slash-and-burn approach but a targeted strategy that has yielded results. I want to thank our employees for embracing this initiative and executing upon it. We have streamlined Flotek into a more efficient organization from an SG&A perspective and will maintain this level of spending discipline going forward. We are in constant and proactive discussions with our lenders and continue to have a very supportive and long-standing relationship. We were within compliance of our financial covenants in the first quarter and will work to ensure that we protect our liquidity and financial flexibility. We are also focusing on ways to improve our cash performance. This includes improvements to our day sales outstanding, inventory turnover and, where possible, in our payables. While we will not provide guidance on those metrics, some financial KPI targets that we should be able to operate within are an inventory turnover ratio greater than 3.5x annually and DSOs under 60 days. Additionally, we have lowered our CapEx plan for 2018 from $12 million to $16 million, to $9 million to $13 million. It currently remains difficult to offer top line guidance in our ECT segment, given rapid market dynamic shifts and a number of operational challenges we have faced. We are allocating resources from different teams to strengthen our sales and marketing strategy and believe that cross-department teamwork on this front will show progress over time. With the expansion of our Prescriptive Chemistry Management, or PCM, activities, we do believe we will be in a stronger position to provide guidance at a later date. We ask for patience from our shareholders, given the multitude of challenges we have faced. As an organization, we are confident that we will overcome these obstacles. And while it may not be immediate, it will be done the right way. That said, we do believe it is a very fair expectation for our ECT segment to show improvement in the second quarter relative to the first. But for now, we would categorize that progress as moderate to keep expectations grounded. As stated in our press release yesterday afternoon, our CICT segment continues to perform as we have planned. For the second quarter, we expect a low single-digit percent increase in revenues on both a sequential and year-over-year basis and are targeting a mid-teen EBITDA margin. Given the cost reductions and process improvements we continue to make, we do not foresee a significant increase to our SG&A costs even as our organization focuses substantially more effort and resources into our sales and marketing strategies. I'll now turn the call to Josh, who will provide an update on our sales and operations. Thank you, Matt. In the first quarter of 2018, our energy business got off to a slow start in January following a soft December as a result of cold weather and icy roads, which limited completion activity and delivery of our chemistries. Overall, the availability of frac equipment and sand remained very tight in the first quarter, causing operators to prioritize their frac schedules over their fluid system designs, thereby limiting their ability to specify preferred consumables in their well completions. These dynamics negatively impacted our results. However, as the quarter progressed, our activity levels gradually increased throughout the period. Our business continued to evolve from a traditional chemistry manufacturing operation to developing, manufacturing and delivering to the field our best-in-class chemistries for our clients. Our Prescriptive Chemistry Management, or PCM, platform is better aligned ---+ is better aligning us as partners with operators. We conduct geologic analysis, prescribe customized fluid, full-fluid chemistry systems optimized for the reservoir, provide on-site QA QC and provide real-time adjustments in the field to our clients' fluid needs. To meet growing demand for our PCM offering, we are currently adding personnel and assets that will scale in line with increasing field delivery and application activities. Our field crews are modest, requiring only 3 field chemists and a mobile lab trailer to provide real-time fluid system diagnostics. This shift in our channel to market will take time to complete but, in the long run, will better align our interest with the evolving market and will broaden our chemistry solutions and customer base. To further support these efforts, we added additional tanks and blending capabilities in our Waller facility as well as expanded our operations in Marlow and Monahans. Optimizing the number of drivers and tanks required for field deliveries will continue to improve our efficiencies. As we look forward, we see demand for our PCM platform continuing to grow. Additionally, our research and innovations team is proactively listening to the needs of our clients. We are collaboratively developing customized fluid systems and chemistry solutions with the ultimate goal of improving our clients' cash returns for their operations. To that end, we highlighted in our press release the introduction of 3 new chemistries earlier this year that we believe will contribute to our growth in coming months: MicroSolv, StimLube MAX and RheoFlo CAT300. These products enable us to address a wider range of geologic challenges and price points. In addition to these new chemistries, our differentiated legacy products continue to outperform the market and provide superior value. We are finding new applications for our CnF product line from improving injection wells, to enhanced waterflooding, to improved oil recovery and acidizing and various production chemical needs. In short, we believe we are still in the early innings of market potential for our flagship technology. Our sales and marketing strategy continues to evolve as the market drives greater disruption. Our sales organization continues to expand our direct customer interactions, and new incentives were initiated during the quarter designed to broaden our client communication and expand commercial opportunities. Our CICT business executed at a high level during the quarter. We continue to experience strong demand for our terpene chemistries as well as our natural citrus flavor molecules. Our new distillation column came online in January, debottlenecking our molecule creation ability and enhancing our long-term diversification potential. Our presence in Asia continues to be promising as grapefruit products remain in short supply and demand is high. While citrus greening continues to be a concern, we remain well positioned on our inventory to meet internal and external demand. We will closely watch our inventory levels, as we learned yesterday that Brazil's crop for next season will be 289 million boxes, down from 397 million boxes last season. Given this new revelation and the impact Hurricane Irma had on Irma's current crop, we are pleased with the foresight of our supply chain management. Looking out, we see the need to continue to expand into other citrus varietals, specifically grapefruit flavors as well as lemon and other cultivar options for clients. We're being pulled to do more, and we will respond to meet the demands of the market opportunities we have. We are focused on improving operational efficiencies across both our ECT and CICT segments, which we continue to integrate and share best practices. We have implemented new field delivery IT solutions that will improve our client billings and on-site inventory management. We are also expanding our client fulfillment team in Houston for better client response and internal communication. These efforts should reflect in a smarter organization and allow our operations to make decisions faster with more information. We are managing our business at the EBITDA and cash flow level. Again, we are not pleased with our performance for the quarter, but we are pleased with the cost controls and progress we have made to date. We are listening to our clients, and we will deliver at a cadence that our competition cannot keep pace with. Our broader chemistry portfolio, proven performance technologies, field delivery ---+ field service delivery and our ability to engage our clients at a deeper level will result in success. In all, we have made progress operationally, but we have more to go to further execute on our plan. With that, I'll turn it back to <UNK> to offer concluding remarks. Thanks, Josh. Appreciate the effort. Before we take questions, I would like to add some concluding thoughts. Our Prescriptive Chemistry Management platform is expected to grow as we anticipate our clients' evolving needs while what have been traditional market channels for decades are being disrupted by the operating companies. Despite the issues we faced in the first quarter, Flotek remains well positioned, both financially and operationally, as operators continue to recognize that our technology and products have value in enhancing their cash flow and asset values. We have continued to expand our case study and marketing efforts to elevate the technical awareness of our ability to positively influence our clients' reservoir performance. In this quarter alone, we released 2 additional studies that involved over 650 wells, showing increased production that resulted in accelerating cash flow for our clients. This demonstration of value is leading service companies and operators alike to explore ways we can become connected with a technical and/or economic partnership beyond simply selling discrete chemicals. As I noted on our last call, 2018 is the first full year that Flotek has focused 100% on providing custom and prescribed chemistry. And with the shifting dynamics that we have discussed during this call, we are positioned to weather these periods of volatility. We have a flexible and sound financial position that Matt discussed, and we plan, as always, to invest our shareholders' capital in our core and highest-return areas. In my now 41-plus years in this industry, I've been a part of so many downturns that I've lost track. But I have never seen the level of disruptiveness or transformation during that time that is happening now. We can all agree that the efficiency improvement in drilling wells, from weeks down to days, has meaningfully impacted the drilling side of the industry without question. And it was about 3 years ago that the cost ratio to drill and complete a well flipped to where the majority of cost is now on the completion side. When you combine that with the increasing and expanding desire of operators, with or without a supply chain functionality to self-source what they can, you have the ingredients for a disruptive business model that we are in the early stages of, and our company is positioned for this. We are confident in the outcome for us and the value we will provide as the industry evolves. I would like to share a quick story from just a couple of weeks ago. I was asked how I remain so optimistic despite the challenges our organization has faced, and I replied that it all starts with leadership and the people. They all believe we are on a mission. Beyond the people, if you step back and just take a minute and reflect of weathering the worst downturn ever, citrus greening and hurricanes, third-party scrutiny that has called into question the value of chemistry and our technology in particular, to name just a few, you are able to put into perspective that past and be optimistic about how this segment is transforming and how Flotek will play such an impactful role. In closing, I would like to humbly thank our shareholders, employees, clients and stakeholders for their continued support and patience. With that, operator, we will now open the call to questions. (Operator Instructions) Our first question comes from the line of <UNK> <UNK> from <UNK>son Rice. <UNK>, I think we've probably talked for a quarter or 2 about operators focused on AFEs and well cost controls. And you guys have talked about addressing new channels there and MicroSolv in particular. But maybe just generally speaking, how quickly could we see some of those applications start to impact top line expectations. And as you look out to 2Q, and I appreciate the lack of visibility, but just to mention that you expect a moderate improvement quarter-over-quarter, how much of that ---+ those new products are maybe embedded within that expectation. Sure. I'm going to turn that over to Josh. And while we won't talk products specifically, he's really dialed in with the sales group and kind of will give you kind of a general flavor. <UNK>, on the new products, really, you're looking at a minimum of 3 to 6 months on a typical product introduction. So it does take time, and I think that's the basis of some of the caution on the guidance that Matt provided to you. MicroSolv was really released just in April. So we will see that ---+ effects of that product toward the end of the quarter. We'll start pumping, and then we expect volumes to pick up as we move forward in Q3 and Q4. I would say the same holds true for the StimLube MAX as well as the RheoFlo CAT. So it takes time when you introduce new chemistry. Most companies like to test those chemistries. They do compatibility testing. You typically have a field trial. They want to see results before they commit to long-term purchases. But we do feel very good about the diversification of that line and what it brings to the clients in the way of cost initiatives as well as performance to meet their specific criteria. Okay, that's helpful. And then, in that same vein, from a mix shift perspective, just on the margin front, should we ---+ I guess, there's some give-and-take, right, obviously CnF highest margin. But it sounds like MicroSolv's pretty competitive there as well. I mean, how should we anticipate that shaking out just in overall ECT margins as we kind of progress into '19, just generally speaking. Yes, I think when you look at ECT going forward and the growth of PCM, we're adding a lot of service components to what we do for the industry as the operators are asking us of those services. The products themselves will carry different price points. Those margins might be a little bit lower than what you see in our traditional CnFs. So as you combine the service activities and those costs with the product formulations, those margins might be a little bit leaner on the gross margin line. But we feel good about the EBITDA line and how we're managing up from that point. Okay, makes sense. I wanted to hit on the balance sheet side. Obviously, you guys maintain modest leverage here, but you saw the inventory buildup in Q1 and the working capital hit. You mentioned some further inventory buys in the first half of the year. Just wanted to see if you could put a magnitude on that. And then also talk about what you anticipate, at least in early conversations with the lenders, in terms of expansion potential maybe on the revolver. Yes, I'll take the second part of that question and then let Josh maybe speak to the inventory purchase timing from a supply chain. We don't have a firm update today, but what we can say is we're being very proactive in communicating with our lender. This relationship has been there for quite some time. We expect that relationship to continue. And there are probably some things we can do to eliminate any concern on future covenants or things of that nature. I don't anticipate we need to increase our borrowings or the size of the facility from here. I think what you've seen largely on the balance sheet is the funding of our working capital accounts. Last year, you saw a release of that in the back half of the year. I don't expect this year to be substantially different due to the seasonal factors of the inventory. And I'll let Josh maybe elaborate on the timing of inventory purchases and the sources. Yes, <UNK>, with our shift in supply largely coming from South America and Central America, Brazil has just finished their season. They've, as I mentioned in the script, had a 397 million box crop that was very good for us coming off of such a short crop the prior year. Those deliveries came in in really the back-end of Q4 and in Q1, which led to the inventory build. We should see those inventories start to moderate as we move forward. The good news is given their next crop, given the issues that we had in Florida this year, that our inventory is very well positioned for overall market dynamics. But that turn should start increasing as we move forward into Q2 and certainly into Q3. (Operator Instructions) Our next question comes from the line of <UNK> <UNK> with Barrow, Hanley. Okay. We're in a different age on the portfolio management side. ESG is becoming almost a requirement by our clients. I had to read the Glass Lewis analysis on the proxy. And there's a couple of things I noticed that I want to talk through. One is that the board has shrunk, and I'm curious, particularly it would seem like, at this point, we need maybe more help. It is down by 2, maybe 3 and what the outlook is in terms of replacing directors. Sure. That process we talked about maybe a month ago on a release. But we hired an independent governance board expert to help guide that. And the board will get back up to the level that it was with an emphasis on different skill sets that are independent and that add a focus on governance, if you will. So that will change shortly. Are we talking about mid-year. I mean, is it that ---+ that process will be completed that quickly. Yes, we would expect that. Okay. Second thing is we haven't talked about some of the things we've talked about in the past in today's conference call. I was curious what the year-over-year sequential comparisons would have been in Canada, China and Argentina. So year-over-year in Canada is down somewhat due just to the overall activity. I think even most of the multinational service companies don't talk an awful lot about Canada because Canada is certainly down from what it was last year or the year before, and we're there as well. We've got initiatives that look like will happen once the breakup is over, which is in about the next couple of weeks. But overall, to answer your question directly, it's down slightly. China, through the first part of the year, is down slightly. But again, we think that will build through the second half of the year. And Argentina, actually, is up slightly. As I think the overall international is about 15% of our revenue, we consider Canada international. And we expect it to be kind of that way through the rest of the year. Hopefully, that helps. And at this current time, there appears to be no further questions. Mr. <UNK>, I'll return the presentation back to you once again to continue ---+ I stand corrected. We just received a question. This question comes from the line of <UNK> <UNK> from <UNK> Capital. This is a question for <UNK>. Regarding the Energy Chemistry segment, I'm just ---+ it's a question asking for a little embellishment. Can you clarify what is happening in the distribution channel in terms of disruption. I'm getting the impression that you may have had some oil service companies, we know the names, Schlumberger, Halliburton, doing business with you. And for some reason, maybe their activities and purchases with Flotek are down substantially as you go more through a direct route to E&Ps. So I'm just trying to understand if you look at your business in terms of channels, direct through oil service firms and other ways, what specifically are the changes happening in these channels. Because I get the impression that maybe you're losing business with the oil service for some various reasons. I'm just trying to understand, if so, why that is the case. Yes, that's a good question. Josh will take the first part of that, and then I may chime in. But there is a changing dynamic for sure, and we tried to talk about that throughout the call. It started with diesel. It's evolved through sand. It's now moving towards chemistry as kind of the last frontier of the way the operators can decouple and have more control over their cost structure. But I'll let Josh chime in, and I'll come back in if needed. Yes, that's certainly a good question and relevant question. When we look at the marketplace rather than thinking specific names or specific channels, what we're seeing in the marketplace is a shift from the operators wanting to take more control over their spend and how that happens. Obviously, in Q1, with the horsepower sand issues, there was less flexibility there for some of those operators to make that happen. As we look forward, channels to market, we're happy to work through multiple channels to market. The fact is that our interest aligns very well with the operators. The operators are asking for performance chemistries, whether it's a price point, whether it's a yield increase, whether it is going from a cross-link system to a slick water system, and we are recognized by these operators as having the best-in-class knowledge of a variety of chemistries for the marketplace. So we do see a shift occurring there. The service market channels are what they are. We will continue to provide our chemistries to a multitude of channels. But as we look forward and what we're seeing in the market today, it is the operators who are asking us for more of what we can provide, which is value to enhance their recoveries and help create better cash flow for their businesses. I'm not sure I can add anything. And just to clarify. If you look at the $41 million of ECT revenue, what percentage of that revenue would you categorize is in the direct channel, the oil service middle-man channel and any other way you might categorize it. I think there's ---+ it can be a little confusing when you try and break it down that way for a couple of reasons. One, we're ---+ we may be engaged with the operator on helping them design their full fluid system. But that system may actually sell through a service company, and it may show up on a service company books rather than a direct operator book. Or the service company may be buying. So it gets a little bit noisy. In general, you could probably use a 50-50 split there as a general number. Maybe to elaborate, however, in terms of who's making those decisions from a value perspective, that number is substantially higher today with the operators. So, in many cases, an operator will direct its service provider to purchase our chemicals ---+ or our chemistry solutions. And in that event, the actual force behind that decision is meaningfully higher, weighted to the operator today. Yes. Would you think it's 60%, 90% in terms of decision making being made by the operator. We don't want to give an exact number because it's very hard to measure the exact number. But I'd say somewhere between that range is not a bad place to take I guess at. All right. I just asked because the higher the number is, the more encouraging it would be in terms of thinking that you've been able to work your way through most of the channel disruptions, and can start building revenues going forward. Maybe a good way to answer that question is to speak to the trajectory of how this has involved since 2015. At that point in time, this number was virtually nothing. It was less than 10%. And today, it's meaningfully higher, somewhere in the range that you offered. There will always be ---+ there are multiple tiers of channels to the market. And to try not to get too far into the weeds, there are service companies that are very focused on execution, and those companies tend to work very well with us and their operators in getting the high-quality chemistry into the market. (Operator Instructions) Thank you. We now have a question from the line of <UNK> <UNK> from Hocky Capital. Maybe as a way to expand on the last question. If you could talk a little bit about retention rates with your customer base in terms of the clients you're serving directly as well as if you can expand a little bit on your customer concentration with your top 10 accounts or top 5 accounts. Yes. We'll give a level of transparency on that, understanding we don't want a complete open book for the people that also try to compete in this market. Josh will give that to you. I think the key takeaway we want to share with the folks, you, the previous caller and others that may be thinking this, is as we mentioned in the prepared comments, if you step back and look at how this has moved from the disaggregation of diesel, the disaggregation of sand, you've heard the sand providers talk about this on the last-mile delivery where they provide that service directly into operators and how it's moving to chemistry, this is in, I think Matt mentioned, the nascent stages of that process. And although a higher percentage of them are guiding the purchasing, still not the highest percentage goes directly into the operator. This is a process. It's evolving. It's unmistakable. We could see it coming from 1.5 years ago, and it's gaining momentum. But to address your specific questions, we'll try to give you some clarity on retention and all that. Josh. Yes, thanks, <UNK>. <UNK>, obviously, there is a turnover in our client base. We are seeing some customers that have gone different routes to different chemistries. But at the same time, we're adding a completely new group of clients at the same time. The PCM customer base is going to look a lot different than what the historical customer base of Flotek has resembled in the past. So when it comes down to the concentration issues, we do expect concentration to be less of a concern in the future. As we have a broader client base that we sell our chemistries through the PCM model going forward. Whether that ends up going through the service company on the billing side or whether that's direct to an operator, the customer base is always going to be evolving as we are evolving our chemistry portfolio. So that's another thing you need to think about as you look forward is the chemistry line expanding, enhancing more clients and creating a broader client base, as we mentioned in the opening remarks. And if you're selling directly to the consumer, that, in theory, should eliminate some type of a pumping surcharge. Would it make you then substantially more competitive with other surfactants. Surfactants are a different class of chemistries that have their place. But the pumping charge, I think, is the real point of your question. Pumping charges are going to be there. The service companies have assets to pay for, and they're going to figure out how to charge for their services just like we're going to figure out how to bill our chemistries. The operators are asking for transparency in the marketplace of what they're paying for. So whether that's a pumping fee, whether that's chemical charges, whether that's horsepower charges or sand charge, it's going to ---+ that's being developed as we speak. But we have seen pumping fees. They're starting to get more reasonable. And we would expect to see more pumping fees in the marketplace, whether it's us or somebody else selling a surfactant. So when you want to compare us to a surfactant, that is a different class of chemistry. That is a lower range. And if clients want surfactants, we can certainly broaden our portfolio and have the ability to service those needs when they come in and identify that need to us. But that will be driven by the operator themselves. And with the data that you've been collecting for the last year or 2 in this more transparent environment, with which you're going to be representing your products, shouldn't that really give Flotek a huge competitive advantage. Well, we certainly like our competitive position. It is complex. The marketplace is complex. And it does take time to transition. But yes, we think that having a direct relationship with the operator, not just from a pricing standpoint, but from a value proposition of the chemistries we can provide to help them produce better wells to hit their financial targets, that is the real value proposition we have for the marketplace. And maybe to expand on that. We see operators who have geologic variances in the same reservoir. They may call it an interval, but the geology may differ. And what we can provide are different fluid systems to accommodate variable geology even within the same reservoir formation, and that adds value to our client base to optimize our fluid system. That's where we say we're aligned with the operators to maximize the performance of the well. That's a capability that we offer to the industry. And if the large service companies are providing either resistance to this or charging excessive pumping fees, to circumvent them, would you be going more to independents. Or is there another solution that you're kind of evaluating as a way to circumvent the larger historic buyers of your product. Yes. We let those guys come to us with their pumping service fees. And whether they're the integrateds, whether they're the independents, the pure horsepower plays, we like to think we can get along with all people in the channels to market, and we will do our best to do that. But at the end of the day, the focus is going to be on understanding the needs of that client from a chemistry standpoint and providing those best-in-class chemistries that they need to achieve their objectives regardless of channel to market. Yes, maybe a different way to look at this is we're responding to the demands of the operators. Our focus is on improving the performance of their wells and maximizing their cash flow. That's where our interest is aligned. It seems like the data sets that you're presenting with the 650-well test studies supports 20% to 30% or greater flow increases and significant increases in net present value cash flows. So the economic equation seems very, very compelling. So hopefully, that message resonates and this dynamic market shift evolves fairly quickly and we can move forward. We agree 100% with you, <UNK>. Yes, thanks for acknowledging that. The challenge has been, I think, the slope of the increase in activity, and then you add anomalous freezing events and sand supply disruptions into the equation, and the first quarter was very challenging. But we do agree with the long-term value proposition. That's why we're here and having the conversations with the operators that we have. I think it would be helpful maybe for the next call to just share some information on the client retention rates. Maybe it can be anonymous, but just looking at whether your independent well operators are staying with their chemistry suppliers and there is just some noise here at the top with the service companies, and in theory, that will sort itself out fairly quickly. We appreciate that. Sure. We'd like to thank everyone for their interest, those questions that came through. And again, we appreciate everyone's persistence in staying with us through this evolving period of time. Look forward to talking to you again soon.

2018_FTK

2016

SPPI

SPPI #Thanks. Good afternoon, and thank you for joining us today for Spectrum's second quarter 2016 financial results conference call. I hope you have all had a chance to review the press release we issued earlier today. If not, it is available at our website at www.sppirx.com. I'd like to remind everyone that during this call we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the product sales, profits and losses, the safety, efficacy, development, timeline, and clinical results of our drug products and drug candidates that involve risks and uncertainties that could cause actual results to differ materially. These results are described in further detail in our reports filed with the Securities and Exchange Commission. These forward-looking statements represent the Company's judgment as of the day of this conference call, August 9, 2016, and the Company disclaims any intent or obligation to update these forward-looking statements. However, we may choose to update them, and if we do so, we will disseminate updates to the investing public. For copies of today's press release, historical press releases, 10-Ks, 10-Qs, 8-Ks and other SEC filings and other important information, please visit our website. Dr. <UNK> <UNK>, our chairman and CEO, will start the call today and provide you with the highlights of the second quarter and our overall strategy. <UNK> <UNK>, our chief financial officer, will then provide a summary of our second quarter financial performance. Following this, <UNK> <UNK>, our president and chief operating officer, will review the Company's commercial and research operations. We will then open the call up for questions. <UNK>. Thank you, <UNK>, and thank you everyone for joining us this afternoon. I am pleased to report that we had strong quarter, and we made solid progress on our pipeline drugs. We have been executing on a growth strategy that is focused on developing a variety of novel, patented, proprietary drugs that would help a large number of patients and address multi-billion-dollar markets. Let me share with you what makes me most excited. A top priority is SPI-2012, which is a novel, long-acting, granulocyte-colony stimulating factor, or G-CSF, which entered registrational Phase 3 trials earlier this year after we received a special protocol assessment, or SPA, with the FDA. I am pleased to report that enrollment is on track with 84 sites that are now open in the US for patient enrollment. We continue to stay strong clinical interest in SPA-2012. Our goal is to file BLA on the registrational application in 2018. If approved by the FDA, we will be well positioned to compete in this multi-billion-dollar market. The second high priority drug, [poziotinib], is in Phase 2 trials and enrolling breast cancer patients who have failed other HER2-directed therapies. This is a multi-targeted oncology drug that has shown the potential to be best-in-class. A third drug, Qapzola, is being studied in non-muscle invasive bladder cancer. A new drug application is under active review by the FDA. We look forward to making a presentation to the FDA advisory committee next month. The FDA has established a decision date of December 11. I am pleased with our sales this quarter. We operate in a dynamic and competitive environment and are demonstrating our commercial strength. This gives me high confidence in our ability to execute. We have recently launched a sixth drug, Evomela, for multiple myeloma. This is the first drug to win FDA approval of the high-dose conditioning indication in multiple myeloma. Evomela is devoid of propylene glycol, a solvent that is present in both competing drugs and is considered [toxic]. In addition, our drug has the advantage of being more stable than the competition. Our drug is also sold as a single vial and has an additional indication on the liver. Customers are recognizing the operational benefits of Evomela, the more efficiently administered treatment to their patients. We are pleased that we can offer this new option to patients and physicians. In a nutshell, with multiple advanced Stage I oncology programs in development, the launch of Evomela in the US and a strong balance sheet, I am enthusiastic about the future of Spectrum. We are focused on developing three drugs that target large indications such as chemotherapy-induced neutropenia, a multi-billion-dollar market; breast cancer and bladder cancer, both large markets. The success of any of these would benefit both patients and shareholders and (inaudible) from our company. We remain a highly diversified company not dependent on any one technology or any one drug. In a few minutes, <UNK> <UNK>, our president and chief operating officer, will provide you more details about the operations later in the call. But before that, let me hand over the call to our executive vice president and chief financial officer, Mr. <UNK> <UNK>, to talk about the financials. <UNK>. Thank you, <UNK>, and good afternoon, everyone on the call today. Let me just highlight a few areas. First, total revenues for the quarter were $33.9 million. Of this, product sales were $30.9 million, and licensing revenue was $3.1 million. The sales of our PTCL franchise this quarter were $14.7 million, driven by continued strong demand for this franchise. Fusilev sales were $10.5 million. We continue to expect Fusilev sales to drop significantly based on the generic competition in the marketplace. As we look ahead to the third quarter, we are seeing a much deeper drop in ASP, or average selling price, than we've seen in previous quarters, which will result in a much lower realized price to us. We reported Evomela sales of just under $1 million. Given that this is a new launch, we are recognizing sales based on pull-through sales to end users. Our focus has been on gaining formulary access for Evomela in the leading US institutions. We are pleased with the progress we are making here and we expect sales to grow in the second half of this year. Moving on to expenses. Our GAAP SG&A expenses were $27.6 million, but included the one-time legal costs. Non-GAAP SG&A expenses were $16.1 million, which exclude these one-time expenses, were lower than last year's non-GAAP expenses of $19.7 million. R&D expenses ramped up slightly in the second quarter relative to the first quarter excluding one-time milestones. This is consistent with our expectation that these costs would increase based on the enrollment of our clinical stage asset. The Company raised $45.1 million in the second quarter and an additional $28.8 million in the third quarter, for a total of $74 million, using an at-the-market securities offering. With that, let me now hand the call over to <UNK>. Thank you, <UNK>, thank you <UNK>, and thank you, Dr. <UNK>, and thanks to everybody on the call. Much progress has been made by our team in recent months. Let me give you an update on the key programs that we have ongoing here at Spectrum. SPI-2012, our novel long-acting G-CSF is our highest priority. The drug has shown an excellent clinical profile and it targets a blockbuster market. Our Phase 2 data demonstrated that SPI-2012 was not inferior to pegfilgrastim at the mid-dose tested and statistically superior in terms of duration of severe neutropenia at the highest dose tested. We started enrolling our Phase 3 study in the first quarter. This is a randomized controlled trial which will evaluate SPI-2012 in the management of chemotherapy-induced neutropenia in 580 breast cancer patients. We now have 84 centers actively recruiting patients into the trial. I am excited by the interest in our drug from leading clinicians, and I am pleased to report that our early enrollment is on track and this trajectory gives me confidence of achieving our goal with filing SPI-2012 BLA by 2018. I am especially enthusiastic about this opportunity because our team has broad experience in the white blood cell factor growth market and oncology wherewithal to make this novel biologic a success. I believe this drug has the potential to change the face of our Company. Regarding Evomela, we are very pleased with the progress of the launch. Customers are recognizing the advantages of Evomela's added stability, the absence of propylene glycol, the convenience of a one-vial system, and the additional indication on the label. As a reminder, over 90% of this market is concentrated in just over 100 accounts across the US. Furthermore, over half of the business is concentrated in the top 20 transplant centers. These large institutions can take six months or longer to evaluate, accept and operationalize any new product. We are encouraged by the fact that several top-tier transplant centers have committed to adopting Evomela. As a result, we expect an inflection in sales going forward. Moving on to poziotinib, our novel pan-HER inhibitor. Poziotinib is being studied currently in a US Phase 2 study involving breast cancer patients who have received prior HER2 regimens. We believe poziotinib has the potential to be a best-in-class pan-HER inhibitor. Poziotinib has shown a 60% response rate in Phase 1 patients with breast cancer who had previously failed multiple lines of treatment, including HER2-directed therapies. Our Korean partner, Hanmi, is studying this drug in Korea in many midstage studies in several tumor types, including breast cancer, non-small cell lung cancer, and gastric cancer. We are focusing our efforts in breast cancer because of the exciting data we have seen from this compound. Our strategy is to first seek FDA approval for this drug in breast cancer patients who have failed prior therapies and who therefore have few options left, and then continue to develop it for larger indications in combination with other therapies. Lastly, let me talk about Qapzola, also known as apaziquone, our potent tumor-activated drug for bladder cancer. This Phase 3 data from Qapzola was presented at an oral presentation at the 2016 Annual AUA meeting in May. There are a couple of important milestones for this drug later this year. First, we have an FDA advisory panel on September 14, and we are currently preparing for that advisory panel meeting. We have engaged with experts in the field of urology to assist us in this important endeavor. The FDA is expected to make a decision on the approval of this drug by the PDUFA date of December 11, 2016. These are exciting times at Spectrum and we are well prepared for both the challenges and the opportunities of the future. We are focusing on executing our strategy of delivering multiple advanced stage drugs that target large indications such as breast cancer or bladder cancer. If any of these drugs are successful, it could transform Spectrum as we know it today. We remain focused on the goals ahead and look forward to updating you on our progress. With that, I'd like to turn the call back over to Dr. <UNK>. Thank you, <UNK>. When progress has made in cancer prevention, detection and treatment over the past two decades, according to the American Cancer Society, cancer-related deaths are expected to increase from 8 million to 13 million worldwide. We have three advanced stage assets that target large cancer markets that can have a profound impact on cancer patients, which is inspired by the opportunity to address the growing needs of patients suffering with cancer. We are encouraged by the positive clinical results to date from our advanced stage drugs and are motivated to be the best that could transform the Company within the next five years. With that, let's open the call for questions. Operator. To the best of my knowledge and understanding, it appears the decision will be based on the application that we have filed, NDA, rather than the ongoing study. Does that answer your question. That's a good question. Patients should have failed two therapies, the HER2 therapies. I'm not sure about (inaudible) treatments may not be allowed because FDA and the researchers don't look favorably that the patients go from one clinical trial to a second clinical trial. However, I don't think that this is specially mentioned in the protocol that patients should not have participated in another trial. What they say is patients should not have participated in any trial with poziotinib. That's it. So, to answer your question, patients should have failed two treatments. No. In fact, we have an agreement that we will share all the data with them, and they will share all the data with us in a free-flowing manner. So, I expect a full cooperation from them, and as soon as the data is ready, which could be by the end of this year or early next year, we will have access to that data. So, I'd just like to say that we have aggressive programs underway. We are developing three drugs at the same time ---+ one in Phase 3 and one Phase 2. We want to expand on these trials, so we want to make sure that we are well capitalized to run these trials in a very efficient manner. So, at this time all 84 sites are in the United States. We have just received approval from the Canadian HPB to start opening sites in Canada, and we expect over the next six months there will be some ---+ more sites will be added from Canada. Let me have chief commercial officer, <UNK> <UNK>, take this question. So, <UNK>, just to give you color from a physician's point of view, you have a drug that for the first time has an indication for high dose intensity for multiple myeloma that patients use bone marrow transplant centers. The first time you have a drug that is not only highly active, but for the first time it does not have propylene glycol, which is a big concern. And, of course, a third concern was that the shelf life of the existing drugs, the shelf life is 30 minutes to 60 minutes. We have a shelf life of four hours. So, I think these are advantages that I personally think and the physician who knows these benefits, why would they use another drug. I have no idea. Why would they use it, especially if there is no price differential. So, I am persuaded by the argument that we have a superior product and it should ---+ as soon as the contractual issues and all these problems are solved, there should be an adoption in the clinics. And this is premature. All I can say is that we are not in the final stages of signing any agreement at this time, but as I say, it's premature. There are always indications. We have a number of companies we are talking to and they're talking to us, but we're not signing any agreement at this time. I want to thank all of our listeners today for your interest in Spectrum. We look forward to updating you in the near future on the progress that continues. Thank you.

2016_SPPI

2016

PDCO

PDCO #Thanks, <UNK>. I'll talk to the early feedback on Zirconia. I think this is a story that's going to play out over the long term, and we take a long-term perspective on this relationship having been doing it for well over a decade. The initial feedback is the Zirconia really opened up doors once again for a large segment of the dental population to look at CEREC again. And we always get excited when the innovation curve allows us to do that because many times the impression of CEREC may be a dentist who looked at the product, two, three, four, five years ago. So we have a lot of activity, very pleased, and I would say if there was risk going into the fourth quarter, when you have a new product launch you have to train everyone up and you have to get the supply chain right and get the products in the right spot to serve the demand, there's a lot of risk in that. So I could not be more pleased with our Dental team and how they, particularly our folks in the field and in the branches, on how they met that demand for the customers. While generally historically summer can be a quieter period of time, I think we'll have a lot of interaction with customers over the summer about Zirconia. And I'll turn it over to <UNK> to talk about inventories. Okay. Sure. So you might recall, we were caring higher levels of inventory but also higher levels in our long-term receivables for a number of reasons. You mentioned CEREC being one, which was certainly the case because of the delay in Section 179. But we also had more caring inventory levels higher than normal because of the consolidation and integration activities within the Animal Health business and the SAP implementation. So certainly we saw good reductions in our investments in working capital, both in inventory and long-term receivables. Certainly CEREC was a portion of that, and they'll see inventory in total came down nicely about $90 million. I think there's still room to improve in terms of working capital in total. As we move into FY17, I think there's room to improve upon that, and as I mentioned in my remarks, we expect to get back to that 85% to 100% of net income to free cash flow conversion next year. Yes. Thanks, <UNK>. As I've said, we were for years a great partner of IDEXX and have a ton of respect for their company, but at the same time I think we've established a great partnership with Abaxis and continue to incrementally grow that business internally, and it remains a really high focus item. With that being said, I think one of the really exciting things that is coming out of the transformation of our Animal Health business is a real sense of excitement inside our companion business about what we can do to help our customers. So we think it's a great market with really strong underlying dynamics, and we think the Patterson position is going to be a position that's going to grab market share over the coming year. So continue to be very excited about that, and within the construct of our go-to market, Abaxis continues to be a very important partner to us. Sure. And then, <UNK>, just in terms of the sales results, you're right. The diagnostics change actually annualized into our results last quarter. But I think, as you know within that Animal Health segment, the terms and selling arrangements with the manufacturers do change from time to time, so what you saw this quarter with one manufacturer, their sales moved from an agency relationship with us to a more traditional distributor role, which we refer to as buy/sell. And so that change that happened this quarter did add about 2 to 3 percentage points of revenue growth to that total Animal Health segment, and that change will continue to affect us for the next four ---+ the next three quarters. Yes. Hi, <UNK>. Yes. I would say we feel good about the supply chain. There were some short-term issues on the speed fire oven, but most of those have been rectified. And I would say just as we looked at the Omnicam strategy two, three years ago, the strategy will be around new users here in the short to medium term, but absolutely believe there is a growing opportunity longer term as people still have the opportunity to not only move into Omnicam, but also move into the dry mill and the speed fire with Zirconia. So, exciting time in the CEREC community. Sure. I think I might start by giving you a breakdown of the $25 million in some rough ranges. So what I would tell you is about 20% to 25% of the step up is depreciation. Keep in mind that's a partial year depreciation because we're implementing it for about half a year, but about 20% to 25% of the $25 million step up is depreciation. About 25% is rollout and implementation costs, so that's the piece that you can think about that would go away, right, in the back half of 2018 as we complete the rollout, and then the balance is what's required to support the system. I think when you think about 2018 and how much comes out, we expect to see some benefits in the back half of 2018 because the training and implementation is done, you're fully up and running, and so now you can turn off the legacy systems and you can also now truly harness the benefits of the new system. But I'm not ready to really publicly quantify dollar amounts at this time. We're still working on those estimates, refining them. Yes. As we spend a lot of time with the management team at AHI, and this is a team that has really deep 10- , 20- , 30-year experience in the industry, and we put our plan together, really what they are beginning to see is a move in an expansion of the herd size as profitability gets better for the producer you've got some people holding back calves this year. So we feel that is what they've talked about, the tailwind beginning to build throughout the fiscal year. So we feel really good about the market and our opportunity to really execute in that type of market. The other place I would point you, <UNK>, is the swine area, which is a significant piece of our portfolio. And that's one where we're already starting to see some tailwinds in that area and would expect that to continue to improve. Yes. I would say, <UNK>, we've never spoken publicly about the details of the contract. We continue to perform and have performed well over a decade as a partnership, but we don't discuss the contract specifics publicly. Yes. I would say we would anticipate in the coming fiscal year mid-single digits growth. I would say the outlier to that, the potential upside would be if the Section 179 tailwind really kicks in and we would get back to sort of 2008/2009 levels in terms of the core equipment business, and you would see historical levels of new office construction. So those would all be upsides to our model. They're not included, so we would see stable growth in the coming fiscal year. But would probably, I would say, lean towards optimism that this could be a year where we could begin to see growth trajectory move back up to a more traditional level. Yes. Our March/April time period is always a bit stronger, so I would say it's pretty traditional. I would say and also I think it's important to note that there was nothing we did incrementally in terms of promotions in the quarter, particularly around CEREC, so I think it was really good end user demand and strong sales execution. And I would say going forward we would do nothing that would be out of our past practices in terms of promotional activity. Without a doubt, the biggest promotion that is out there for small business owners is the benefits from Section 179. So the fact that those ---+ that extension was made permanent and it's something we are talking about every day today with customers, I would say is probably the biggest potential tailwind for the industry for the whole. Well, I would say we're always looking ---+ we have a lot of activity going on. As we talked about one of our strategic intents that we laid out was an expanded view of the market, but at the same time we will be very disciplined with the capital and we'll look for good partnerships at the right price. I wish I was smart enough to perfectly time when an acquisition would happen. But I would just say we're out there looking. We think we're a great partner. I talk a lot about this is the 140th-year anniversary of Patterson and this is a company started by two brothers in a drugstore. So over those times we've combined with many other great businesses and family-owned businesses and will continue to build those relationships. I would say from an internal capacity and from a financial capacity, we're in a good position to be able to integrate additional acquisitions at this time. No. I would say they are equally attractive. I would say the underlying markets are probably growing about 200 basis points. When we look at our sales market share with our major suppliers, the 3M, Dentsplys, KAVO, Kerr, Danahers, we feel confident that we're taking share and growing faster in the underlying market. I think it's definitely an era of stability right now in the dental market. And I would say if there is any bias over the next five years, it would be a bias towards an increase in market growth, driven by particularly how strong the underlying demographics are in the North American market. But currently, you've got an underlying consumable market that we think has grown about 200 basis points. Sure. So our main exposures, just to remind you, are in the UK and Canada. And we've got about 1% to 2% headwinds baked into the guidance from the top line. Thanks, Leanne, and thanks, everyone, for joining us today. Again, we're optimistic as we begin FY17, and we look forward to updating you on our results in the next quarter.

2016_PDCO

2016

AXE

AXE #Hi, <UNK>. So, I think, <UNK>, the success we have experienced so far has been largely in the switch gear transformer electrical bulk space, as well as, bringing more wire and cable with some of our contractor service supply chain, basically supply chain services targeted to contractor market from legacy Anixter into legacy Power Solutions. And that we thought would be the quickest cross pollinating that we would do and that has, in fact, turned out to be the case. Where I think we have opportunity to accelerate and where we are probably a little bit ---+ we are not completely thrilled with where we are at and you see that we made a leadership change in the business, is that we should be doing a little bit more in security and utility Power Solutions business. We have had a number of successes there. We have been in front of tens of customers with proposals and discussion about technology and so we expect to see that accelerate as we go forward, but that's probably been the weaker synergy right now. And I think it's partly caught up in the fact that the investor and utilities have longer decision cycles and they are still working through meeting some of their [NERC] assessment requirements from which the security opportunity will get created. I think, <UNK>, that as we talked at the gross margin level, we've had a reset with the inclusion of that low-voltage business into that segment bars. I would not expect to see any significant change to the gross margin, as we move forward the opportunity to grow the bottom line will come from even better operating expense leverage. That is what was the biggest driver of our EES margin improvement bottom line performance in this quarter, and as this business continues to recover, both US, Canada, and elsewhere will get even greater operating expense leverage there, and a large part of that, the majority of that, will close on the bottom line. <UNK>, we are seeing improving pipeline across all three businesses in North America, and for NSS and EES to some degree, seeing continued good pipeline in Europe, and in NSS Asia-Pacific. Latin America, we think will continue to be soft for a while. And EES Asia-Pacific is a little bit soft right now as well. But it's a very small part of the total business. So to say specifically where the pipeline is coming from, it is coming from data infrastructure both in the horizontal land space as well as data centers. And one of the things you probably heard in earlier calls in this earnings go around, is that category six [A cable] is growing as a percent of the total market. We are seeing the same thing in our product mix and that is being driven a lot by wireless and we think there is an increasing legs up in that for both wireless, as well as, POE-based LED lighting. Security continues to have a strong backlog for us. And, as I comment, we are seeing strong backlog in EES in the complex OEMs, which we have won some incremental significant project volume there, as well as in the electrical business, the more construction oriented part of the business in North America. So I guess when you sum all that up it is pretty broad-based. Yes, great question. We consider that Latin America. It has operating characteristics more like Latin America than like the US and Canada and there is also, by the way, a lot of supplier commonality and customer commonality across Latin America that causes us to manage it in that way and not manage it as part of North America. It has been historically. It's a little bit soft this year. We have seen a slowdown in industrial project spend there. And if you think about Pemex, Pemex went into market a year or two ago, looking for outside investment for the first time. And they had four or five packages that they put out to bid for outside investors. And most of the packages got actually no response and got a response that they felt was inadequate on one of the packages. So Pemex continues to be a drag on the Mexican economy. On the other side though, in the OEM space, we are having growth in Mexico and some of that is automotive driven as well as export into the US. But there has been a lot of automotive investment in Mexico both in the north around Monterey and into Baheo, the midland section, and we are benefiting from some of that. The other thing we have seen though, is a bit of a slowdown in the IT spend in Mexico and I think it is sort of an absorption phase. Some go through these IT spend surges. They get absorbed and then you go into a lull and we think that is a bit of what we are seeing right now. We had some pretty strong project spend in network infrastructure in the past couple of years and so we are in a bit of a lull there. The security spend is going reasonably well. I would be a little cautious about saying we are expecting a bump up out of oil and gas CapEx in the second half of this year. I'm sure, <UNK>, you appreciate the oil and gas regions in North America aren't all created equal. I think Western Canada will continue to be soft for a while to come. It's one of the most expensive recovery areas. The Bakken shale is more expensive than Eagle Ford and Permian Basin to recovery. As you look across those, there has been more talk about drilling rigs being brought back online and Eagle Ford and Permian Basin. If that happens, we would expect to benefit somewhat from it. But that is not what we are thinking about on our backlog right now. We are still cautious about that. Yes, so as I referred to a couple of times, we made a leadership change in that business and one of the things Ian is doing is driving a very specific strategy across IOU and separately across public power. The buying cycles are different and some of our early wins, we have a mix of early wins, we've got a couple of IOUs that we have been deeply embedded with that we have won some security that are self integrators. And it is more of a supply chain story. In the public power space we have a couple of wins now for substations that are sort of the model that would come out of those NERC regulations and actually ahead of the regulatory requirement. It's just utilities want to get ahead of it and the public power sales cycle tends to be shorter than the IOU sales cycle and part of it is they are not as complex. They don't have as many substations to deal with. And so, that is why we have split our focus, to have an IOU orientation and a public power orientation and we are driving very specific sales management discipline around how we develop the opportunity and run those opportunities through to conclusion. And as we have said before, we leverage the resources from our network and security solutions business in those opportunities, so we are not asking utility people with no experience and security to sell that. We are asking them to kick the door open, drag in their counterpart from NSF to help them make the sale. And then to ensure we get the right behavior, we pay both sales teams on that award. And so, with all that in place and the new leadership, I don't want to say we will see a surge in Q3 because that would be misleading. But we will see improvement as we go forward over the next several quarters. Just to clarify, what <UNK> was referring to may being a little behind in improvement is more about the pipeline. We did not expect to have much in the way of billings in this entire year. And we certainly didn't expect to be driving billings in the first half as a relates to the security sales utilities. This June 27 date that NERC required utilities to provide a plan, it was just that, a plan. They've got another 90 days to go out and develop the more detailed plan and it won't be until that step is completed before they will even be close to having something that can be translated into a bill of material and then talk about specific (inaudible) [RFEs] and so forth. So with that, we've got time for one last question. Hi <UNK>. Yes, I think that's right. We would've expected utility business to be a little bit more positive. Yes. Particularly around Latin America softness and Asia for EES. Europe actually is probably may be marginally in-line or slightly ahead of where we thought it might be. Yes, Dave, sure. Partly because as <UNK> referenced earlier, we're talking about a handful of customers with pretty unique circumstances, tied more to these much more recent, for lack of a better word, political turmoil; the corruption in Brazil that's resulted in the President of one of our customers in jail, and business shutting down and type of thing. The Venezuelan situation that I referenced before, that we have a different business model as to how we are doing business in that country. And, I think from the standpoint that none of these, I don't believe any of these that were components in this charge, are a result of anything that is happened in the business in these last couple of years. The bulk of this goes back at least 18 months and some of it as much as 3 years. Which might beg the question, why didn't you reserve for this before. We had a very sound rational to not reserve for it earlier based on the steps we were taking with these individual customers and so for all these reasons, this does not feel like something that is an ongoing part of our [cattle] business. The oil and gas is predominantly in the Canadian exposure in that business. And in the projects, there is an ebb and flow of small project activity along with the MRO spend in utilities. And there's also larger projects like transmission line projects that are largely ---+ the product is largely supplied by the manufacturer direct and what we are typically providing is a supply chain management service around the [lay down cards] and it is a capability that was very well developed in the Power Solutions business and that is one of the areas where we are seeing some project delays. We've got transmission line projects that are on the books from a planning standpoint with some of these customers. They are just delaying the initiation of the project and so that is pushing out some of those opportunities and it is a smaller scale project, and again, this is largely around two customers. Maybe to add to that, from an industry perspective, Dave, it supports the fact that our view is consistent across the industry is we are hearing from all of our large suppliers in this utility space about a fairly significant slowdown in industry spend, Q2 versus Q1. That they don't anticipate being ---+ continuing through the full-year and the folks that put out industry forecast, like Edison Electric Institute, etc. commented how they were surprised also and took down their outlook based on spend reduction in the quarter. It doesn't change the number, but just suggests that it is industry, not a market share issue for us. And I guess, Dave, the last piece of color I would add to that is we don't want to suggest that the industry was down year over year the same rate we were down. We may have been impacted a little bit more heavily because of the amount of spend to these couple of specific customers last year. But there was generally a softening in industry spend, we believe. Thank you very much. That concludes today's call. Thanks for all your questions and for listening to the call. If you have additional questions, please do not hesitate to reach out to <UNK> or <UNK> and as always, thank you for your interest in Anixter.

2016_AXE

2017

NX

NX #Good morning. Thanks for joining the call. On the call with me today is Bill <UNK>, our Chairman, President and CEO; and <UNK> <UNK>, our Senior Vice President of Finance and CFO. This call will contain forward-looking statements and some discussion of non-GAAP measures. For a detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now turn the call over to <UNK> to discuss the financial results. Thanks, <UNK>. I will start with the income statement and finish with comments on our balance sheet and cash flow. We reported net sales of $209.1 million during the second quarter of 2017, a decrease of 9% compared to the same period of last year. Similar to last quarter, the decrease was primarily attributable to our previously disclosed decision to walk away from less profitable business in an effort to increase longer-term return and drive margin improvement, both near term and long term. Net income decreased to $1.9 million for the 3 months ended April 30, 2017, while adjusted net income increased to $3.8 million or $0.11 per share during the second quarter of 2017 compared to $3.3 million or $0.10 per share in the second quarter of 2016. The adjustments being made for the 2017 and 2016 earnings per share are as follows: acquisition-related transaction costs; purchase price inventory step-up recognition; a onetime preacquisition employee benefit adjustment; restructuring charges related to the previous closure of the 3 manufacturing plants; gain on the sale of fixed assets related to the closure of the plant in Mexico; accelerated depreciation and amortization for equipment and intangible assets related to the facility consolidation; and foreign currency impacts, primarily related to an intercompany note with HL Plastics. As disclosed in the earnings release and as expected, we recorded additional restructuring charges in Q2 related to the closing of the 2 U.S. vinyl extrusion facilities and the Mexican cabinet components facility in late 2016 and early 2017. We will continue to incur operating lease expense until the 2 vinyl extrusion facility leases end as well as other employee-related costs. EBITDA came in at $19 million for the second quarter of 2017 compared to $24.4 million last year. On an adjusted basis, EBITDA for the second quarter of 2017 was $20.5 million compared to $24.3 million last year. The decrease was largely due to lower volumes as we continue to transition away from less profitable business, combined with elevated legal expenses. It is worth noting that we were able to realize adjusted EBITDA margin expansion in our cabinet components and European Engineered Components segment even with lower revenues. Moving on to the balance sheet. Our leverage ratio ticked up to 2.7x as of April 30, 2017, mainly as a result of adding approximately $16 million in debt resulting from a capital lease for a new warehouse servicing our U.K. vinyl profiles business. We remain focused on generating free cash flow to pay down debt and anticipate a significant improvement in our leverage ratio by year-end 2017. As a reminder, our long-term leverage ratio target is 2 to 2.5x. We expect to be well within this range by the end of the fiscal year. Cash provided by operating activities decreased to $15.7 million for the 6 months ended April 30, 2017, compared to $24.6 million for the same period in 2016. The biggest driver of the year-over-year reduction relates to the timing of payments to suppliers. This issue will naturally correct itself. We continue to expect an increase in the year-over-year free cash flow of approximately $10 million. Keep in mind that we generate most of our cash in the second half of each year due to the seasonality of our business. For example, in 2016, we generated 82% of our free cash flow in the second half, and to take it a step further, we generated 52% of total free cash flow in the fourth quarter alone. I will now turn the call over to Bill. Thanks, <UNK>. In our U.S. vinyl profiles business, the anticipated annual revenue reduction of $65 million continued on pace with a $17 million reduction in Q2 after an $11 million reduction in Q1. We expect that the balance of $37 million will be split relatively evenly between Q3 and Q4. And as we have said previously, this has been factored into our full year guidance. The consolidation of this business is now essentially complete. For the first half of this year, we successfully closed 2 facilities, relocated 13 extrusion lines, retired 23 lines and transferred 228 active tools to our remaining 3 facilities, all without any service disruptions. We will spend the balance of this year fine-tuning and optimizing the shop floor layouts in each of the 3 remaining facilities in order to drive greater efficiencies to further improve margins. In the rest of the businesses that make up the balance of our North American Engineered Components segment, revenues, EBITDA and margins were all flat year-over-year, impacted by a particularly soft April mainly due to weather, heavy rains on the West Coast and a storm in the northeast. Despite the slow start, there's a great deal of optimism throughout our customer base for a strong summer selling season. In our cabinet components segment, margins improved slightly year-over-year on flat revenues even though we continue to face strong operational headwinds. We were able to negotiate acceptable price increases on about a half of the $20 million of margin-dilutive business we previously identified, and we agreed to walk away from the other half. This is also being factored into our full year guidance. While this will have a positive impact on our results in the second half, it was still a headwind in the second quarter as most of the price increases did not go into effect until late April and we continue to work excessive overtime for customers building safety stocks for products that were in the process of transitioning to other suppliers. This resourcing effort took much longer than anticipated but was finally completed as Q2 closed and, therefore, should have no ongoing negative impact in Q3. We believe that these actions, along with productivity improvements from some of our automation projects, will drive margin expansion of approximately 200 basis points in the second half of this year on what is expected to be relatively flat revenue levels. In our European Engineered Components segment, we realized 4% revenue growth on a local currency basis during the quarter, which was lower than the double-digit growth rates we have seen over the past year but really not a surprise given the political turmoil throughout the quarter in Europe. Brexit was officially triggered. There was a contentious election in France, and there is still a surprisingly uncertain pending election in the U.K. Despite all these moving parts, the European Engineered Components segment continues to be our most profitable, and margin improved by a further 30 basis points year-over-year in this second quarter. We still expect solid mid-single-digit revenue growth for the remainder of the year in this segment. As <UNK> mentioned just now, our leverage ratio increased slightly this quarter to 2.7x as a result of the new HL Plastics capital lease. As a reminder, most of our free cash flow is generated in the second half of our fiscal year. Last year, we generated approximately $42 million of free cash flow during the second half, and we remain confident that we will surpass that number in the second half of this year. This cash will be used to pay down debt as it is very unlikely that we will close on any acquisitions during the balance of this year, thus, we should end the year with a leverage ratio close to 2x. In summary, we came into this year expecting materially lower revenues, but with improved margins and stronger free cash flow. In order to achieve this, we needed to do 2 things: one, rapidly restructure our U.S. vinyl profiles business; and two, stop the profit leaks in our cabinet components business and reposition it for profitable, sustainable growth over the next several years. Through the first half of this year, we've successfully completed the consolidation in our U.S. vinyl profiles business and turned the corner in our cabinet components segment, thus, setting us up for a strong second half. As such, we are confident in reaffirming our prior guidance of $880 million to $900 million in revenue and $105 million to $112 million in adjusted EBITDA with a leverage ratio closer to 2x. And with that, operator, we're now ready for questions. Yes. So as far as comps go, if you recall, the first half of last year was pretty strong, mostly for the ---+ because of the warm winter. So we\ Yes. So the ---+ I'm not sure that we actually disclosed the amount that we have left. It's no longer material. They would no longer, at Mikron, fall into our top 5 customers, although, of course, we sell them other products elsewhere. We're now in a position where, as a result of the consolidation and the loss of that business, that we have a pretty stable footprint where we can start regrowing the business. Frankly, the restructuring went better than we anticipate, and as a result, perversely, we actually increased capacity. Even though we have 2 fewer plants and 23 fewer lines, our actual realized capacity went up somewhat. So through the second half, we're going to be doing a combination of 2 things. We're obviously actively out pursuing other business, and I'm not going to talk about the specifics of that because there are some ongoing negotiations, but we are confident we can start regrowing this business with better profitability going forward. But more importantly, as we start getting efficiencies up with the existing footprint, we're doing a fair amount of fine-tuning to make sure that we're fully utilizing our most productive equipment. And it is possible, as we go through the second half of the year, that we'll end up retiring more extrusion lines to further reduce our capacity, more in line with our production expectations. Yes. So generally speaking, prebuys are unusual because most of the product line is highly customized. This was very specific to product that we expected to exit the building much, much sooner. But one particular customer had a lot more difficulty than anticipated in getting the business resourced, so we ended up in a spot where we were tight on labor and we worked excessive overtime. In fact, in the second quarter alone, the overtime premium compared to the second quarter of the previous year was $0.5 million greater. So absent that ---+ and the majority of that overtime was really working for customers. That was product we really didn't want or need, and it was certainly dilutive to margin. But absent that, the margin improvement would have been probably closer to 80 basis points better. So I wouldn't take that to mean that preordering is something that is common. And then we're not going to speak to specifics on the individual price increases for obvious reasons, but suffice to say that with the exit of some of the other business and the productivity improvements, gives us confidence that in the second half, we should see about a 200 basis point margin improvement in that business. So the short answer is it's being adopted slowly, and slowly because of the inability of the equipment manufacturers to produce enough lines fast enough. That's really the chokepoint on that project. The customer on the West Coast that had the first line installed very, very successfully and subsequently ordered 2 more. The customer on the East Coast that's moved a little slower has 1 working very successfully, about to take delivery of a second, with a third pending order. And we have a number of other customers that are actively looking at the project. The short version of the value proposition is, for the first time ever, we can now, on an automated line, using flexible warm-edge spacer, produce insulated glass units at about the same production rate as the metal bar spacer, but we do so with significantly less labor. Typically, the metal bar lines, mostly because they are old now, run with 8 to 9 people, and a super spacer line will run typically with 3 people. So net-net, even though the cost of the spacer component itself is more expensive, the total cost of the insulated glass unit for the customer is about the same with significantly better quality. And labor, as we all know, is difficult to come by, so they can utilize their existing labor much more efficiently. So hopefully, that answers the question with enough color. Yes. Look, the biggest issue really was a lack of margin improvement in the vinyl profile business. As we sort of closed that out, their margins sort of held, I would expect to see some improvement here as we go into the second half, and certainly, next year. Awful lot of moving pieces in that business, so it's sort of difficult to pin down here the detail of any one or single set of components. Suffice to say, I think given all the moves that took place, given that there was a very soft weather-related April, coming out of the second quarter flat, we considered a victory, and we now have a stable platform to build on for the second half of the year. Well, no, there ---+ really, it's 3 things that we talked about really through the first half of this year. One, the margin-dilutive business will be corrected. Half of it will go out of the door, which will be a benefit. Half of it, we got price increases that were acceptable to us, which clearly will be a benefit. Neither of those 2 factors had any positive impact in the second quarter because it really took us all of the second quarter to get both of those things accomplished satisfactorily. And then the automation projects that are being initiated through the course of the last year, some of those are really kicking in as expected. So we'll see 3 things: better margins through price; better margins because some dilutive business will exit the building; and three, productivity improvements are actually starting to take hold. So those are really the 3 components that will drive the expansion in the second half. Yes. I mean, we basically halved the growth rate. I mean, we were running in the low double digits quarter-over-quarter, year-over-year through last year and through the first quarter, and clearly, the level of uncertainty is having an impact. But we got 4% on a local currency basis, and the expectation is that will be the growth rate here as we go forward. There is a surprising amount of uncertainty regarding next week's election. It's gone from the polls saying a landslide victory to a Reuters report today that actually said she could lose her majority. And of course, based on recent experience in elections, who knows what the polls really mean, but it creates a level of uncertainty that's certainly slowing investment, but certainly not to the point of panic here. So I think it'll still continue to move in mid-single digits. No. We will, towards the end of this year, start looking more aggressively at some of their very specific product lines that we feel may have a niche position in the U.S. market, and we may, in fact, start test marketing some of those products with a view that if it's successful, we'll actually start manufacturing them here in our vinyl profile operation. But still very much in the early stages, and frankly, that would be a relatively long, slow process. I wouldn't expect to see any benefits from that until, certainly, the second half of 2018. But given that we've sort of cleared the decks of a lot of other issues here, that's now starting to become a higher priority. There are, and there are a couple of new products that are being introduced in our vinyl profile business that are appropriate for low rises, storefronts and light commercial. And that's an active part of their growth initiative to rebuild the volumes in that business. So yes, there are active programs underway. It's a little bit higher in the vinyl business than in the spacer business, but not significantly so. Thanks, everyone, for joining the call, and we look forward to updating you at the end of the third quarter, we hope with a much stronger performance as we look forward to a very strong close for the year this year. Thanks.

2017_NX

2016

NSP

NSP #Thank you. We appreciate you joining us this morning. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details of our first-quarter 2016 financial results. <UNK> will then comment on the key drivers behind our strong results. I will return to provide our financial guidance for the second quarter and an update for the full-year 2016 guidance. We will then end the call with a question-and-answer session, where <UNK>, <UNK>, and I will be available. Now, before we begin, I would like to remind you that Mr. <UNK>, Mr. <UNK>, or myself may make forward-looking statements during today's call, which are subject to risks, uncertainties, and assumptions. In addition, some of our discussion may include non-GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, and a reconciliations of non-GAAP financial measures, please see the Company's public filings included in the Form 8-K filed today, which are available on our website. Now let me begin today's call by discussing our record high first-quarter results which were driven by further acceleration of worksite employee growth and effective management of our gross profit and operating cost. Adjusted EPS increased 90% over the first quarter of the prior year to $1.63. Adjusted EBITDA increased 45% over Q1 of 2015 to a record high $61.2 million. Our first-quarter highlights were led by a 15% increase in average paid worksite employees, exceeding our forecasted range of 13% to 14%. These results were due to our record high level of client retention during our heavy Q1 client renewal period, and continuing strong sales. Client attrition totaled only 7.6% for the quarter, a significant improvement over an already favorable trend. You may recall that attrition improved to 9.9% in Q1 of 2015 from 12.8% in the first quarter of 2014. Our first-quarter retention results largely dictate the expected outcome for the full year. Q1 2015's results led to full-year client retention of 85%, up from 82% in 2014, and each of these years above our long-term average of 80%. During our heavy year-end sales and renewal period and throughout the first quarter, we also effectively managed both pricing relative to changes in our client mix and our direct cost trends. This led to gross profit per worksite employee coming in within our target range. Q1 benefits and workers' compensation costs came in on budget, and continue to trend favorably. Now, moving on to operating costs, we continued to effectively managing expenses and leverage our cost structure. Adjusted operating expenses increased by less than a 2% over Q1 of 2015, and declined 11% on a per-worksite employee per month basis from $230 in Q1 of 2015 to only $204 in Q1 of this year. You may recall that we implemented certain cost savings actions beginning in Q2 of last year. These initiatives, along with the typical leverage in our business model, brought about by a general 50-50 mix of fixed and variable costs, favorably impacted the Q1 year-over-year comparison. Our effective tax rate in Q1 came in at 38%, below our forecasted rate of 41%. This lower rate was largely due to a new accounting pronouncement addressing taxes associated with divesting of stock awards. The related tax benefit had no impact on adjusted EBITDA. However, it positively impacted adjusted EPS by $0.05 relative to our forecast. For subsequent quarters, we are estimating an effective income tax rate of 40%, which then equates to a full-year rate of 39%. As for our balance sheet and cash flow, we ended the quarter with $40 million of adjusted cash and $95 million available under our line of credit, which was recently increased from $125 million to $200 million. This followed January's successful Dutch auction tender offer, in which we repurchased just over 3 million shares or 12% of our outstanding common stock. Now, at this time, I'd like to turn the call over to <UNK>. Thank you, Doug. Today I'd like to address three topics. We expect to create significant shareholder value in 2016 and beyond. First, I'll discuss the key drivers behind the outstanding results we are experiencing, and the implications of these positive trends. Second, I'll cover the essential elements of our strategic plan and explain why we are confident we have the right plans for the future. Then, third, I'll discuss the design of our business model and the opportunity for sustainable high growth and profitability in the years ahead. Our year-over-year unit growth rate has accelerated over the last two years, from 3% in 2014, to 12% in 2015, to 15% in Q1 of this year. This ramp-up has been driven by systemic improvements in sales and retention of clients as a result of a dynamic, strategic plan to offer a wide array of business performance solutions to attract more clients and keep them longer. These improvements in sales and retention, combined with the rightsizing of our cost infrastructure and the inherent operating leverage in the business model, are driving these outstanding results we are reporting today. Last quarter, we indicated we were experiencing record level client retention in the midst of our heavy renewal period, which spans the year-end through February. The 7.6% attrition number for Q1, which Doug just mentioned, is simply unprecedented, and punctuates the systemic change we were hoping to achieve through the new strategies employed. In our residual business model, no one factor is more valuable than improving the client retention rate, which increases the lifetime value of the customer and the return on the investment to obtain those clients. In order to understand the systemic change we have achieved in this area, it is important to look at our client segments, including small businesses with less than 50 employees; emerging growth clients with 50 to 149 employees; and our midmarket clients with 150 to several thousand employees. Our biggest retention challenge has always been this larger client segment, where we have historically experienced a success penalty, helping clients get to this size, only to have them take their HR function in-house or sell to a larger company and eliminate the need for our services. Due to our wide array of offerings and the customer-for-life service mindset, we now have a range of service models and customization capabilities driving the improvement in our retention rate in each of these segments. Our small business and the emerging growth segments' attrition rate in the key year-end transition period have decreased by 37% and 32%, respectively, since 2014. But the most impressive improvement is in the midmarket, where our client engagement strategy has reduced the attrition in our largest client segment by 74%, contributing to an overall decrease in year-end attrition since 2014 of 46%. This dramatic improvement in the midmarket segment is the direct result of our capability to offer more service options, combined with a high level of engagement with senior management in these accounts. The progress we have made solving this success penalty paves the way for more consistent, predictable, high growth at lower cost in this improved business model. The improvement in client retention for the full-year 2014 and 2015, of 82% to 85%, set a historical high water mark for this metric. With the start we have had this year, our expectation is to exceed the level of retention for the full-year 2016. The second key driver to our recent results is the solid sales execution we are experiencing, growing the sales staff and improving sales efficiency. The challenge we had to overcome in recent years was to integrate cross-selling into the Insperity selling system. We have overcome that challenge. Today we are seeing significant benefits and confirmation of the strategic decision to offer a wide array of business performance solutions to fit more of the prospects we call on day to day. This has added to our ability to generate consistent, predictable sales results. Q1 sales were 110% of budget, and a 16% increase over the same period in 2015 due to a 12% increase in the number of trained business performance advisors and a 4% increase in sales efficiency. As I mentioned last quarter, any time you are growing the sales staff substantially, and sales efficiency increases instead of decreases, your sales management and training are hitting the mark. These results demonstrate our capability to recruit and train BPAs and bring them up to a base level of sales efficiency in an appropriate time frame. This competency is the key to driving consistent, predictable growth into the future. We are continuing to grow the sales organization at rates to achieve targeted growth objectives. Recently, our total number of hired BPAs exceeded 400, which puts us in a position to reach the trained BPA target level of 370 on schedule this year. As we grow the sales staff, we have been able to increase efficiency by driving more qualified leads through our marketing efforts. In the first quarter, we increased corporate leads by 76% over the same period last year, with a 40% increase in unique visitors to Insperity.com. These increases are the result of our efforts in digital marketing, a robust loyalty referral program, and channel partner activity. These programs are contributing nicely today, and have tremendous upside to continue to fuel our sales momentum. In addition, in the first quarter, for each new workforce optimization client we added, we also sold another one of our business performance solutions, either attached to the sale or on a stand-alone basis. This strategy adds to gross profit and expands our customer base that can be cross-sold on other offerings and eventually up-sold to workforce optimization in the future. The final key driver to our recent results is a demonstrable operating leverage inherent in our business model. For the last five quarters in a row, our unit growth rate has far outpaced our growth in operating costs, providing significant margin expansion. Our cost infrastructure is right sized, and we expect to continue to see operating leverage and margin expansion going forward. So the essential elements of our strategic plan are in place, and the power of our business model is just beginning to emerge: the role we envision of the business performance advisor as a trusted advisor; and the customer-for-life approach is paying off. The number of trained BPAs we have today is appropriate for the size of the worksite employee base to achieve targeted growth rates, and our capability to grow and train the sales force is validated by our recent results. Our broad product and service offerings are hitting the mark with our prospects and clients, resulting in higher client retention rates, additional contribution to the gross profit line, and an expanded addressable market. We are positioned as the premium service provider in the marketplace, aggregating the best small and midsized companies on to our platform. Our proprietary, risk-based client selection process allows us to maximize the value of our offering for clients and our own profitability at the same time. Our unique capability to managing risk and matching price and cost continues to provide a stable environment for our clients on some of their most volatile costs. This also contributes to improved retention and increased demand for our services. Perhaps the most essential element of our strategic plan is the high touch service differential that comes from the way Insperity employees care for, and about, our clients. The combination of our best-of-class cloud technology platform and our high level of consultative services is central to our unique position in the marketplace and the superiority of our business model. Another highlight over the last two years is the efficiency gains we've made by optimizing our service models for each segment of our client base, lowering our cost of service while increasing customer satisfaction. Our key metric in this area is the number of worksite employees served per Insperity service professional. It has increased in each of the last eight quarters, improving by more than 20% since 2014. So the icing on the cake of our strategic plan is the inherent operating leverage from our 50-50 fixed to variable cost structure. As we continue to grow at double-digit rates, margins continue to improve. We are confident we have the right strategic plan for the future. And our clear focus as we look ahead is on consistent, predictable, high growth and profitability to drive shareholder value. Our business model is designed to produce double-digit unit growth, and we believe our plan in place has increased both the likelihood of success and the growth rate we can achieve in the future. In this model, when we grow the number of paid worksite employees in the 10% to 20% range over an extended period, generally you can expect adjusted EBITDA growth in the 15% to 25% range. We are now forecasting a second year in a row with adjusted EBITDA growth above this level. In 2015, 12% worksite employee growth resulted in a 31% increase in adjusted EBITDA. For 2016, we're off to a very strong start. And in the revised guidance for this year, you can see the benefit in the growth rate in adjusted EBITDA from growth achieved through higher retention and lower cost. In summary, our recent strong execution and results, which validate our strategic plan, have provided a positive outlook for both the balance of this year and beyond. At this point, I'll pass the call back to Doug to go over our revised 2016 guidance. Thanks, <UNK>. Now, before we open up the call for questions, I would like to provide our financial guidance for the second quarter, and an update to our full-year 2016 forecast. We continue to expect worksite employee growth in the mid-teens and are forecasting Q2 average paid worksite employees in a range of 163,000 to 164,000, or approximately 14% to 15% growth over Q2 of 2015. Based upon our strong start to 2016 and an improved outlook for sales and client retention, we have raised the low end of our initial full-year guidance and are now forecasting full-year worksite employee growth of 14% to 15%. We are also projecting higher adjusted EBITDA, based upon the strong first-quarter results, the expected improvement in our growth outlook, and further operating expense savings over the remainder of the year. We are now forecasting an increase in adjusted EBITDA of 28% to 32% over 2015, up from our initial guidance of 22% to 28%. This increase translates into an updated forecast of $141 million to $145 million. As for Q2, we are forecasting adjusted EBITDA of $24 million to $27 million, which, as expected, is down sequentially from Q1 due to the typical seasonality in our gross profit. We are now forecasting 2016 adjusted EPS of $3.46 to $3.58, up from our initial guidance of $3.19 to $3.36. This translates to an increase of 58% to 63% over 2015, up from our initial forecast of 46% to 53%. This guidance assumes approximately 21.5 million shares outstanding, similar to our initial forecast. The Q2 adjusted EPS is projected in a range of $0.54 to $0.62, an increase of 29% to 48% over Q2 of the prior year. In conclusion, we are very encouraged by another strong start to our year, and we look forward to updating you on our progress throughout the year. Now, at this time, I'd like to open up the call for questions. Yes, <UNK>, it's contributing in the $16 per worksite employee, per month range. And of course that's actually down a little bit from where it was a year ago. But that's because our worksite employee base, the denominator is growing faster than that top line, and it is still growing at 10%, 11%. Okay, I would just add to that, that that's a ---+ we're just now seeing the beginning of what that can be. And the exciting part for us is that there are two key elements to that as part of the strategic plan. One is that is the third contingent in the gross profit line. But, more importantly, it has ---+ it's not risk-based. It has unlimited potential. So, it was definitely a very nice strategic addition. <UNK> is correct to say that we are growing fast at this point, so you've got to grow those businesses even faster. And with the referrals that are building and the attachment rates that are going forward, we are very excited about that element of the business for the future. Sure, there's three. I'll highlight just three right now that are just ---+ the portfolio quarter to quarter, you have some do better than others. Of course, right now, our recruiting group is really knocking it out of the park throughout the year-end transition. Our retirement services group, added ---+ we're just really adding a lot of customers in that area. We also, I would say, is the continuing strong performance in the time and attendance area. And a lot of that is driven by the ACA requirements of hardly even think about trying to manage those reporting requirements for that on effective time and attendance solution. So, those three I would highlight as leaders of the pack, at this point in time. But I think it's important to understand that having this wide array of solutions is what enables a level of customization so that we can customize an initial solution for client, and then keep them longer by continually updating their set of solutions in what we call our customer-for-life strategy. And it just feels like we're able to continue to meet our customers' needs, because we actually are. Yes, it's ranged kind of from 0.8% to 1.0%. But here in the recent years, it's been ---+ and we've had a shift, over the last five years or so, of more toward the year-end and less throughout the year. So we will see how the year plays out. But in any event, it looks to us after (technical difficulty) got through this year-end period that we really do have the systemic change in client retention that we were hoping to achieve with the new strategy. Yes, no. We were heading for 400 total, 370 trained, has kind of been our plan for through our whole planning cycle at the year-end. But we were around ---+ just under the 350 number, I think, for the first quarter. So we're on track to get to that number. And we feel good about that, that that is the right number based on the sales efficiency we're seeing and the ramp-up rate for the new BPAs. I think it's going to be ready much in the same range as it was last year, <UNK>. And it does really completely relate to mix. All of our cost centers and the surplus of ---+ other than, obviously, the benefits, which is always a negative ---+ are really right on target where we forecasted it to be. So, we're feeling good about the trends in those areas. It's a good question (laughter). We are very hopeful that they are going to meet their publicly stated objective of having the information available by July 1, so that (technical difficulty) can become certified under the law. And ultimately not have to (technical difficulty) a payment of [tax] in 2017. So that does present some upside to the model in a couple of ways. It obviously allows us to not have to fight in that double payment of customers. So we're hopeful that that clears up some confusion in the sales process and offers a lower price to the customer, so less of a leap to come on board. And at the same time will save us a lot of costs, since we've been subsidizing that double payment in our business model. So it represents some upside for us at the gross profit per employee line as you go into 2017. And hopefully (technical difficulty). Right. In the course segment, yes, we certainly have our BPAs across the board are capable of helping to attach various solutions to the full workforce optimization option in order to help make the sale. And that's a very good thing, because ---+ so, if somebody, for example, they look at the workforce optimization, and maybe it's going to cost them some money on a per-employee basis every month. What we might offer a couple of solutions that actually lower cost, like our retirement services solution. If they happen to have retirement plans, we're going to have a more efficient delivery of that solution. So we are able to actually offset cost with some of the other solutions, which makes the sale of workforce optimization more likely. And then it comes within ---+ with other business performance solutions attached. So yes, it definitely took a long time to get in place with this mindset of how to use these other solutions to deliver what feels more like a customized solution to the customer, and helps become part of the mix to make the workforce optimization solution ---+ make the right choice. Now, if they are not ready for that, I think we have a lot of upside in providing what I'd call a traditional employment solution, which we've been doing in the midmarket, as presenting some options for customers that want more flexibility. But I think there's a nice future for us, presenting kind of a payroll-centered solution in the small business client base, and that they have a few items attached to it, pay-as-you-go workers' comp and a simplified 401(k) plan. And if the customer is not ready for workforce optimization, if they are the right profile customer for us in the long run, we'll bring them on that model and hopefully upsell them over time. And in addition to that, you can have customers in the workforce optimization model that, for various reasons, need to move out of that model; maybe from a cost [prohibitive] perspective or whatever, it's nice to have someplace else to go for those customers, and keep them in (technical difficulty). You bet. There's a couple things, as you know, I keep an eye on what I would call a capacity measure, which is the percentage of overtime pay to regular pay. And we generally look for a 10% or better number to indicate the need to hire new employees. Business owners only hire new employees if they need to, because of the capacity issue, but also if their pipeline for new business has to be good enough to where they think that's going to be sustained for a while, and they actually would make more money by hiring new people than just working overtime. So, the other thing I look at is the commissions paid to the sales staff of our clients. Since we run all the payroll, we're able to compare on a year-over-year basis what percent of base pay and commissions were in one period for the same group of employees or [same group] of clients compared to, say, a year ago. So that number ---+ we also look for that number to be strong enough, typically over, around 8% or so to support the need for ---+ not just the need for new employees, but the likelihood that they need them as full-time on an ongoing basis. So, actually, this quarter was the first time really since the 2008 period that we've seen both of those numbers finally at the level we're looking for. Overtime was 10%; commissions were up 11% on a year-over-year basis. So, that should be the mix we're looking for. And we're actually in the ---+ during this quarter, and toward the end, we started to see a little bit of uptick there. So, it's been ---+ the actual net hiring in the client base has been a slight positive now for several years, but not at the rates you would expect in a normal recovery. And we're always just happy if it's not a headwind ---+ layoffs exceeding new hires ---+ but we haven't built any of this into our going-forward growth plan. We prefer that it be driven strictly by our sales and retention, things more in our control. But if this continues, I would expect to see a little bit more of a tailwind coming out of this, faster. All right. Well, thank you very much. Sorry if we missed Mark there. But we'll be in touch with him off-line. Thank you again for participating in our call today. And we look forward to seeing you out on the road, or updating you further as the year progresses. Thanks again for your participation.

2016_NSP

2017

DE

DE #<UNK>, your question on structural cost reduction, which bucket it's coming from, we have said in the past material cost, direct and indirect, would be about 40% of that and people-related cost about 20% and then there are a lot of other areas like R&D and lower depreciation that accounts for the rest. I'll say people-related cost is definitely delivering as we anticipated; so is the material cost. If you recall, the material cost we said the structural cost reduction we're aiming for is about 2.5%, but we allow for 1.5 points of material inflation and FX and net of only one point is included in the structural cost reduction goal of over $500 million. That is also yielding results as we anticipated.

2017_DE

2016

DKS

DKS #It would only be our sense, because the data that we got from them was not at that level of detail by category of business. But we do think that they had a relatively good footwear business. And we think footwear is an opportunity for us to gain some market share, as is their apparel business and their team sports business. They had exited some of the other businesses or really scaled them back, such as the hunt, fish, camp business. And some of the ---+ some other hard lines, ancillary hard-line businesses. But I would say footwear and apparel is the key area that we're looking at that will be the biggest market share opportunity for us. I think there's a number of things. I think the industry has definitely been over stored. We are making some big strides with this right now with over 20 million square feet coming out of the marketplace. I think that some of these other companies didn't have the relationships with the vendors that we do; when you walk into the stores you can see that with the investment that we have made in conjunction with Nike and Under Armour and TNF, so that was a big part of this. And then I think one of the smartest things that we did versus some others is that we have no debt. And a number of these retailers had a significant amount of debt, and when business gets soft it gets difficult. So we know the debt that TSA had; we know that whatever Vertis had they had, but we're debt-free. We can ride through these difficult times much easier than some of these other retailers did. We really look at that as an opportunity; that's why were making the investments that we're making in Project Eagle. You can see that our e-commerce business continues to grow at a pretty rapid rate. We're going to continue to make these investments, and we look at that as an opportunity. And you'll start to see more from us on the e-commerce side as we try to build out not only the DICK'S e-commerce business, but also what we're going to be doing with Golf Galaxy and with Field & Stream. A number of retailers and analysts look at this as a problem for retailers like us; we look at it as a real opportunity. And you'll see as we continue to make these investments, our business will continue to grow in this area. Sure, we're not going to go chase the liquidation pricing. So they are going to take pricing at 20% to 30% off, and then they're going to go 40% to 50%, off and we are not going to go chase that. As those liquidations get to be pretty aggressive, we're not going to go chase that. We will bide our time, we'll be patient, and we don't think it's the right thing to do for our brand. And we will be patient and let them get through this liquidation over the next quarter-and-a-half. And then beginning in 2017, I think we have got an opportunity to take significant market share when these guys ---+ when this 20 million square feet of sporting goods retail is gone. There is not. The one thing that we have always talked about here is you can't fix bad real estate. We are very disciplined, and we think a lot of this market share is going to come to us. Our business with Under Armour we expect to go up; our business with Nike we expect to go up. The same with North Face, Adidas, Taylor Made. We expect to increase our business with these guys. And we will not take bad real estate. We will not take real estate at economics that don't fit our model, because you live with that for 10 years; you can't fix bad real estate. You can make a bad buy from a merchandising standpoint, and you can mark it down and you can do whatever you need to do with it to get it out of the system. Bad real estate, you've got it for 10 years. I don't know what that is. All I know is that we really made a strategic initiative years ago to partner with these brands. You walk into our store and you see the significant Nike presence, the significant Under Armour presence, what we're doing with North face. And I think that really resonated with the consumer and helped move market share to us. And it is clear that we're the winners in this race between us and Sports Authority and Sport Chalet, and we're very happy the position we are in right now. I think there will be more consolidation. Do we see weaknesses in some of these other competitors. Sure. I don't think it would be appropriate for me to call it out here. But, yes, I think there is and I think there will be more consolidation going forward. Well, we think about that all the time, and that is why we are so disciplined from a real estate standpoint. We really do believe that a balance between stores and e-commerce is the right balance. Where that balance is, we're like everybody else in this industry, trying to figure out where that is. But that's why we're going slowly, that's why we're very disciplined from a real estate standpoint, and that's why the reports that you saw, we didn't buy a lot ---+ we didn't make an offer on a lot of TSA stores. And that's why you hear me talking throughout this call, when we've talked about TSA, that the stores we're interested in are really inconsequential to our plan. There's some good real estate that we would like to ---+ that we would be happy to take if the economics are right. We don't feel any pressure or any hurry to get those deals done. We don't feel any pressure or any hurry to take this real estate from Sports Authority, because what's going on in the marketplace, there will be other real estate available. So we're exercising our patience, we're being very diligent in our real estate process, and as we go on we will understand where that balance is. And we feel right now we are in a pretty good spot. And remember, our leases are, for the most part, only 10 years in duration. And I forget, I don't have it right off the top of my head, but we've got a number of stores that are coming up for renewal next year, the year after that, the year after that. So over a period of three to five years, we have the ability to not renew or renew at lower rates stores that we have right now. So we've got a lot of flexibility in our Business, and this is one of the things that I don't think the street understands is how much flexibility we've got in our real estate and our real estate strategy. Thank you. I would like to thank everyone for joining us on our quarterly call, and we will look forward to talking to everybody at the end of the next quarter. Thank you.

2016_DKS

2015

PPG

PPG #So <UNK>, let me give you a couple of things to think about here. And I'll start with the automotive side because there seems to be a lot of concern about the automotive pieces. You know they've reduced the tax on small engines in China and they announced that tax late in September and that took effect October 1. And so it would not be inconceivable that people deferred purchases of small cars because you know that the tax rate was going to drop from 10% to 5% on October 1. So we saw September sales in China were actually up about I think 3% if I remember right and in October we have a pretty good view of what's happening with our customers. Our order book we're pretty much just in time delivery and we're seeing moderately improved deliveries to our customers. Of course we're performing better than the industry so we are still expecting automotive sales in China to be up modestly in that 1% to 3% range. If you look at our other businesses there was some initial destocking after the Tianjin explosion port explosion. Most of that has worked its way through the system now because of what happened people were concerned about holding inventory for things like marine coatings, some of our refinish coatings. All that has been moderated and we see those order books continuing to get better. So I would tell you that starting mid-September we started to see that improvement. And it has continued in the early part of October. Well, <UNK>, let me clarify. I said yet the day the acquisitions hadn't yet reflected that. So let's be clear on that. Secondly we've always said that acquisitions are always preferred. They are more accretive than buying back our stock so that's always our first preference. But we're going to protect the shareholders' value and if we don't see the acquisitions coming through then we will take that money and buy back the stock. So we want to continue to do both and our first preference is always acquisitions. And <UNK> I think it's it safe to assume that as we go through the fourth quarter you can expect that we will continue to deploy cash in the quarter to either one or both of those initiatives as we did 900 through the third quarter. So we're already on pace to exceed half the midpoint by the end of this year. So all the more reason to raise that range but we will continue to deploy cash in the quarter. I would tell you that we're expecting continued organic growth. Let me give you some reasons why we believe that. First of all as you know we sold our one glass facility and that was in the end of the third quarter last year, so you'll start to see that as a positive. Comex will then flip from an acquisition to organic growth in the fourth quarter. We close on that in November. We continue to see positive growth in our automotive business. Packaging continues to do well. Our refinish business with the water-based technology continues to grow. That's a slower growth given the fact that it's a volume challenged market with the new technology out there. But we're continuing to grow in that regard. And the one area that I would say is still a question mark is where we are in the cycle is heavy-duty equipment. It's been down. I would expect that to at some point reach a bottom. And then that will start to turn. And we talked about packaging be very good as well. So I think overall you're going to see a return to more organic growth. And the other thing going in our favor quite honestly is the fact that inventories in the system are at very reasonable levels, whether it's the US automotive business well under 60 days at current sales rates, packaging as <UNK> said we continue to pick up new business from our technology-based offerings there. And then in China because the recent production rates have been below recent sales rates those inventories are coming back in line in the field too. So we don't really have to go through any more rationalization of inventories if things stay reasonably healthy in the end markets and that includes US architectural. Yes, so we'll start first of all with the automotive business. As you know sales have been better than builds and that's obviously a good thing going forward. We're also seeing a pickup in a number of the countries. Southern Europe is obviously coming off a very low base but it's getting better as well. And then we saw a pickup in our architectural business in the Benelux. And of course we've always seen good growth in Germany as well as the UK and although the Eastern European region has been a little choppy mostly up, that's been good. The only one that's really down of course is Russia. Russia continues to be down nearly 30% in a number of segments, so that economy is clearly challenged and then we have been gaining share in the protected market in Europe as well. So that's been a positive force all along. And then the last thing I would say is that we're building a new silica plant in Europe. And that facility will be starting up and we have a very good demand for the new products industry leading new technology coming out of that facility. And the one area we haven't talked about previously on the call is South America. For us it's about 3% of our sales. We do see challenges in South America as <UNK> alluded to in his prepared remarks. We don't see that returning to growth certainly in the near term. Again I'd say South America about 3% of our sales. We've framed architectural Canada for you at about $500 million. Those would be the two very sensitive. If you combined Russia, Ukraine, Africa you maybe get another 2% or 3% max. And of course the Comex business is doing extremely well and that will all translate into organic growth for 2016. They continue to open stores at a very healthy pace, so that will also help us out in the organic growth rate. And I guess, <UNK> this is <UNK>, the one thing I'd add at the end is France. France is still a challenged market for us. But at some point we do feel confident that's going to have to turn around and so I would tell you that's probably why we're more optimistic when you put all these things together. Yes, same-store sales were modestly negative. We've come off of I don't know seven or eight positive comps in a row including Q1 and Q2 of this year. Most of that was Canada. We talked about the modest paint season. And then I would remind you that our PMC, most of our PMC in North America runs through our stores. As you know the oil business has been certainly under a lot of pressure and so that's the way I would characterize that. And PMC, just for everybody, is protective memory and coatings. Slightly more because the stores were just slightly negative. No, we've said for many, many years that architectural typically tracks closer to GDP than anything and there is a house build market and a house repaint market. The repaint market is typically five to six times larger than the house build markets, so the repaint market is not tracked I guess in new home sales and that's the one that drives the volume at the end of the day. We would say the paint in Canada is 80% repaint. I think it's a little early to answer that question. I think the way to think about it is we have major shared service facility in Europe and Asia, now with the Comex one we will be able to add additional one in Latin America. We are starting up we've put in a new present facility in Brazil. We have a new facility that we expanded actually in China. So that will drive the lower cost in our automotive and industrial businesses there. And then we are also moving more of our production in Europe from west to east, so that will add additional benefits. So I think that's the way I would get you to frame your question. Okay. North American architectural I would say that we're probably going to have the same opinion we had this year which is low single-digits growth for that business. So we're going to continue to stay there. Automotive, it continues to be a very strong market for us. That's been a good one. Our refinish business in North America we're gaining share with our water-based technology. That's a positive. Aerospace has been moderating growth but continues ---+ we continue to get new content on the planes and with the acquisitions that we've added, that Cumings Microwave would be one. That would be another positive. When you move to Europe I would tell you that again I would say that it's probably going to be modest in that low single-digits range. We continue to do well in our automotive space there. Our packaging space continues to pick up business, so that's good for us. When you look at some of the other businesses probably the bright spot is our protective business. We have a new industry-leading technology on fire protection that has really done very well. On the negative side obviously you are still going to have the challenges in Russia. We don't see that going away moving to South America. As <UNK> mentioned earlier, we see that probably bottoming out. So we're not real excited about what we see down in Brazil but we are aggressively taking cost out in Brazil, so it's not going to be a negative from that kind of standpoint. And then moving over to Asia, Southeast Asia has performed okay. India has been really solid. I would say they are in that 6%, so if you ask what has the highest growth in Asia right now it's India. And we still remain because our business in China is predominantly for consumer-oriented stuff what we make in China stays in China. It's not for the export market. So we're optimistic that China will continue to resume its growth. We know the Chinese government is very interested in the economy growing. They are taking a lot of right moves to have the economy grow. And we have benefited, that has been one of our best markets and we expect that to continue to do well going forward. Well, the BPA non-intent win started in Europe. They've continued into the US. As you know or you may know California has this Proposition 65 out there. They've not taken a firm position yet. But our guess is that our folks in the US will be much more interested in the BPA non-intent coatings going forward so that trend will accelerate. And as you know we only had 3% marketshare inside the can. And so since this is a once in a generation or multi-generation for some of these things opportunity we're going to be at a higher presence inside the can than we've ever been in the past. So that will be a positive for us overall. Our goal on working capital obviously is to bring that down by 100 basis points a year. We've seen a little bit of slow pay recently but we'll get that back down by the end of the year and we do have some relatively aggressive inventory goals for the teams. We're making great progress on that. But that would be our overall goal is to keep bringing that down by about 100 basis points and probably the largest opportunity in inventory followed by people working on the receivables. Payables are in pretty decent shape. I was just going to add one more thing to what <UNK> was saying on the growth prospects for 2016. Remember a lot of the acquisitions that we have done this year, that $400 million worth of cash deployed acquisitions, the revenue associated with that is only a small portion of what the full-year impact is or will be for 2016. So between $400 million and $500 million of revenue associated with acquisitions excluding the base Comex business. That's over and above the base Comex business will hit in full stride next year. And you can make any estimates you'd like in terms of the profitability of those businesses but that's also going to be accretive to our top line along with the EBITDA that goes with that. On a month-by-month basis I would tell you that we started to see the destocking start in August and by the middle to the end of September it was over. So that's the way I would think about that. Actually in the dedicated paint stores it was pretty I would say consistent through the quarter, although near the end of September our comps were marginally better than what they were early in the quarter. And then they have started to be in October as I mentioned virtually identical to what we had in 4Q of last year. No, it's low single digits positive. <UNK>, I would tell you that we're going to continue to work with our suppliers and pull through the savings and so I would say it's going to be modest. Our goal here is to continue to pull those through. We still see weakness in the TiO2 market. We still think it's oversupplied. And then clearly we haven't talked about Henan Billions yet. Surprisingly we've made it 55 minutes in the call and not one question about it. So I'll go ahead since everybody's interested and tell you that the first set of samples we got from them the particle size was too large. The second set of samples we got from them were too small, so now they are dialing it in. We expect to be buying the commercial quantities of TiO2 from Henan Billions sometime late in the fourth quarter. So overall I would tell you we're still feeling like there's more savings to come. Plus as you know we will have incremental restructuring savings in predominantly Europe but also Brazil and Australia from our restructuring program. That incrementally throughout the year will add up to about $60 million to $75 million. Obviously it accelerates as it goes throughout the year of 2016. But that will be another positive. Yes commercial construction is obviously more important to our glass business than it is to our coatings business. Commercial construction has been steady and getting slightly better but the challenge there is actually the fabricators who make the fabricated glass window units are I would call them full. Their backlog on fabricated units continues to be six, eight, 10 weeks so that's been a challenge for the market. I would tell you that our glass business as you can see has done pretty well. We've gotten price. We've already had two price increases in that business this year, so that's been a positive. And we continue to expect improvement again next year. Architectural coatings were flat in Europe and of course that varied, so up in the UK, up in the Benelux, down in France. Mostly up in Eastern Europe but not every Eastern European country was up. So net-net flat because France is our largest architectural coatings market. As <UNK> said the pace of share repurchase obviously depends upon not only the pipeline of M&A but also the timing at which you deploy and close the deals. I guess what we're saying is that we're confident enough in the cash-generating capability of the business that we're very comfortable upping the midpoint of that range so that we're now at $2 billion to $2.5 billion, and the fact that we've already exceeded the pace of the prior range by the end of the third quarter and expect to continue to deploy cash in the fourth quarter. But as we look out in 2016 we've got a good pipeline of M&A, so chances are we'll be doing more deals next year and be supplementing it with share repurchases because we're starting out the year where we ended the third quarter with $1.4 billion of cash. Q4 is generally a good quarter for cash generation, so we have the confidence that we'll continue to deploy and earn value for the shareholders and we'll just continue that into next year and see where it goes. But we could do more share repurchase. Our preference is to do M&A, that will be the first priority. But you'll see both of that as we go through the fourth quarter and more primarily M&A in the 2016 timeframe. <UNK>, I do believe that's going to happen. We closed LJF on October 1. We have four acquisitions that basically closed in the third quarter, plus we'll have Comex that flips into the organic side. So I think that's all positive. Well the sales to the customer declined in June, July, August and then turned back positive in September. They were 3%. Builds inventories were coming down in that same period. Right now inventory is basically at the same level it was last year, so they're in very good shape from that standpoint. We think they're a little bit over 40 days which is typical for them. And then right now as I mentioned earlier on the call the October sales are trending up. We basically supply in real time. We get orders let's call them 28 days in advance of what I'd call a pre-look and then they are firmed up 14 days in advance. So right now we have a pretty good feel for how October is going to turn out. And I think overall we would tell you that it should be marginally up. No, <UNK>, we're very closely aligned because they did take inventory down. Had they not taken inventory down I think you would see that lag effect but the industry took inventory down commensurate with the sales decline in real time. Well as we said we expected modest benefit with the benefit to grow throughout the year. We are seeing that in our numbers. As we said in the past the benefit is muted in non-US region simply because oil is traded in dollars around the world. So when you go to Europe or you go to some of these emerging markets the currency deltas have eaten into most of the raw material impacts. So again we're pulling this through our value chain. We feel we're doing a good job at it. We do have another quarter here to go and we're certainly talking to our suppliers on a daily basis. So as <UNK> is saying here as you see the raw material benefits come through the pace of that may not change significantly going from Q3 to Q4 to Q1 but it will be more evident to the bottom line because there will not be so much offset from the currency headwind as that mitigates starting in Q4 versus what we've seen at very high levels recently. The other thing that we would mention though is that where you see a bit of a headwind on raw materials because of the exchange rate in places like Brazil or really a small percentage of our revenue in Canada because the exchange does cause some of those US dollar-based inputs to be a little bit higher. <UNK> I really don't want to get into parsing each of the different businesses because we roll out new products and we have older products. What we've been consistent in saying is that the pricing environment is flat and we expect that to continue. Correct. I want to just once again thank everybody for their time and interest in PPG. Both Scott Minder and myself will be available to take questions after the call. Thank you.

2015_PPG

2016

ZEUS

ZEUS #Yes, thank you, operator. Good morning. And thank you all for joining us to discuss Olympic Steel's 2016 first quarter results. On the call with me this morning are President and Chief Operating Officer, <UNK> <UNK>; Chief Financial Officer, <UNK> <UNK>; President of our Chicago Tube and Iron business, Don McNeeley; and President of our Specialty Metals business segment, <UNK> <UNK>. During the past year and a half, our focus on managing the controllable elements of our business, lowering operating costs, accelerating inventory turnover, managing working capital and reducing debt enabled us to make sustainable operating improvements in a very challenging steel marketplace. As a result of our actions, Olympic Steel is well positioned to capitalize on improved pricing in our markets and increase our market share. Metal prices rebounded off of the mid-December lows, and are steadily increasing in 2016. Prices of raw materials used to make steel, such as iron ore and scrap, are all correcting from depressed levels. In addition, U.S. steelmaking capacity has been reduced and we expect domestic producers will remain disciplined in production and in their credit extension. We support the recent trade cases filed to address the tide of illegally dumped steel imported into the United States particularly from China. The resulting anti-dumping tariffs appear to be having their intended effect by slowing the pace of illegal imports. We anticipate some foreign producers may attempt to circumvent these tariffs. However, import volumes into the United States are slowing. Rebalancing the supply side of the global steel marketplace has resulted in higher prices and domestic mills have started to allocate supply. This is an indication that prices may continue to strengthen as we move further into 2016. Quarterly prices for our index-based contracts reset higher in the second quarter of 2016, and are anticipated to do so again in the third quarter. However, some of our first quarter agreements were at pricing levels lower than the fourth quarter of 2015, impacting our financial performance in the first quarter. The bottom of the market may well be behind us. However, ongoing challenges remain due to weak demand in a number of sectors. Production of heavy equipment serving the mining, agricultural and oil and gas industries remains depressed. While overall end demand has not fully recovered, it is steadily increasing in residential and non-residential construction. And auto demand remains at historically high levels. Additionally, we are seeing accelerating improvement in our stainless and aluminum segments. And I've asked <UNK> <UNK>, our Specialty Metals President, to add color to this later on in the call. The Chicago Tube and Iron business unit turned in another solid quarter of improving margins due to enhanced engineering and value-added services, which have become their hallmark. Our initiatives have positioned us for sequentially improved performance. As demand improves, we anticipate improved financial results. This morning, we also announced our Board of Directors declared the regular quarterly cash dividend of $0.02 per share payable on June 15, 2016 to the holders on record of June 1, 2016. And with that, I'll turn the call over to <UNK> <UNK> for his first quarter financial review. Thank you, <UNK>. And good morning, everyone. According to the MSCI Metals Activity Report, industry-wide shipments in 2016's first quarter declined 9% compared with the first quarter of last year. On a consolidated basis, our shipments were off less than 3%, as we increased our market share in the quarter. In the first quarter of 2016, we set an all-time high for our consolidated market share. First quarter shipments increased 16% sequentially from the fourth quarter of 2015. Consolidated net sales were $258 million in the first quarter. That compares with $346 million in the same quarter last year, primarily as a result of lower prices and to a lesser degree, lower volume. Gross margin expanded to 22.7% compared with 19.1% in last year's first quarter. Gross margin improved in all three of our reporting segments, with the greatest improvement in our specialty metals flat products segment. We also had a higher relative proportion of tubular and pipe product sales in the quarter versus last year, which had a positive impact on consolidated gross margin. And as <UNK> highlighted, our pipe and tube segment margins were strong, increasing to 33.3% in the first quarter of 2016 compared with 31.8% last year. Sales of carbon flat products represented 62.5% of first quarter sales, down from 66.1% of sales in last year's first quarter. There was no LIFO impact in the pipe and tube segment this quarter. In last year's first quarter, we recorded $250,000 of LIFO income. First quarter 2016 operating expenses were lower in all expense categories compared with the first quarter of last year. Operating expenses totaled $58.5 million in the quarter, down from $62.6 million in 2015's first quarter. This was a decrease of 6.5%, exceeding the 3% reduction in our shipping volume. Operating income in the quarter totaled $35,000, which is up from the fourth quarter operating loss of $7.2 million. Last year's first quarter operating income was $3.3 million. Year-over-year interest expense declined 18% to $1.3 million versus $1.6 million in last year's opening quarter. This was due to lower debt levels in the current year. We reported a net loss of $800,000 in the first quarter or $0.07 per share compared with net income of $1.1 million or $0.10 per diluted share in the first quarter of last year. Now, let's shift to the balance sheet. Accounts receivable increased $22 million from year-end 2015 as a result of higher shipments and higher prices, which improved steadily throughout the quarter. The quality of our receivables remains excellent. Days sales outstanding was exactly 40 days in the first quarter. That's essentially flat with the 39.9 days in last year's comparable quarter. Our inventory continued to be managed well and down in the first quarter. At the end of March, inventory totaled $190 million. This is $17 million lower than the end of December. Improving inventory turnover has been one of our initiatives. And our inventory turns, which we measure in tons, not dollars, surpassed 5 turns in the first quarter of 2016. Total debt was $148 million at quarter-end. That's unchanged from the end of 2015. It is unlikely we will generate more free cash flow from changes in working capital in 2016. Given the recent price increases for metal, working capital requirements will likely increase during the remainder of the year. Therefore, future reductions in debt will be driven by operating cash flow. We had $93 million of availability on our low-cost, asset-based lending agreement at the end of the quarter. Our average interest rate was 2.5% in the first quarter. Our capital expenditures totaled $1.4 million. That's down from $[1.6] million in last year's first quarter. And those expenditures were primarily associated with equipment and facility maintenance. This compares with depreciation of $4.5 million in the quarter. Our full-year capital spending budget for 2016 approximates $12 million. At the end of March, shareholders' equity stood at $255 million, which was unchanged from the end of 2015. Book value per share at quarter-end was $23.23 per share and our tangible book value was $20.99 per share. During the first quarter, we did not make any share repurchases under our previously announced share repurchase program. And finally, we do plan to file our Form 10-Q later today, which provides additional details on our operating and segment financial results for the quarter. With that, I will now turn the call over to <UNK> for his operating review. Thank you, <UNK>. And let me just say it's a pleasure to be here at the end of the first quarter of 2016, as opposed to the end of first quarter of 2015. We've seen quite a difference, as both Mike and <UNK> have commented. If you'll remember, a year ago we had 17 successive weeks where the market fell in pricing as measured by the CRU. And we stand here quite the opposite position and we like the trend lines as we are well into second quarter. We see lead times almost exhausting the second quarter and we like that trend line and we like the success in the trade cases. The steel market experienced, as I said a moment ago, some severe adversities for several quarters, primarily stemming from the surplus of global capacity. The damage to the U.S.-based industry was exacerbated mostly by we think state-owned enterprises, primarily influenced by China. Chinese Steel production has increased rapidly in recent years, as <UNK> commented, and is now at approximately 1.2 billion tons per year, far exceeding their diminished consumption. Estimates of excess annual capacity in China are now at 450 million tons, which is clearly not ---+ cannot be absorbed and therefore, has resulted in an overabundance of steel that is being dumped on the U.S. shores. And we know that the Chinese are exporting in excess of 100 million tons. The trade cases filed by U.S. industry participants have successfully proven these practices are illegal and have subsequently led to remedies intended to level the playing field. Excess global steelmaking capacity remains ---+ however, at the very least, we are now ---+ remains ---+ at the very least, we are now realizing some welcome relief from these price practices. Back to the home front and the success in the latter part of the first quarter and trending into the second quarter, we see U.S. steel mills publicly announcing 5 separate price increases in the past 5 months, beginning in December of 2015. This was the first price increase in more than a year. And since December, published prices for hot rolled coil have risen from that low benchmark of $354 a ton to recent highs of $514 a ton by the end of April. This is $160 per ton increase. That represents the absorption of all 5 of these published increases and we have now recovered about two-thirds of the price degradation our industry endured during calendar 2015. Hence, I'd much rather be here today than I was a year ago. Our inventory level has been right-sized, as <UNK> commented, for the current demand environment. And our cost basis on the inventory has us well positioned to benefit from the rising prices. And again, we really look forward to the trend line all the way through second quarter. This was reflected in consistent improvements in our month-by-month performance during the first quarter of 2016. In March, we were profitable and the contract pricing resets in April, that positioned us well for improving financial results entering the second quarter. Now, before I turn the call over to <UNK> <UNK> for his review of our specialty metals operation, I'd like to remind everyone that Olympic Steel never deviated from our long-term growth strategies or our core values. We continue our leadership and corporate citizenship initiatives and we are proud of how our team in the field have performed under extremely challenging conditions. Having noted that, since the great recession and a protracted recovery, folks, the whole of our business is now comprised with specialty metals of 17.7% of our business. CT&I has 19.8% of our business. And so Olympic Steel, as we've said ---+ <UNK> and I have commented and <UNK> also ---+ that we've stayed true to our convictions of reorienting our business to today's environment. We consistently satisfy our customers' needs with integrity by safely supplying high-quality products regardless of what external market forces may bring. Achieving record market share in the first quarter of 2016 is a direct consequence of the genuine commitment we have to our customers, employees and suppliers. As custodians of tremendous assets, we believe that doing business the right way ultimately enhances shareholder value. And with that, I will turn the call over to <UNK> <UNK> for his comments on our growing specialty metals flat products business segment. Thank you, <UNK>. Good morning. It is a pleasure to be on today's call to provide an update on Olympic Steel's specialty metals business. In the first quarter of 2016, sales volume of our specialty metals flat products, which includes stainless steel and aluminum products, increased to nearly 20,000 tons. Shipping volume was 20% higher than in the fourth quarter of last year; it was also up 6% over the first quarter of 2015. Strong volume was in part driven by increased penetration into the automotive sector. By successfully capitalizing on the longstanding relationships our carbon business teams have earned with customers in the automotive sector, we were able to cross-sell specialty metals products to these manufacturers, with significant growth in aluminum as they evolved toward lighter weight solutions. In addition, we grew our stainless steel volume with truck trailer food service equipment and appliance manufacturers. Olympics Steel's share of stainless steel sheet and coil market has now increased to more than 5.5% of the domestic market in 2016's first quarter, up from 5% in last year's first quarter. Our market share has also increased in aluminum, sheet and coil, reaching 1.9% of the U.S. market in the first quarter versus 1.3% in the first quarter of 2015 according to the MSCI. Net sales in the specialty metals flat products segment were $45.8 million in the first quarter of 2016, up 13% sequentially from the fourth quarter of last year due to the higher sales volume. On a year-over-year basis, despite the volume increase, net sales declined 13% compared to the same quarter last year as a result of sharply lower prices. The first quarter operating income improved significantly in the segment, close to tripling at $1.8 million, up from $600,000 in the same quarter last year. This was due to gross margin expansion combined with profit improvement initiatives. We expect these improvements will be sustained as we move into the balance of the year. Looking ahead, we are beginning to realize much better pricing in our specialty metals products, consistent with the carbon side of the business. There were three announced price increases to flat rolled stainless steel products between December of 2015 and April of 2016. Lead times have stretched out from the typical 4 to 6 weeks to 10 to 12 weeks, or even longer lead times required for lighter gauge material. On top of this, during the first quarter, domestic stainless steel producers filed anti-dumping suits against China for flat rolled stainless steel and coil. This is having the same effect as the carbon trade cases in mitigating the excessive volume of stainless steel imports from China. Overall, it was a successful quarter for the specialty metals flat products segment. Our business has continued to increase as a percentage of consolidated sales, and accounted for more than 17% of company-wide sales in the first quarter. Our operating divisions and commercial teams have continued to execute, are providing a high standard of service and value to our key customers, which has allowed us to maintain and expand our participation with them. In addition, we continued to see the positive impact of new businesses from the efforts of our well cross-trained, experienced sales professionals. With firmer prices and additional cross-selling and commercial opportunities ahead of us, we're optimistic regarding the outlook for our specialty metals business. Now, operator, let's open the call for questions. Well, I think what we've seen in particular on the aluminum side of the business is, as the automotive companies have gotten more into the product, and it's become an important port of what they're doing, it has certainly become an important part of what we're doing. And in particular, our Detroit division, which has had great relationships with the various tiered companies, has done a terrific job in getting us those opportunities. And we continue to be an important player in that. So we would expect that part of our business to grow incrementally. Obviously, there's more aluminum being used in cars. We've got penetration; we have more opportunity. But it will be incremental growth; it won't be a substantive part of our growth overall. But it will be ---+ we're looking forward to continued growth as we get more opportunities. That's our total volume increase I gave you at 16%, but as I look ---+ and I think that was sequentially, <UNK> ---+ ---+ the number I gave and ---+ but if I look at the carbon products, it's about the same. The carbon products sequentially were up about 16% as well. <UNK>, I'll respond that; <UNK> here. You have to remember ---+ ---+ that in ---+ thank you, <UNK> ---+ in 2014, we had some significant growth on the carbon side of the equation, close to 14% on an annual basis. Last year we gave back about 10% of that ---+ severe decline in the marketplace, and what we're seeing now is our ability to reclaim that market share from 14% and bring back that growth; although agriculture is still down and we see mining is still down, and some aspects of our business are depressed. But regardless, we continue to gain market share in what appears to be just a smaller pie. (Inaudible) ---+ Yes, let me just comment also. I think that in the sequence of the quarter, what we're seeing is Olympic maintaining pretty good levels of inventory. And what you've seen from the MSCI data is a lot of service centers' inventories [are] particularly low. And I think with our disciplines on inventory management, we're picking up market share because we have steel, where others may not. I think we'll see a little bit more of that in second quarter than we saw in first quarter. I think the market was slow to adapt to it, particularly in January, and somewhere at least, we'll just split February. So we'll say the first half of the first quarter were slow adapters, a lot of concern with the marketplace and a reluctance to believe that pricing was going to go up. We're early adapters, as they say, and we're fostering increase in the marketplace, recognizing the severe effects of 2015. And we started to see that with the total absorption of the five published increases. We would expect scrap to go up in May. That's been well publicized; and we'd expect pricing to gain a little bit more momentum, especially with the trade remedies that are (inaudible). Yes, thank you, operator. And for all of you that are on the call, we thank you for joining us this morning and your interest in Olympic Steel; and <UNK>, particularly you. (Laughter). But we'll talk to you again next quarter. Thanks, guys. Bye-bye.

2016_ZEUS

2015

BMS

BMS #<UNK>, what gives us the confidence in the volume is the pipeline. We did an exhaustive review of the global pipeline, not just the US Packaging pipeline of where the projects stand in the stage gate process. Are they a P1 or are they at P4. Are risks retired, are risks not retired. And as we look at that, when those projects are going to be completed and if you go back to our whole premise around our stage gate process, it starts and ends with the customer. So we don't develop unless there is a customer tied to it all the way through. We feel very good about that. And very good about what is going to get launched in the upcoming months and quarters. Not just in US but also in Global. As to your question on restructuring, there is really three elements of the restructure in this quarter. $1.4 million associated with the <UNK>ly closure in the medical division. And about $0.5 million associated with acquisition related cost on Emplal. Those are included in the segment. There's a $2.7 million charge that was not included in segment and reported as corporate and that is for an indemnification obligation related to a past acquisition. It's a one-time, nonrecurring charge. There has really been no shift. If you think about how to think about it, about $60 million of our spend is environmental health and maintenance. And I would say it is a 50/50 split above there between innovation and recapitalization. Recapitalization is heavier in US Packaging. Just from the standpoint that's where the assets really needed to be recapitalized. And as <UNK> pointed out a big part of our global strategy is the migration of capabilities in higher barrier of products from the US to those emerging markets as packaging sophistication increases. I think we figured out ---+ first of all, <UNK>, I just don't think we were really focused on cash flow and we are now focused on cash flow. Last year in Q4 the number was $56 million. As we have given you the guidance I fully expect that to be $90 million plus next year so we will continue to get improvements. And we will continue into 2016. I think we have made a lot of progress on terms with suppliers. We've gotten ---+ done a good job with the big ones and now as we go into Q4 and Q1 we are focused on that next tier of vendors to get those terms of improved. From an inventory side, I think we have done a nice job of getting inventory back to where we want it to be. But clearly, the big progress is still going to be linked to our rollout of supply chain optimization management and demand forecasting, which those investments are being made right now. And I would expect that to start realizing second half of 2016 into 2017, when we complete our ERP implementation in US Packaging. No. No, first of all I don't think ---+ I wouldn't read anything into it's going to be $550 million. We're just getting back to normalized. When <UNK> makes that $550 million comment, think about it, our EBITDA will have grown substantially as a contribution to that. So I would think in terms of we are targeting to get to primary working capital to be 14% of net sales. And then the additional growth will come from our improvements in EBITDA as we continue to drive our performance.

2015_BMS

2016

POWI

POWI #Thanks <UNK>. Good afternoon. Fourth quarter revenues were $87.3 million, down 2% from the prior quarter. That\ Thanks <UNK>. Good afternoon. I will briefly cover the Q4 financials, and the Q1 outlook, and then we will take questions. My remarks will focus mainly on the non-GAAP numbers, which are reconciled to the corresponding GAAP figures in the tables accompanying our press release. Q4 revenues were $87.3 million, down 2% from the prior quarter, but up 1% year-over-year, driven by growth in the communications end market. While modest, this return to year-over-year growth does compare favorably to the broader peer group. Revenue mix for the quarter was 34% consumer, 33% industrial, and 26% communication, and 7% computer. As <UNK> stated in his remarks, the appliance market was a soft spot in Q4. As appliances are a relatively high margin end market for us, the end market mix was slightly unfavorable versus our expectations, resulting in a 0.5 point decline in non-GAAP gross margins for the quarter, coming in at 50.5%. As indicated in the press release we expect gross margin to rebound in the March quarter to about 51%, reflecting a slightly more favorable end market mix. Fourth quarter operating expenses decreased by $0.5 million compared to the third quarter, coming in well below our projections. This was largely a function of timing and some expenses that were expected to occur in Q4 were pushed out to Q1. Notably non-GAAP expenses for the full year were essentially flat, as we made every effort to keep spending aligned with revenue in a challenging demand environment. Our tax provision for the fourth quarter reflects the full year impact of the Federal R&D credit which was enacted in December. This resulted in a negative effective tax rate for the quarter adding $0.05 per share to our non-GAAP earnings. Including the tax benefit, fourth quarter non-GAAP earnings were $0.58 per diluted share. Diluted share count for the quarter was 29.1 million shares, down slightly from the prior quarter, as the prior quarter's buyback activity was fully reflected in the weighted average calculation. No shares were repurchased in the fourth quarter as our share price exceeded the maximum purchase price specified in our buyback plan. However over the course of the year, we repurchased 1.25 million shares for $53.7 million, resulting in a 4% reduction in weighted average share count for the full year. Cash flow from operations for the year was $92 million, with capital expenditures totaling $22 million. We returned virtually all of our free cash flow to investors during the year, using a total of $68 million for buyback and dividends. As a result, our balance of cash and investments were virtually unchanged from the end of the prior year at $174 million. Inventory on our balance sheet decreased further during the quarter to 107 days on hand, down 6 days from the prior quarter, and remaining well within our targeted range. Looking ahead to the first quarter, we anticipate a sequential decline in revenues reflecting the effect of the lunar new year holiday, as <UNK> noted. Specifically we are projecting a revenue range of $84 million plus or minus $3 million. This would be a 2% increase year-over-year at the midpoint of the range. While not prepared to give a forecast for the second quarter, we do think an acceleration of our growth rate is likely in Q2 based on the current booking trends, and the expected contributions of new design wins. As mentioned earlier we expect gross margin to tick higher in the first quarter to approximately 51% on a non-GAAP basis. We expect non-GAAP gross margin to hover around the same level for the balance of the year, as the cost reductions roughly offset the impact of further growth from InnoSwitch. Non-GAAP operating expenses will be sequentially higher, reflecting the pushout of expenses from Q4, as well as the seasonal effects of payroll taxes, and the December shutdown. Specifically we expect non-GAAP expenses for the December quarter to be between $30 million and $31 million. I expect the non-GAAP tax rate for the first quarter and the year to be in the range of 4% to 5%, reflecting the benefit of the R&D tax credit which was made permanent in the December legislation. With that, I will turn it back over to <UNK>. We have a number of design wins that will be ramping in Q2. Specifically in cell phones for rapid charging, but also in industrial applications, high power and a number of other areas. And also it is supported by the bookings we have in January, which has been very strong. Significantly stronger than the January of last year, and our discussions with the distributors indicate that they are building inventory in preparation for Q2. To the best we can, and assuming the macro remains reasonable, we think Q3 will also be a growth quarter, a strong growth quarter for us. And Q4 is usually flat, approximately flat to slightly down. Well, already we are seeing all of the major OEMs, or most of the major OEMs offering rapid charge. And the power level varies from 10 watts, actually 7.5 watts all of the way up to 20 or 22 watts or so. And I think for the cell phone, that's probably where it is going to end up, roughly around 20 watts. There may be some customers that will go to 25 or 30 watts, but if you go to tablets and so on, you will need higher power. Well, we had significant revenue on InnoSwitch in 2015. If you remember in 2014, we had about $5 million worth of revenue, and we were expecting it to quadruple, and it actually did quadruple in 2015, and we expect that to continue to grow and add maybe somewhere between $10 million to $15 million additional sales dollars this year. And 2017 could be even stronger, because we will be introducing our next generation InnoSwitch, which will address higher power levels, and expand the adjustable market significantly. Oh non handset. So non handset we have about 30 different applications where there is a significant design activity going on right now, of the ones that are significant that were announced already are in the appliance business. We have one major design win at a large appliance customer in Europe, that will go into production in the second half. It has been designed into a platform, but the first design is going to be a washer. It is not significant in dollar terms, but it is the beginning of the use of InnoSwitch by this customer, and we expect that most of the new products will use InnoSwitch. There is another appliance customer who is very close to qualifying our product, but beyond that as I said, there are about 30 different applications where people are designing in InnoSwitch as we speak. Well, it is fundamentally a demand issue which has become an inventory problem last year. To the extent that we can find out, it is related to the Chinese economy in general, but specifically the housing market in China which is very, very weak. There was an inventory build up at appliance customers that we think will be pretty much worked out by Q1 or this quarter. So we expect the appliance market to come back up in the second quarter. That's a good question. Let me answer the second question first, the fast charge. I think we are in a very strong position in fast charge. There is only one other competitor who is in a similar strong position, and that's primarily because of one specific design win at a large OEM, who uses a unique protocol that we intentionally decided not to support, because it is very customer specific. We also believe most of the OEMs will move to USB-PD in the long-term. So in terms of the number of design wins, the breadth of customers, we clearly lead in the rapid charging market. As far as what percentage of the phones is rapid charging, it is really hard to tell because it is very dynamic. As we speak people are moving to rapid charging. It is changing very quickly. But it is clear that rapid charging is going to be the trend moving forward. My expectation is over time most of the smartphones will convert to rapid charging. And to answer the second question, which was your first question I guess, the LED market. As you know our LED revenue declined last year by double digits. Primarily because of us deciding to walk away from the low end bulb market, which had become very commoditized, and we didn't want to go after the market and hurt our margins when the market, this low end market doesn't care about any of the values we bring, such as integration efficiency, power factor, and so on and so forth. So we decided to focus on the higher end bulbs for the western consumption, that is the US and Europe, and also the commercial and industrial lighting. I think again there we have finally turned the corner on that. The revenue from LED in Q4 was sequentially slightly higher than in Q3. And going forward we expect to be able to grow that with the new products we will be introducing. We just introduced LYTSwitch-5. We have other products that will be introduced very shortly, which will address the higher end of that market. In addition to that, what we are finding is the higher end which used to be very crowded, because most of the analog semiconductor companies had decided to get into that market. Now we are finding that the lot of them are de-emphasizing that market. I think we talked about this earlier, most of those new companies did not have a lot of experience in the AC/DC power supplies. As long as the cost of power supply was a small part of the LED market, nobody really cared about the cost of the driver. But now that the LEDs have become very inexpensive, the driver becomes a significant part of the LED cost, and I think we are in a better position on the higher end of that market now, and so we expect the LED revenue to grow this year. Excellent question. Certainly we are not pleased with the 2015 performance, and the main reason we could not outgrow the market is to do with the PC market, where our revenue went down by 30%. Even though our other markets, especially the communications markets grew dramatically. It barely compensated for the decline in the PC market. If you look at 2014, we were specifically hurt by two largest customers in the communications market, which caused us the decline in driven units in the communications market in 2014. The good news is we have gone past that. First of all we grew very nicely in communications market in 2015. We expect that to continue to grow not only in 2016, and for several years to come. Also the other thing that hurt us in 2015, was the high-power market which was down because of China, because of the exchange rate, because of the oil prices being low. Again we have reached a steady state there, and we expect the high power to also come back from Q2 onwards. Our plan is to get back to the outperformance we have been delivering in the past. And we expect to do that starting this year, and even more next year with the new products we will be introducing. We have a broad range of products that will dramatically expand our SAM, from where we are now, 2.5 billion to 3 billion, actually 2.5 billion going to 3 billion this year, and going to as much as 3.5 billion to 4 billion next year. So our goal is to get back to the kind of outperformance as we have delivered in the past. That's a good question. We have talked about it ourselves about it, but the only explanation that we have from our customers is that they had a much larger inventory of the power supplies. If you look at the way the computer companies work, they have power supplies already stocked at their manufacturing sites, which are replenished on a continuous basis. So when the market goes down you have a much bigger inventory problem on power supplies, than you have on the motherboards and the microprocessors, which are much more expensive components, as you can imagine. I think that is the fundamental problem is that we had a much bigger inventory correction than other PC semiconductor manufacturers have had. And the other thing that also hurt us, is that once the PC market started going down so dramatically, most of our customers stopped designing new power supplies, which would have helped us because of our Hiper products. We were making good inroads into the main power supply, but what we found out is that nobody wants to design a new power supply when the market is tanking. So that also is kind of an unfortunate situation. So that's the reason we kind of guided that we are going to grow the OpEx to mid-single digits this year because of the challenging demand environment we kind of tightened our belt. Because you have had a lot of, as <UNK> indicated, a lot of technological breakthroughs, we are going to make significant investments in R&D, that is why our OpEx will be mid-single digits, but I think this spend in R&D will not only help us with new products coming out this year, but set the stage very well for 2017. And that's why as we indicated in total that we have an unusually large number of products that are coming out in 2016 and 2017. Percent. As we indicated in the December quarter what happens is not only do we have the shutdown, but as we have tightened our belt a little bit, certain expenses whether it was for what we talked about the R&D materials, but also some head count got pushed out. What happens in Q1 is the FICA kicks in. In Q1 you have roughly about a $1 million impact, just between the shutdown and the FICA kicking in. Again the other expenses that got shifted out, that's why we are giving guidance of $30 million to $31 million. It will taper up a little bit in Q2 from there, and then come down in Q3 and Q4 as FICA tapers off. And then basically for the year we will have a mid single digit percentage increase from the totals we were at the end of FY15. Our non-GAAP FY15 numbers are roughly around $117 million non-GAAP. So we will go up mid single digit percentages from there. Absolutely. I can just run through them if you like. The important thing is the contribution from those markets will be gradual, meaning we will have some contributions this year, but it won't be very significant. It will be really consistent over the next two or three years. It will ramp up very nicely. Other than cell phone chargers, which is a big one, the second biggest one is major appliances, and then residential networking, set top boxes, metering, merchant adapters, consumer, other consumer products, computers, server standby, comfort appliances, the air conditioning units, power tools, industrial battery chargers, monitors, industrial control. I can go on and on and on. The important thing is, it covers all of the four major markets. The best we can tell you is the InnoSwitch revenue in 2016, we expect to be $10 million to $15 million higher than last year. A lot of that is from cell phones, but there is a portion of that from a non cell phone applications. Next year 2017 we think the dollar increase could be even higher, because of these other applications coming into the revenue picture. You're welcome. <UNK>, typically the guide is within plus or minus $3 million, so this is pretty typical what we do. The range that you always get, this is the lunar new year as you look traditionally in the last three years, has caused us some difficulty and to be much more precise. If you look at the last couple of years, our shipments as we indicated have been higher than the revenue sold through. We are on sell through accounting. And it is because of the holidays, and typically while we are seeing such large bookings, is because people are prepping for a nice ramp up in Q2. We are at about 6.5 weeks in Q4 which is kind of similar to what we had in Q3. Based on the bookings and expecting that the shipments will be much higher than revenues so we expect the channel inventory to grow in the first quarter. I think we have kind of, if you are looking at it, I think it is kind of normalized, but as we are looking ahead in our models, we are not looking for a huge growth in the computer segment. We are expecting it to be kind of flattish. But we are expecting all of our other three end markets to grow very nicely this year. That is the reason we have given the 51 plus or minus guidance. We were thinking that we would also have a little more benefit from yen. With the yen changing we are not going to get all of that benefit this year that we were originally talking about. That has impacted it a little bit. It is a mix, so it is a combination of all of this, but we feel that we will be in this range of 51 plus or minus. It could be a little up. It could be a little off plus or minus, very close to that throughout the year. Basically it is we have a lot of cost reductions coming in, which will offset the impact of the growth in InnoSwitch, which is a headwind a little bit, in terms of margin.

2016_POWI

2017

ADBE

ADBE #Sure, <UNK>. Clearly, from our perspective, the Business is performing exceptionally well. We had a great Q1 across all the key metrics, and to your point, we provided we think are strong Q2 targets. If you remember back, we guided FY17, the first time at Analyst Day back in November of last year. We've updated it again in December with Q4 earnings. We updated it once more in January for TubeMogul. We just don't want to get in a habit of updating annual guidance so frequently. We're very happy with the first quarter. We're very pleased with what we were able to do from a guidance perspective on Q2. Clearly, we've got momentum. We just don't want to get in the habit of updating annual guidance that frequently. Our salary increases kick in for the Company, and that has an effect on Q2 from a cost perspective. You'll see that every year. We'll continue to hire and invest in the Company. Again, we feel great about our performance in Q1, and our ability to drive leverage in the model going forward. Yes, let me take the second one first which is, you'll get an update as well at Summit. So we're hoping a lot of you will be at Summit. I think you'll be pleased with how quickly we've been able to integrate the products. From my point of view, the benefit from the Microsoft relationship is really customer-driven. Customers are asking for integration with Azure, Power BI, as well as Dynamics. I think the team has done a great job. But next week, we will give you a little bit of an update on that. On the first question as it relates to the competitive, I think we've talked about ---+ this is a $40 billion TAM. Clearly, there are other players that you are alluding to that are also seeing this as a market opportunity. And so ---+ but our track record and our winning percentage record in the areas that we're strong continues to be excellent. I think we have a differentiated solution, and I think our vision, the way we want to take this and how we want to continue to expand it, I think it still makes us a unique leader. But certainly, there are other players in this market as well, <UNK>. The single biggest thing probably worth mentioning, <UNK>, is you're exactly right. If you look at Digital <UNK>eting this quarter, that $10 million of gross revenue recognition would flow right into COGS so you would have $10 million of revenue and $10 million of COGS. If you back that $10 million of COGS out of Digital <UNK>eting, the gross profit would be exactly the same as last quarter. There's really no change to Digital <UNK>eting cost of service. It's been pretty consistent. And you're exactly right, it was really driven by 2014. On the Digital Media side, I think what you saw this quarter is some of the upside that you see in our revenue relative to our guidance was from a bit more perpetual product, especially on the Acrobat side. And that comes, as you know, with very, very, high gross margins. That's why you would have seen Digital Media gross margin better this quarter. Services, I can't remember what your question was. It was back to Q ---+ The revenue is down sequentially mainly because in Q4, it's a very difficult time for the teams to deliver services with holidays and year-end. So, typically, Q1 revenue is going to be a little bit lighter on the services side. The cost of services doesn't change that much so that's why you see a little bit less on the gross margin side. Yes, this is <UNK>. We did push out some price increases around the world in various markets because of FX to stay FX-neutral, if you will. The good news there is we really did not see an impact to ARR. So that does give us confidence down the road, we are able to tweak pricing a bit. We're not taking advantage of that yet other than FX but that was a very good sign. With the week, I would have to get back to you. The TubeMogul growth, you just take out $10 million, and instead of $26 million, it would have been $24 million. But I don't have the week broken out between the different businesses. It's about $75 million, we said, a year ago. But we didn't split it between the businesses, I don't think it's (multiple speakers) very material for Digital <UNK>eting, to be honest with you. It's more material on the media side, that extra week. Because you think about it as recognizing revenue from subscribers. It doesn't change that much from an enterprise perspective. The way that I would answer that is strategically, as we look at that business, there are three things that we think we continue to have to execute on to ensure that we capitalize on the opportunity we've talked about. The first is integration within the products. I think you've seen us make some good integration with products like Photoshop. The ability for people to contribute and to acquire assets is built into the product. That's one area that we are continuing to make sure we invest. The second one that tends to be a win, which you compete effectively is the inventory. So I think having the inventory and having the inventory across different kinds of assets, including premium and including partnerships with some of the people that you are talking about. That also helps us ensure that we are competitively either ahead of the market, or at least in line with the market. And the third one that we think about when we think about stock is, how good is our technology to find the right asset based on the intelligence that we can provide. And that's where I think we will demonstrate superior advantage to anything else that's out there, because our ability to understand these assets and, irrespective of what keyword is being used to search for a particular asset, we turn to the right, in other words, search relevance and search is going to be a key part of it. I think in all three of those, we're continuing to make great progress. I think at MAX, we showed you a lot of really cool ways in which we will make that more relevant. It's an area we will continue to invest in, so we feel good about it there. You're absolutely right. The good news is we're absolutely mission critical to our customers, so the level of engagement that we have with these enterprises is at multiple levels all the way from the C-Suite to all of our products. I would say, actually, on the field side and on the partner side, we [are everywhere] we think we have a world-class organization that does that. Because it's not just what you do internally. It's ensuring the thousand partners that I talked who are also partners with the companies that we're working with are evangelizing and promoting our products, and are educated on our products. I actually feel good about all of those. In some cases, you have those deals, the larger the size, the time taken can increase. But that's why we want to build a healthy pipeline and continue to execute against that. Feel very good about it and that is, without a doubt, one of the areas where we've invested in over the last few years. Sure. There's no difference on the cost side than what you've seen in prior years. As I just mentioned a few minutes ago on the revenue side in Q1, we did have a little bit of the upside coming from some increased perpetual revenue on the Acrobat side of the business, on the Toolbar distribution deal. And that revenue upside can typically drop down to the bottom-line pretty readily. So, that's where you saw a bit more margin than we had guided to in the first quarter. Expense-wise, there's no real change to our trajectory and there hasn't been for quite some time. In terms of long-term margins, the best I can do for you right now is two things. One, we're very focused on margin. You see that in any given quarter. You see that when we over-achieve on revenue, like we did in Q1. We gave a three-year model a little while back that shows what margins could like those look through at least 2018. And if you looked at that model and looked at it back when we gave it to you, you would see margins up above 35%. Beyond that, we'll see. Operator, we will take two more questions, please. We actually feel really good about all of the technology that we have. We're always on the lookout for small innovative companies. I think both <UNK> and I have always talked about we look for is it bringing us strategic advantage. What is the culture of the companies that we are looking at because we are very, very thoughtful about making sure that we continue to expand on the vision of what people want. And the third is financially, whether it makes sense. I ---+ we've done some when they make sense. But, we feel really good about the core value that we have and we continue to be on the lookout for things that meet our criteria in all of those. Namely, continuing to expand strategically what we can do, ensuring that the culture fit is right and financially making sense. From our point of view, as we are going more and more to these large enterprises with solutions across the Creative Cloud, Document Cloud, and the <UNK>eting Cloud, we have a quarterback model and the account model with this quarterback is that they are clearly bringing to bear opportunities like the ones that you are talking about. If you are in there primarily with <UNK>eting Cloud ensuring that we sell more solutions, sell stock, sell Sign, and continue to drive the CC ETLAs, so I think the model that we have in the field is really one of, how do we comprehensively to these larger accounts, ensure that they are getting the benefit of the breadth of our solutions. And to your point, in CC, when we think about the CC enterprise opportunity, and the conversations that we are having with those customers, we are very much moving them from custom to complete. And we are moving them from complete to complete plus services. And the services that is top of mind for us is Stock. So it's a good question and it's clearly one of the areas that we're focused on. Since that was the last question, I think, in summary, we were really pleased with the strong start to Q1. It was an outstanding quarter. I think the Q2 targets that we gave reflect the continued momentum in the business. In addition to the great quarterly performance, we are really excited about the long-term opportunities that we've outlined, namely, the ability to empower people to create the things they want to create, and to enable businesses to transform themselves. And I think we're ---+ we continue to be unique in that we are one of the only companies that's delivering great top-line growth and bottom-line earnings. We're looking forward to next week's Adobe Summit. It's our largest ever. We really hope you'll join us to hear about our vision for the future and demonstrate both product and partner progress against that vision. Thank you for joining us today. This concludes our call. Thanks everyone.

2017_ADBE

2015

CYTK

CYTK #Good afternoon, <UNK>. Sure. I'm going to paraphrase, obviously, but in our meetings with FDA, and I'd say also with EMA, there was a consensus view that SVC is indeed an important prognostic and predictive factor. It's a good measure. It's quantitative. But, it is a measure that should be correlative, presumably therefore also with other effects and endpoints that track with respiratory function, as well. As we've stated I think in meetings with you and others, SVC happens to be ---+ vital capacity happens to be that measure that, in the published literature, is demonstrated to be both prognostic of disease progression, the rate of progression, also survival. Also, the published guidelines underscore how vital capacity should be an important measure to inform other interventions, for instance non-invasive ventilation. I don't think there's any questioning of that. In our conversations with the regulatory authorities, both FDA and EMA understand that. And their point back to us, and it's a very valid one, is if, in fact, this drug is having an effect to slow the decline in vital capacity, so too should it correspond with these other endpoints in terms of increasing the time to a fall in respiratory domains of ALS-FRS, or time to interventions, time to respiratory failure. And we agree, so that's why we have designed this study, both with the primary endpoint of vital capacity, something that we know well from BENEFIT-ALS. And we can understand best how to use that information in the conduct of VITALITY-ALS, but also to extend the study to later time points where hopefully we'll see these effects on secondary endpoints, as well. And I think that was what FDA and EMA asked of us when they said confirm and extend these findings. I think your point is a good one. That's the crux of the issue. And to the earlier question and my response, it is always ---+ [to always thus] with FDA and EMA. It's the totality of the data, and that's where we've designed VITALITY-ALS with the objective of demonstrating an effect we hope that favors Tirasemtiv, both with respect to the primary efficacy endpoint, but also one or more secondary endpoints. So, maybe to answer that question, I'll ask <UNK> first to comment on the ordering of the secondary endpoints, and then maybe ask <UNK> to comment on why we might hypothesize that Tirasemtiv could have effects downstream, and even cumulative, on some of those secondary endpoints. Well, first of all, I think what I thought we meant when we were talking about cumulative effects was just the fact that, in BENEFIT-ALS, as you may recall, the difference between the Tirasemtiv group and the placebo group continued to increase over time. The curves were divergent throughout the 12 weeks of the study so that, at four weeks, the difference between the two groups was on the order of around three percentage points, and by 12 it was close to six percentage points. And so, in VITALITY-ALS, where we study patients for much longer, there's no reason to suspect that the curves may not continue to diverge that way. And so, we might have a much larger treatment effect later on in the trial. If that is true, therefore then, one would imagine if vital capacity is declining more slowly in patients on Tirasemtiv, and because it is such a reliable predictor of disease, one would imagine that in a study much longer than BENEFIT-ALS, as we have now, you would begin to see patients on placebo having declines in the three questions related to respiratory function in the ALS-FRSR, and not so many happening in the patients being treated with Tirasemtiv. So, that's the first secondary endpoint, is time to a decline of one point in any of the three respiratory questions in the ALS-FRSR, or death. You always have to have death. And then, the next one is time to a decline of at least 20 percentage points in the SVC. And you can ---+ in the interest of time, I'll just remind you, you can go onto clinicaltrials. gov, and they are there, and they are in the order in which they would be analyzed in the so-called closed testing procedure that we use to account for multiple testing, and keeping the error and the P value appropriate. Yes. We do believe that, after the study has completed ---+ or not even after the study has completed, but more accurately, as patients complete the study, they would be offered the opportunity to go onto open label Tirasemtiv. It's conceivable. But, as <UNK> has already mentioned, it's going to depend on the totality and the strength of the data. If we see a just whopping effect on vital capacity and clear effects on some of these secondary endpoints, it might not even be an accelerated approval. It might just be an outright approval. But, that would be the home-run scenario. And I think you can imagine things in between that and a negative trial. We don't expect a negative trial. So, it really will depend on how robust and how large the treatment effect is that we observe. So, a couple of points just to add. One is, to your point, that is an option that is on the table at that point in time, but it would not necessarily require data from the open label extension in order to be able to have a conversation about either accelerated or conventional approval, either with FDA or EMA. Those are things that I think are all fair game. Secondly is just to underscore, in <UNK>'s comments he referred to percentage points, and I want to make certain that you and others understand, that's absolute percentage points on a background of a decline of roughly three percentage points per month in the placebo patients in their slow vital capacity. That magnitude of difference, approximately five to six percentage points at the end of 12 weeks, represents a relative reduction of over 60 percentage points ---+ 60%, I should say. So, I just want to make sure that that was also clear. That's relative to ---+ well, in both cases it's change from baseline, both with respect to placebo and also in the treated group. Right. To elaborate, we're just testing the hypothesis that a change from baseline, which will almost surely be a decline, as it was in BENEFIT, the decline from baseline in patients on placebo will be significantly greater than the decline from baseline in patients on Tirasemtiv. Thank you. Hi, <UNK>. Good afternoon. So, I'll take a first stab at that, and <UNK>, you can add to it as you wish. The powering is certainly a function of a lot of different assumptions, including not only the number of patients and the magnitude of effect, but also the early termination rate as we experienced in BENEFIT-ALS. So, we designed VITALITY-ALS to detect at 24 weeks a magnitude of effect that was observed in BENEFIT-ALS at 12 weeks. And in using the same assumptions with respect to early termination, at 24 weeks we have over 80% power to detect that difference using those much more conservative assumptions. As we may see, early termination rates decline with more longer, slower dose titration and other measures that we've implemented in VITALITY-ALS compared to BENEFIT-ALS. That number approaches 90%, and can exceed 90% depending on what numbers you use in those assumptions. So, it's difficult to say how is the study powered. In effect, it depends on which assumptions you use on early termination and magnitude of effect. As <UNK> pointed out, the magnitude of difference favoring Tirasemtiv versus placebo was increasing from week four to week eight, and week eight to week 12 in BENEFIT-ALS, and may continue to increase as we now take patients out to 24 weeks. But, to be conservative, we built VITALITY-ALS around the magnitude of effect observed at 12 weeks in BENEFIT-ALS. I think we've leaned to the conservative in the design of this study. I think in that case, we have at least 80%, and possibly over 90% power to detect that, depending on what assumptions you use with regard to early terminations. Well, here's where we are exploring a new pharmacology inasmuch as Tirasemtiv we believe is the first investigational medicine to demonstrate effects on respiratory function. As such, the choice of secondary endpoints, the rank ordering and hierarchy of them and how you proceed through them in a statistical way all has to be pre-specified in a statistical analysis plan. But, to your point, you're going to want to see the totality of that data in order to understand where the cumulative effect may lie, and that's where this has to be a dynamic process. Thank you, <UNK>. Thank you, Operator, and thank you to all the participants on our teleconference today. I hope you'll agree that we had a productive quarter in the second quarter, and we have some exciting prospects as we look forward to the second half of this year. We appreciate your continued support and interest in Cytokinetics. And Operator, with that, we can now conclude the call.

2015_CYTK

2016

EXPR

EXPR #Okay, starting with your first question, <UNK>, in terms of expanding capsules. Yes, it is about expanding capsules, but it is also about product extensions. So when we look at some of the results that we've seen in footwear, we see that footwear is also a major opportunity for us go forward in terms of expanding the footprint in our stores and online as well. One Eleven, as I said on the previous question, I believe is a very, very big opportunity for us as a business. But as I said to <UNK>, we are very much in the exploratory stages there. And as <UNK> said earlier in answer to a question, it is really a crawl, walk, run approach that we are taking. We tested it in 50 stores, we rolled it out to the chain last July. We broadened the assortment this spring. We are doing various tests this spring in terms of placement within the store and we are seeing some really great results from that. And we are literally taking it each day as it comes. But, yes, I do believe that there is big opportunity around that and there is big opportunity around general innovation within the business. So you talked about Edition and One Eleven, yes, there could be other line extensions that we do go forward. And other new lines that we deliver into the store and online as well. But we are in the imagining stages of that, and we are working on it every day. I'll ask <UNK> to answer the next question. So from a systems perspective, just for perspective, the current systems that we are operating with, which we are about to get off of here in a few months, the remaining systems, these are systems that are 20 to 25 years old, extraordinarily old systems. When you step back and look at the planning we currently do by channel, e-commerce we plan as a single store in our planning system because that is the only ability we have today. When we started running our outlet business, we effectively had only two departments for men's and women's combined, to plan for our outlet business. It is a very difficult customized system that we have to plan the product and the allocation in today. These new systems will give us much more granularity to plan by individual channel, and get down to the store level as well, to enable us to really sharpen where we put product and how we liquidate product as well. So we think there are significant opportunities. But again, these opportunities, given that the systems ---+ some are going in at the beginning of May and some are going in at the end of July, a lot of the benefits will come in 2017 and 2018. Thanks, <UNK>. Thank you. This concludes our call for today. Thank you for joining us this morning and for your ongoing interest in Express.

2016_EXPR

2015

ADP

ADP #Yes, I glad that you're asking for, DataCloud is the branded name for our data analytics and big data product that we are developing and it is our new market-leading comprehensive reporting and analytics solution that includes benchmarking and capabilities for it. And it's sold in our mid-market as an incremental module reporting ---+ or analytics module if you want, it's called DataCloud and you subscribe to it on a per-employee, per-month basis and this has just launched and we have 1,000 clients mostly in the mid-market. Vantage has it built in and it's included and we're seeing good traction. I think this is going to ---+ for my personal expectation it should be a must-have because it is truly unique the way you can now drill in and compare your performance to a level of detail of comparative benchmarks, it's really not available elsewhere. So we're putting big investments into our data analytics product development and DataCloud as we did the first version of it and you should see continually expansion and broadening of the offerings. So it's very exciting early stages and I think you'll hear more from it over the next year for sure. Thank you all for joining us today. I think that the 2015 results as you see, I think are an example of the enduring quality of the ADP business model. As we continue to combine best-in-class sales operation with breakthrough products and services to try to meet the needs of our clients. I also want to take this opportunity to say that, as excited as we are about the opportunities in front of us, we need to thank our associates and in particular our sales implementation associates for the hard work in 2015. There was a lot of extra hard work to make these new bookings results happen and there's still a lot of work in front of us here in 2016, and it would appear beyond, in order to get all this is business implemented, started and provide the clients the service they expect from us. So I appreciate their hard work as well and I look forward to talking to you again next quarter. Thank you very much.

2015_ADP

2016

OSUR

OSUR #Thanks, Nick. And the great results in the quarter, a big contributor to those was our HCV business. We saw great growth as we mentioned on both the domestic and international front, 78% year-on-year growth in the domestic market. And that's the result of active discussion and work with current customers as they expand their testing programs, and then of course a lot of activity with prospective customers and trying to get new customers to begin testing. Our work with AbbVie continues. We continue to work together on our co-promotion activities as well as on the special programs and that's going to continue through 2016. We've got a meeting with them in a couple weeks to review the 2016 plans and make sure we're aligned on those. And we're seeing new entrants into the therapy space, and I think that, from our perspective, that's expected, right. That's no surprise. And I think that the fact that more of the therapy providers are competing for patients, that's going to continue to create demand for diagnostics. And I think that we're in a great position to continue to capitalize on that. You mentioned the future prospects that we have to work with AbbVie. We're completely focused on building the AbbVie relationship and making it successful. You're probably aware that, as outlined in the redacted copy of the AbbVie co-promotion agreement which was filed with our previously filed 10-Q, that we both have termination rights which could be exercised at the end of 2016. But that's neither here nor there for what we're doing today and our intent for 2016. We're looking forward to working with AbbVie and making the effort successful. It's our policy not to comment on litigation. And so really at this point in time we really have nothing to say with regard to that other than we continue to assert our IP and our contractual ---+ our contracts and we'll just continue in the process. I think we're going to continue to have some headwinds there in 2016, although the team is working diligently to stabilize that business, and I think we're going to make some progress in that regard in 2016. At the same time, I mentioned opportunities we have to grow our professional HIV business, particularly in the international space. We are super excited about the work we are doing with PSI and UNITAID in Africa and I mentioned the three countries that are specific to the STAR initiative ---+ that's Zimbabwe, Malawi and Zambia, but we're also working with several other African countries as well as some Asian countries to roll out a similar kind of pilot programs. And these are really designed for high-prevalence countries where today's routine HIV testing just aren't reaching the affected population as effectively as these governments would like. This is a very large pilot that's being initiated in Africa with PSI and UNITAID and there's plans to scale this significantly in the out-year. We're, like I said, very excited about it. Our product is ideally suited for this application: the ease of use, the accuracy, the oral fluid application. And we have a lot of learnings from our in-home HIV test here in the United States that we have now transferred to a simple, low-cost, easy-to-use device that can be deployed into these developing markets. So more on that to come, but we wanted to highlight that in our call this evening. Thank you, <UNK>. Yes. Thanks for the question, <UNK>. And you probably noticed that we didn't speak specifically to 23andMe in the prepared remarks today, and that's really for some competitive reasons. And so we're going to try to refrain from doing that in future calls, much like we don't really speak to specific accounts in other parts of our business as a general rule. With that said, our sales to entities that are in the personal genomics space have been very strong in 2015 and they were a significant contributor in 2014. And we continue to supply product to 23andMe and work very closely with them, as you can imagine, and it's been a very productive relationship, I think, for both parties. And we expect it will continue to be. So the very fact that Ebola is still out there, the unfortunate fact that these countries over the last, at least couple of, quarters have declared their countries Ebola-free only to have to update that declaration and announce that there's new cases and people dying, suggests that this is going to be an issue for quite some time. And highlight the fact that these countries are going to need to perform surveillance to understand, if there's new cases, where might those cases have originated. They have people who are diagnosed infected. There's contact testing or tracings that go on and, of course, a rapid test is ideal for those applications. As we've previously mentioned, the product sales that we've made to date have been to the CDC for both clinical studies as well as deployment in the field for this kind of application. While that's been going on we've also been pursuing WHO pre-qualification and we've submitted data to the WHO for such. WHO pre-qualification is important because that authorization allows different countries to purchase the product using Global Fund and other public provider, third-party funding. So hopefully in the early part or first part of 2015 (sic) we'll see WHO pre-qualification and then that will hopefully open up additional purchase opportunities for the product. We're also continuing in discussions with different entities about stockpiling the product. We don't have anything to report on that right now, but it's another important pursuit of the company. We were waiting for that question, for sure, because there's no doubt it's all over the news. We're all being inundated with that. We have had multiple discussions with the leadership of different organizations in the US government, as well as around the globe, about the need for accurate diagnostic tools to deal with Zika. It reminds me of some discussions we had a year ago or more when the Ebola crisis was raging. I think it's important to understand that it's a little different than Ebola. I don't think that it's as well understood. And health authorities around the world are in discussions and collaborating on what they believe is the right next step with regard to both diagnostics and therapeutics and really just what to do with ---+ in this current outbreak. I'll emphasize that our approach to this is going to be very similar to what we did in response to the Ebola crisis. Number one, if we're capable of developing a diagnostic ---+ and that's what health authorities say they want and need ---+ then we're willing to do that, provided that there's some support for that development as well as some commitment to ongoing purchase, much like we were able to secure with the Ebola project. I don't have anything to report on that right now, but should anything develop, obviously we would make an announcement in that regard. Thank you. Hey, <UNK>. I'm sorry, I didn't catch the end of that. We haven't dimensionalized that publicly, but it was a nice contributor to fourth-quarter revenues. Yes, we haven't broken that out. I will say demand continues to be very high in the public health market and that's where we continue to see the greatest demand for the product, largely because they have large budgets and they're able to deploy some of their HIV prevention monies to hepatitis prevention under the CDC and other state and local grants. So that's been the biggest contributor to our growth in the HCV market, along with the international contribution, of course. The patient advocacy organizations have been very active across all the market segments, that's for sure, because, I think, of some of the constraints that have been put on therapy and the payers' desire to stage patients and, in some respects, carefully allow, or on the flip side, restrict access to these drugs because of their cost. So the advocacy effort continues to grow and I think will continue to grow as the effectiveness of these new therapies and awareness about Hepatitis C continues to build among the consuming public. One thing that we are seeing that I think is very interesting, and I think this will come out down the road, I think health care providers are finding a higher prevalence of Hepatitis C infection in young adults, particularly individuals 18 to 45 years old. And this increase in HCV incidence is believed to be driven by the significant increase in injection drug use in America. And so we're seeing some pretty significant prevalence rates in the different testing programs that we see in the public health market and in different hospital or other large group screening programs. And again we're happy that we have got a tool that can be used in those situations and delighted that there's therapies that can treat these people, but it's a big issue, I believe, and I think we're going to hear more about that down the road. Um-hm. Okay. I just want to thank you all again for your interest in the company and your support and look forward to updating you in a few months on our first-quarter performance. Thanks again for joining us, everyone. Have a great afternoon and evening.

2016_OSUR

2017

CPB

CPB #Thank you, <UNK> Good morning, everyone, and welcome to our second quarter earnings call Today I'll share my perspective on our performance in the quarter and provide my view on our progress across each of our three divisions <UNK> will follow with a detailed financial review Let's be real I am not satisfied with our overall sales performance in the quarter Organic sales declined 2%, with the most prominent declines in Campbell Fresh and V8 shelf-stable beverages Additionally, in the Campbell Fresh segment, we recorded non-cash impairment charges related to the carrot and carrot ingredient and Garden Fresh Gourmet reporting units <UNK> will walk you through additional details during his comments There were some bright spots in the quarter, such as growth in U.S soup, simple meals, Pepperidge Farm snacks, and fresh soup Our adjusted gross margin increased 70 basis points, all of which was achieved by Americas Simple Meals and Beverages Another positive result was the over-delivery of our cost-savings initiatives As we announced this morning, we now expect to achieve our cost-savings target a year ahead of schedule Based on the success of the program to-date and the identification of additional savings opportunities, we're raising our cost-savings target from $300 million by the end of fiscal 2018 to $450 million by the end of fiscal 2020. Looking at the first half, organic sales declined 1%, adjusted EBIT was comparable to a year ago, and adjusted earnings per share increased 5% With the expectation of improved sales performance in the second half of the year, we reaffirmed our full-year guidance this morning Now let me offer my perspective on the performance of each of our three divisions in the quarter Let's start with the Campbell Fresh division The CPG segment of C-Fresh includes Bolthouse Farms beverages and salad dressings, Garden Fresh Gourmet salsa, hummus, dips and chips and fresh soups The Farms portion of the portfolio includes carrots and carrot ingredients The division's performance was below our expectations this quarter C-Fresh is an important strategic business for Campbell, and we remain confident in the growth potential of the packaged fresh category, as consumer preferences continue to shift towards fresher and healthier foods In fact, nearly 80% of consumers, including younger ones, are trying to eat more fresh foods These consumers not only believe that fresh foods are cleaner, healthier and less processed, but that they also taste better We acquired two packaged fresh businesses: Bolthouse Farms and Garden Fresh Gourmet with brands that resonate with consumers as a way to develop a long-term growth platform in packaged fresh CPG The perimeter categories in which we compete are still growing significantly faster than the traditional center-store While category growth rates have slowed somewhat, we still believe we can build a profitable growth business, leveraging these brands, capabilities, and our scale However, our performance over the last year in fresh has been disappointing The reasons vary by business, which I'll explain in more detail in a minute We've made a number of changes to address this Most notably, we replaced the leadership team and appointed a long-time Campbell executive Ed Carolan as the President of C-Fresh in November I'm confident in this new seasoned leadership team, which includes Campbell executives, some newcomers to the company, and key members of the Bolthouse Farms team who possess CPG and agriculture experience as well as insight into both the operations and the entrepreneurial culture of the organization It's taking longer than we originally expected to regain carrot customers following last year's quality and customer service issues and to rebuild capacity following the Protein PLUS beverage recall As a result, we no longer expect C-Fresh to grow this fiscal year Over the last quarter, our new team has conducted an extensive strategic review to assess the potential of this business going forward This has helped us update our expectations about future growth based on the fresh categories in which we compete and is leading to a sharpened strategy As a result of this work and our current-year performance, we've lowered our expectations for both long-term sales and earnings We've learned some tough lessons over the last several quarters and we're applying them As a first step, we started to integrate the supply chain to reengineer the fresh operating model We're building a stronger foundation under the Campbell Fresh business, leveraging Campbell's scale and expertise, realizing synergies, and building capacity and capabilities in order to return it to profitable growth Let me now take each piece of the business individually and explain Let's start with farms and specifically the carrot business After experiencing quality issues last year due to execution and poor weather conditions in California, we've restored our carrot quality We've demonstrated this improved quality to customers and are working hard to earn back the lost business over time Our previous assumptions were too aggressive and regaining share is turning out to be more difficult than planned In the current quarter, our carrot business faced additional challenges, again related to the weather In California, rainfall in December and January was significantly higher than normal This hampered our ability to harvest fields and lowered our yields on the carrots we did harvest This negatively impacted both sales and earnings in the quarter Now let's turn to beverages Last June, we voluntarily recalled our Protein PLUS beverages for quality reasons At that time, we had a 47% market share of the protein segment and Protein PLUS was one of our strongest performing SKUs The good news is that consumers are seeking out protein products and our Protein PLUS consumer is a loyal shopper As previously discussed, we implemented enhanced processes to improve the quality standards, resulting in fabulous product quality, albeit at reduced run times Since then, we've steadily improved but have not returned to pre-recall production levels We've added an additional beverage line in our Bakersfield plant that we expect to be fully operational in April As we discussed last quarter, we're seeking additional ways to increase capacity We've had challenges in finding co-packers that meet our quality standards, but we've recently qualified a co-packer and expect to be significantly expanding our capacity by the summer We're able to fulfill shelf-stock and service levels back to the high 90s In addition, we're seeing increases in velocity each period as we regain distribution While we're selling everything we make, we have insufficient capacity to fulfill merchandising demand across the full range of our beverages Our plan is to re-launch Protein PLUS merchandising in the fourth quarter of fiscal 2017 when we expect to have sufficient supply Due to our continued capacity constraints, we don't expect our beverage business to return to growth until the fourth quarter Meanwhile, we remain focused on driving innovation across the Bolthouse Farms CPG range, including dressings, spreads, and super-premium and ultra-premium beverages We recently extended our salad dressing line with a range of four new organic varieties We also launched a test of Bolthouse Farms MAIO, a new line of refrigerated yogurt-based spreads made with clean ingredients and fewer calories than mayonnaise Later this year, we plan to expand our line of 1915 by Bolthouse Farms organic, cold-pressed juice and launched Bolthouse Farms Plant Protein Milk, a higher protein alternative to almond milk Customer response to this new product has been very positive Now, turning to Garden Fresh Gourmet As a reminder, the business has four product groups: salsa, which is over half of the business; hummus, dips and chips; and fresh soup The business offers a combination of branded and private-label products The traits that made Garden Fresh Gourmet an attractive acquisition target, a small authentic brand with a compelling story have also presented some obstacles When we acquired it in June 2015, Garden Fresh Gourmet was a small operation with approximately $100 million in revenue and very little infrastructure The integration into the Bolthouse Farms fresh platform proved to be challenging The truth is, we expected more, faster in multiple areas of this business, including financial systems, information technology, and supply chain integration, as well as increased marketplace distribution Let me explain the issues we've encountered and what we're doing to fix them Garden Fresh Gourmet branded salsa is growing strongly in consumption, and we've regained a major customer beginning January 2017. Private-label salsa is below expectations due to lost distribution with two customers We've recently regained one of these customers and active negotiations are underway with the second Throughout its short history, Garden Fresh Gourmet salsa was largely a Midwestern brand Our plan called for the rapid distribution expansion of branded salsa beyond the Midwest However, it became apparent that we did not have the differentiated recipes and taste profiles that would be accepted by consumers in other parts of the country We now have the recipes to pursue expanded distribution In January, we launched branded Garden Fresh Gourmet salsa in new packaging with new regional recipes We're focused on key distribution and velocity-building initiatives For example, in January, we gained national distribution for new branded organic salsa with a major customer Today, our ACV distribution of Garden Fresh branded salsa is only 37%, so we have a lot of runway to match the 70% ACV levels of our other C-Fresh CPG brands We're optimistic that we can get there with delicious high-quality ingredients, product and packaging innovation, improved marketing and sales support, and expansion into organic and regional flavors I do want to take a moment to highlight a positive result in the division We've made significant gains in our fresh soup business, which continues to grow at high single-digits, driven by both private label and branded soup We recently introduced a new Garden Fresh Gourmet soup, which has been well received by customers and initial velocity is encouraging We're also testing Souplicity, a new artisanal cold-pressed soup We continue to expect to grow the Garden Fresh Gourmet business profitably, but it will take longer than we originally planned Overall, we've learned several important lessons from these two packaged fresh acquisitions and we're applying them going forward First, establishing a leadership team with diverse skills and experience early on is critical Our new team combines the talents and capabilities of Campbell and Bolthouse leaders They're actively integrating C-Fresh into Campbell and taking advantage of our full suite of resources We're now blending the best of small while also benefiting from the best of big Second, fresh food is more perishable and, therefore, more fragile At Campbell, we're obsessed with safety and quality We put safety above all else because if we don't, nothing else matters Meeting Campbell's quality standards in C-Fresh required significant investment and the right resources Third, there's no roof over the carrot fields We've experienced everything from severe drought to record rainfall This business has been much more volatile than expected We've set up more diversified growing regions, but we have more to do to strengthen our agricultural operations Fourth, the fresh supply chain presents an opportunity for productivity improvement and optimization We believe we can and will drive margin improvement in these businesses over time Finally, we have both the ability and the desire to build strong brands and drive growth in response to increasing consumer demand for fresh foods To recap, we're facing some challenges in C-Fresh beyond what we originally realized Our new leadership team is making progress in addressing them To be clear, we remain committed to the packaged fresh category and to M&A in the fresh space as we build this growth platform Now let's turn to Global Biscuits and Snacks As a reminder, this division includes our Pepperidge Farm, Arnott's, and Kelsen businesses The organic sales decline in the division was mainly a result of the performance of Kelsen and our decision to forego some less-profitable business for the large U.S Additionally, the depreciation of the Chinese RMB negatively impacted our sales in China Stepping back and looking at the underlying trends in Kelsen, China, we feel good about our execution during the important Chinese New Year period As we've discussed previously, we've been working to expand our distribution capabilities in China, and we've been adding new sub-distributors to extend our reach Our sell-in for Chinese New Year went according to plan and promotion displays were consistently strong across all store formats We're still awaiting consumer takeaway Turning to the U.S , Pepperidge Farm delivered modest sales growth behind the continued strong performance of Goldfish crackers as well as cookies, especially the Milano brand Goldfish growth benefited from channel gains, leveraging multiple pack sizes and innovative new products Goldfish made with organic wheat is also attracting new millennial families to the brand However, our fresh bakery sales declined as a result of intensified competitive activity, especially in the sandwich bread category As a reminder, we're cycling double-digit operating earnings growth this quarter, and we expect a strong back half as this division delivers both sales and margin growth Looking ahead, we're focused on driving continued growth in Goldfish and increasing innovation in cookies, especially the upcoming launch of our new farmhouse line in April These cookies leverage Pepperidge Farm's baking heritage and deliver against our Real Food Philosophy with great taste and simple ingredients We'll also continue to build the national rollout of Tim Tam biscuits in the U.S following its recent launch in January Rounding out the portfolio is our largest division, Americas Simple Meals and Beverages I'm encouraged by the sales gains in soup and simple meals However, this was offset by the lackluster performance of V8 shelf-stable beverages I continue to be pleased with the Americas gross margin expansion, driven by the performance of our supply chain team Once again, the division delivered strong operating earnings growth of plus 8% Our U.S soup business grew in the quarter I'm especially pleased with our ready-to-serve brands Sales increased double-digits in ready-to-serve Chunky continued to lead the way behind our improved execution and strong integrated marketing that fully leveraged our NFL sponsorship We're also delighted with the launch of our new Well Yes! clean label soup, which hit shelves in December Retailer acceptance has been exceptional, with ACV already around 75% and most customers taking all nine varieties We activated our marketing plans in January and the initial consumer response has been positive It's early days, but we feel good about our overall execution and how we got out of the starting blocks with this brand Sales declines in our broth business were as a result of increased competitive activity, mainly from private label offerings As discussed last quarter, we had strong holiday merchandising plans for our broth business, and we were pleased with the execution of that program However, we did not achieve the consumer takeaway that we expected as a result of an extremely competitive holiday period In the short term, we will be sharpening our promotional activity and marketing message to drive improved performance in the back half of the year while we continue to develop longer-term plans to improve our competitiveness and differentiation in this important category Looking ahead on U.S soup, we have robust marketing plans in the third quarter and we continue to expect to deliver modest growth in soup this fiscal year The shelf-stable beverage category remained sluggish and our portfolio continues to be challenged As I previously stated, V8 will not grow this year Let me reframe the conversation to provide a little more context In the quarter, consumption grew in two-thirds of our business: V8 100% Vegetable Juice, Veggie Blends and our V8 + ENERGY franchise All of them are on trend and leverage our heritage in vegetable nutrition Importantly, we continue to see improved consumption trends in V8 100% Vegetable Juice, following our increased marketing support The remaining one-third of the portfolio consisting of V8 V-Fusion and V8 Splash is declining, partly due to category-wide consumer concerns about sugar Despite the overall sales declines, the business continues to focus on productivity initiatives, which are contributing to the overall gross margin expansion in the division Big picture, the Americas Simple Meals and Beverage division continues to be on track to deliver modest sales growth and margin expansion In closing, I want to stress again that I am not satisfied with our overall sales results this quarter I own it, and we have plans in place to improve our performance in the second half, deliver our cost savings, invest back in our business, and deliver our full-year guidance It's really important to keep sight of the long-term progress we've made in transforming this company in a difficult operating environment: our continued gross margin expansion, how we strengthened our core business while expanding into faster-growing spaces, the investments we're making in real food as a result of our purpose, how we've diversified our portfolio with innovation and acquisitions, and a leaner more agile and more cost-effective company we've become as a result of our successful cost-savings initiative, I look forward to seeing many of you next week at CAGNY where we will focus on Campbell's long-term strategic growth platforms Now let me turn the call over to our Chief Financial Officer, <UNK> <UNK> Yeah I'll take that one Thanks, <UNK> We're very pleased with the performance of Pepperidge Farm We've had, particularly in the snacks business, some really good growth And our distribution system – DSD distribution system is different, in that it is a network of independent contractors, so that's really how we've assessed it I mean, we're continuing to run our play We're very happy with the introduction of Well Yes! There were great retail support, 75% ACV distribution, displays everywhere, but we won't get a read on the consumer takeaway really until this quarter Hi, <UNK> Hey, <UNK> <UNK>, it is a key question And when I talk about getting the best of small and the best of big, I'm really serious about what we have done is really delineated those parts of the business that really need to be separate and differentiated for the consumer and the customer, and that's all of the marketing and the R&D and insights And we have this model that we've used very successfully with our Plum organic baby food business by keeping those parts of the business separate that maintains that entrepreneurial culture However, being able to leverage the scale of Campbell's, particularly in areas of the supply chain and in operations where we have resources that can be used to make them much more effective and efficient and even more important achieve scale, because these are typically smaller companies that need the chassis to increase scale in the marketplace So we've done this very successfully with Plum and Kelsen We have not done it with the Campbell Fresh business And so, the situation that we found ourselves in in the last year, we've been able to insert Campbell executives on the leadership team working in conjunction with Bolthouse Farms executives to maintain that best of small and best of big So we're really optimistic and we're finding some really great opportunities to put a stronger foundation under the business See you next week Hi, <UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC Hi Yeah I think the activity definitely varies by category And what we've seen in the fresh bakery business is competition in the area of sandwich bread and Swirl bread We've recently reformulated our Swirl bread and we're out there now with a much-improved product So that was a very specific situation In fresh bakery business, our buns and rolls business continues to rock, so we believe we're all over the issue there And then in broth, it was really more of a proliferation of private label during the holiday and that produced more price competition and we have responded with increased marketing and actual trade spending to hold our own in that category So those were two very specific things that we faced <UNK> <UNK> - Credit Suisse Securities (USA) LLC Can I ask a follow-up to <UNK> <UNK>'s question actually? I think what he was kind of getting at is have you ever considered a model where you go to direct-to-customer shipments through warehouses rather than DSD, not so much using – whether you use independent routes Is that a big savings or is it even possible in Pepperidge Farm? Yeah We've been pleased with the DSD system The independent contractors, what they bring to the business in terms of selling and merchandising and delivery, it's a quality product It's perishable, so breakage could be an issue I think when you consider all of it, we're pleased with our DSD system <UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay Thank you We're very focused on our soup business We're particularly pleased with the performance of ready-to-serve soup, whether that be Chunky or the introduction of new Well Yes! I think you need to ask the other guy Hi <UNK> The strategic review that the new team undertook looked at, once again, the potential for this business, and we verified the consumer trends toward fresh and health and well-being, the fact that these categories are still growing significantly faster than center-store categories, particularly in the categories that we compete in So we feel really good about this space strategically We've had some execution issues this year and some weather issues in the agricultural part That's been unfortunate, but that does not sway us from our long-term strategic vision to really build a fresh food platform for Campbell's And I think the role of the carrots in the business is the authenticity It's on trend with consumers' desire for fresh produce Carrots have had a tough go with drought and with heavy rains and some execution issues in the last year, but I do think that that's an important part It's also the distribution system and scale in produce for us that makes us more important to the retailer So I know I'm very committed to the business and we expect big things from it going forward I think, over time, we have an opportunity to build two very strong brands here with Bolthouse Farms and Garden Fresh Gourmet We're continuing to invest in digital marketing, as you point out, some new packaging and definitely new product innovation So we will continue to support these businesses in the marketplace Hi, <UNK> Well, as you can see from the quarter, we're continuing to invest in marketing and brand building And <UNK> pointed out that as we navigate through our cost-savings initiative, which we just increased, we will be spending back on our businesses to continue to build these brands We still need to drive sustainable profitable sales growth and I fundamentally believe that's going to come from investing in the brands and engaging with the consumer So we will continue on that track Thank you

2017_CPB

2016

VZ

VZ #Thanks, <UNK>. On the FCC special access, look, the FCC will take action this month sometime on special access rulemaking and its tariff investigation into certain discounts that we and other large legacy providers offer for DS1s and 3s. We have reached out ---+ we reached a deal with a lot of the CLECs in order to resolve a long-standing and contentious regulatory issue here. Our top priority, though, is to ensure that our business services are a level playing field with all the other competitors including cable companies. We intend to work with the industry and the FCC to develop a framework for that that applies to all competitors equally and relies on the sound public policy to determine where and when regulation is appropriate. So we will wait to see what the FCC does here, <UNK>, and then we will respond accordingly. On the bond market and the recent press reports coming out of Bloomberg, look, we have been pretty open and public that we have been looking at an alternative financing arrangement for our installment sale receivables. The public asset-backed market is an alternative that we've explored. We've had a number of discussions. We are having discussions continuing with alternative providers and various parties, but at this point in time these are just discussions. It's something we're looking at. We're still doing a lot of analysis around it and at this point it's just something that we continue to look at. Nothing to announce here today that we're going to change anything at this point in time. Thanks, <UNK>. On the investment side, look, we've been pretty open that our main priority is to get our debt level back to an A- rated company and we are on track to do that. Everything we do that continues to be the top priority. So even with all of the M&A activity you've seen, if you look back, we started this on a post-Vodafone debt of $113 billion. We've reduced that to $109 billion. But keep in mind that with a $10.4 billion spectrum purchase during that period of time. That was with $4 billion of purchase of AOL and some miscellaneous tuck-ins, capital investment, share repurchase, and now we have just sold the Frontier properties that helps bring that debt down even to a lower level. So we are right on course. But that is top of mind at everything that we do and will continue to be a commitment that Lowell and I made that is forefront that we will commit to. On the AOL performance, look, I think ---+ I'm not going to get into a lot of details on AOL, but, look, they've had the best quarter in revenue in the last five years. If you go back to the fourth quarter, we said they were up $300 million year over year. Now, of course, that's seasonal, but that shows you though that the investments that we've made in the platforms, a lot of the tuck-in type investments that we made with acquisitions ---+ and these are small acquisitions, but they are real critical. If you just look at the most recent acquisition we just did with RYOT, this is a real, unique 360-degree video production. It is for really Huff Post for them to increase their viability on producing videos for news, but again, this goes to our strategy in attacking a certain population that, quite honestly, Verizon is underpenetrated in. If you look at that acquisition, it directly goes to Gen Z; 73% of their audience is Millennials. So these are real strategic for us to improve the viability of that platform. The other thing you are going to see us do this year is around go90. The go90 product will start to cross all of the AOL platforms this year. That is going to enhance both the AOL platforms and it's also going to enhance the go90 platform. Continuing with our strategy we will ---+ as I said before, we will open the box at some point in time to give you more visibility to this. And I continue to say that that will be midyear to maybe third quarter of this year where we will start to produce some numbers around some of these more specific platforms that we talk about. Sure. If you look at each of the rating agencies, each of the rating agencies have a different approach because some of them include the pension plan unfunded liability. Others include the OPEB unfunded liability. Others don't include any of that. Securitizations, some include, some don't. So each of them is a different metric, but if you look at our overall GAAP ratio, it kind of follows in task with what we would need to be. And based on the GAAP ratio, you should look at 2.0 to 2.1 type area in order to achieve that A- rating. Thanks, <UNK>. Look, I'm not going to speak anything to deal with Yahoo, so let's just talk about what we have on the table today. Under the sponsor data zero-rating type issue, the net neutrality already advocates some of this. We have structured our sponsored data program to comply with all the FCC net neutrality rules. For example, if any party, third-party is interested in that, we will offer that on a nondiscriminatory basis and we've priced it accordingly at a commercially favorable rate that we believe is in direct really compliance with the FCC net neutrality rule. We think that sponsored data and other freebie data programs are good for the consumer and that regulators will recognize that after concluding their review on our products. So based on the zero data, we will have to wait and see where they come out on that. As far as Title II goes, look, we agree with the principles with net neutrality rules. The thing that we disagreed with and opposed was applying Title II broadband services and particularly wireless broadband. So we will have to see where this comes out, but reclassing broadband under Title II was not necessary to ensure an open internet. There's been nothing ever that shows that it has not been an open internet. This will, obviously, have some negative consequences on innovation as a whole. But, look, we are a company that has operated under regulation for 100 years and has been very successful, so we will wait and see what the FCC concludes and then we will operate accordingly. But it's too early to say what exactly is going to happen here. Look, we at Verizon ---+ privacy and security has always been top of mind. Normally, we always use an opt-in with our customers or some type of an opt-out feature. The issue though that we have right now is under the FCC proposed aggressive rules on privacy and data security, that would apply to broadband providers but not companies like Google and Facebook. So if we're going to have rules, we need to make sure we don't single out certain industries to either benefit or not benefit from those rules. And that's something that our legal department continues to work with the FCC on, so we will see where this ultimately comes out. But that's really the crux of the issue for us. Sure. Thanks, <UNK>. On the competitive environment of Verizon, look, coming into 2015 and again in 2016 we said that the top priority would be to maintain the high quality of base. And you see us doing that. We now have 48% of our base over on the new pricing and we continue to push for that. You saw this 7 basis point decrease in churn for the last couple of quarters. What I would say though is, if you look ahead, last year's second quarter the churn was like at 0.90. I would not anticipate, nor should you anticipate, that we will achieve that churn rate again because things have kind of flattened out now. I would look at the first quarter as a guide to where we will be for the rest of the year from a churn perspective. Part of that is because we are seeing some increased churn on tablets, which we have talked about before, where we gave a free tablet away and we saw that the customer base just didn't see the value of that tablet when it was free. They signed up for the two-year agreement because they got a tablet for $10 a month, so $240, and they disconnected it at the end of the agreement. We stopped doing that promotion for that reason, but you see some of these tablets now coming up on the two-year deal. We anticipate that some of that higher churn in that tablet environment will hit us over the next couple of quarters, so we should be prepared for that. But as far as the smartphone churn, we are continuing to see improvement in that smartphone churn, which gets us to holding a flat churn rate overall. So I think that is really what's important to us right now is that smartphone churn rate, which is really where we are dedicating all of our concentration and our promos. On the prepaid side, absolutely. Our retail prepaid is above market. We're really not competitive in that environment for a whole host of reasons and it's because we have to make sure that we don't migrate our high-quality postpaid base over to a prepaid product. If you look at the competitive nature, they are doing it with sub brands. They are not really doing it with their brands. And quite honestly, we use the Tracfone brand as our prepaid product. Tracfone has been extremely successful for us. It's not something that we disclose any more on reseller, but it continues to increase on the high-quality base of Tracfone, so that's really where we use and go after the prepaid market. More to come on this during the year, but currently that's how we operate under the prepaid model. Thanks, <UNK>. On the video landscape, look, I think we've set the bar on where we're going on video, both in the home and outside the home. In the home, we were the first to come out with our custom TV package which rebundled certain content, and it's been very successful. This quarter, even with the rebundle of custom TV, we had a 38% take rate on that bundle. What I will tell you is, yes, it does give us some top-line pressure because it's a lower bundle from a revenue perspective, but the content cost is considerably lower. Therefore, it generates actually more margin for us. It's the right thing to do. This is what customers want. They don't want to pay for 300 channels anymore and only watch 17 on average. We're trying to give customers what they want and that's a fight obviously with all the content providers, but we are doing it within the legality of our contracts. Of course, we won't breach any of our contracts, but it's the way that the environment is moving. So I don't think we're going to change any approach to our in-home delivery. The other thing is there's confusion out there on the video side, which is everybody wants to talk about taking in-home video to a mobile handset and this is something new. This has been done for the last two years. Everybody who has an in-home subscriber, most rights give them the ability to view that content as long as they subscribe and authenticate to that subscription. They can watch that on their mobile handset. We are taking really the strategy in a whole different mode. We're going to a mobile-first strategy outside the home. It has nothing to do with in-home content. Now, some of the content you could watch at home could be on this, like sports. That has been very popular in the go90 environment, but we are looking at a lot of different mobile-first, short clips, news, sports, and if you think about it, original content. If you look at the strategy that we have taken in the last couple of quarters, we have added a lot of content that has nothing to do with in-home. If you look at our Hearst joint venture, we now have joined in with them to create two very exclusive channels for us: one is called RatedRed, one is called Seriously. TV. And the target population is 12 to 24 years old. We then ---+ as I said in my preambled remarks, AwesomenessTV we took a 25% ownership stake because what we saw was there was certain original content that we had contracted with them that they deployed in go90 and we saw viewership really jump when those original contents presented themselves. So this is another one where number one digital brand within the female population of ages 12 to 24; 160 million views, up 53% year over year. And then finally, if you look at what we just did within the last few days, entering into another joint venture with Hearst and buying Complex, 50% owner. This is another number one digital brand in the male population of 18 to 24. Monthly unique viewers of 54 million and over 300 million views per month. So this is really where we are taking the video product on mobile, which is very different than what everyone else is talking about. We believe that's where we are going to be a differentiated brand with go90 and AOL and everything else that we are doing around that video platform. So that's kind of where we're at on that. On the service revenue stability, look, <UNK>, we've done a lot of modeling. We consistently say as soon as we get to a more than 50% penetration of that base on what I will call the device installment pricing plans, we start to see service revenue flatten out and we start to see accretion at the back end of 2017. We have run a number of models and we consistently see that model towards that end. So that's really where we are at at this point in time. Tori, we have time for one more question, please. Thanks, <UNK>. First, on just the CapEx; look, there's some timing here and the reason that is because, if you look at it, in the fourth quarter of last year we really accelerated our spend really in Wireless to prepare for the Super Bowl. And that was a whole densification project on the West Coast around San <UNK>cisco and Santa Clara. So really what you are seeing here is a timing issue. We are right on track with our plans on densification. We are still deploying a lot of small cells, so there is nothing that I'm going to say here that should concern you about our plans. You will see us catch up on that spend in the second and through the third and the fourth quarter, so coming in right on guidance. Now the only thing I will say here is keep in mind that the first quarter also had $150 million on Frontier that will disappear in the second quarter. So you could assume that second quarter may be a little lighter than in the past, but again right on track with where we thought we would be. On the 5G question, look, we are committed to being the first US company to rollout 5G wireless technology. We are currently what I would call doing sandbox; sandbox as in creating innovation centers. We are working with the 5G Technology Forum, which includes all the major OEMs and handset OEMs. We will evolve this 5G ecosystem rapidly, just like we did with LTE, to ensure an aggressive pace of innovation. Currently, we're testing 5G technologies this year and we aim to have an initial fixed wireless pilot starting in 2017. I want to reiterate that: this is a fixed wireless, which is really one of the first cases that we see. It's really not about mobile. It's really around fixed wireless. We're helping the industry to adopt the rules on 5G deployment, including the opening of the spectrum bands above the 24 gigahertz. And we are working with the FCC. As you know, with XO we have the ability for an option to buy around the 28 gigahertz, which is currently how we're doing our testing right now. Then keep in mind that 5G is not a replacement technology of 4G, so this is not a capital-intensive overlay to the 4G network. It really is all about high-speed video delivery over a wireless network in a very, very efficient way. You should think about 5G, again like we did with LTE, where you see those 4 to 5 incremental cost decreases when delivering that video. That's similar to what we will see in the 5G environment. So right now that's where we're at, but we continue to plow forward and we will be ready to go with the 5G technology. Thank you. We will now turn the call back to <UNK> for some closing comments. Thanks, <UNK>. Look, the first quarter provided strong results to the start of this year. Again, I want to reiterate: we are very confident in our ability to execute on the fundamentals and grow this business profitably amidst the competitive environment and manage through the transition of our business models. We are also positioning our business for future profitable growth through cost and capital efficiency initiatives and all the new revenue streams that we always talk about. We look forward to a positive 2016 with confidence in our ability to execute our strategy, create value for our customers, our employees, and our shareholders. Thank you again for joining Verizon this morning. Have a great day.

2016_VZ

2015

DDD

DDD #Good morning and welcome to 3D Systems' conference call. I'm <UNK> <UNK> and with me on the call are <UNK> <UNK>, our CEO; <UNK> <UNK>, our CFO and Andy Johnson, our Chief Legal Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone, who wish to access the slide portion of this presentation, may do so via the web at www.3Dsystems.com/investor. Participants who would like to ask questions at the end of the session, related to matters discussed in this conference call, should call in using the phone numbers provided on the slide. The phone numbers are also provided in the press release that we issued this morning. For those have access to a streaming portion of the webcast, please be aware that there may be a few second delay and that you will not be able to pose questions via the web. The following discussion and responses to your questions, reflect management's views as of today only, and will include forward-looking statements, as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC. Including our most recent annual report on Form 10-K. During this call, we will discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC; each of which is available on our IR website, you will find additional disclosures regarding these non-GAAP measures. Including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2014. Now I will turn the call over to <UNK> <UNK>, 3D Systems' President and CEO. Good morning, everyone and thanks for joining us today. As we shared with you earlier during our preliminary results conference call, we were surprised and disappointed by the abrupt interruption in customer demand late in the first quarter from several economic factors that we believe caused many of our industrial customers to be defer their planned investments and by stronger than expected US dollar that reduced our total quarterly revenue by $11.7 million, at comparable third quarter 2014 currency rates. As a result, we generated only $160.7 million of revenue during the quarter. And, recorded a GAAP loss of $0.12 per share and a non-GAAP earnings of $0.05 per share. After analysis, we believe that several economic factors, including the decline in the euro and the yen relative to the US dollar, caused the majority of our aerospace automotive and healthcare customers to curb new printer purchases during the quarter and curtail their materials and services purchases. Additionally, we estimate that several metal and nylon applications and performance issues, delayed our ability to sell another approximately $5 million worth of printers during the quarter. The combined impact compressed our revenue growth for the quarter to 9%, or 17% at first quarter 2014 exchange rates. Altogether, these factors reduced sales of our design and manufacturing printers and materials. And, resulted in a decline in organic revenue of 7%, compared to total revenue in the first quarter of 2014. On a positive note, our other revenue categories, including consumer software and services, improved. Deferred purchases of our professional 3D printers and materials by OEMs, constrained revenue growth within our design and manufacturing category to just 5%. Amidst what we believe to be an industry level pause, the number of direct metal units sold increased 46% and that's delay on it, increased 50% over the comparable 2014 quarter. With, both categories declined sequentially after a record 2014 fourth quarter. We're very pleased to report that consumer revenue increased 65% over the first quarter of last year. With modest sequential growth driven by 169% increase in consumer 3D printers sold. Services revenue increased from 31%, primarily, from expanded healthcare and software services and modest Quickparts growth over the first quarter of 2014. Our continued investments in direct metal printing resulted in a 39% revenue growth despite several application-related performance issues. As 3D printing migrates into more and more real manufacturing use cases, we see open-ended opportunities for our direct metal products and services primarily in aerospace, automotive, and healthcare applications. Additionally, we have successfully combined our Phenix and LayerWise engineering teams and they are now working on future products that we plan to bring to market, strategically, over time. Healthcare revenue for the quarter increased 38% to $30 million despite the abrupt pause in OEMs' orders for printers and materials. Revenue from newer healthcare products and services drove this growth. During the first quarter, we expanded our global sales coverage by entering into a multinational distribution agreement with Henry Schein, a leading provider of healthcare products and services. Under the agreement, Henry Schein will offer our dental 3D printers to its dental customers in select markets, substantially expanding our reach into the dental industry. Moving into our software category, we see 3D software as an integral part of mainstreaming 3D digital fabrication. Accordingly, over the past several years we have assembled a comprehensive offering from perceptual devices to design, manufacturing, and metrology products. For the first quarter, software revenue increased from 53%, in part, from the addition of Cimatron in February. We believe that the impressive array of revenue-generating software products that we have assembled, strengthens our advanced manufacturing leadership and portfolio, extends our global sales coverage, and multiplexes our cross-selling opportunities. The convergence of macroeconomic factors, including adverse currency rates, held EMEA revenue growth to only 2% and compressed APAC revenue some 20%, primarily on weaker Japanese depend. Revenue from the Americas increased 27%, on rising demand for the Company's extended products and services. During the first quarter, under the capable leadership of our Chief Operating Officer, Mark Wright, we began implementing a series of initiatives to strengthen our channel partner program and to improve our overall sales productivity and coverage. I will discuss this efforts in more detail during my closing remarks. And with that, I'd like to turn the call over to <UNK> <UNK>, our Chief Financial Officer who will discuss our financial results in more detail. <UNK>. Thanks, <UNK>. During the quarter, we successfully concluded the current phase of our M&A roadmap. First, we completed the acquisition of Cimatron in February, strengthening our 3D digital design and manufacturing portfolio. And, second, we acquired Easyway, which provides a strong platform to scale our cloud manufacturing operations and multiplex our 3D printing reseller coverage within China. These recent acquisitions added synergistic technology, demand expertise, and complementary sales channels, as well as extended regional coverage. Additionally, during the quarter, we progressed through the construction of our new state-of-the-art 70,000 square-foot healthcare facility in Littleton, Colorado. And, completed the installation and start up of our continuous high-speed 3D printer in our Wilsonville, Oregon facility. To further extend our services, we are in the process of installing 10 additional direct metal printers within our global Quickparts and healthcare operations. And, now following this phase of stepped up investments, we have turned our focus to fine tuning and leveraging our comprehensive portfolio of products and services. Consistent with our earlier comments, we commenced a series of specific initiatives under the leadership of our Chief Operating Officer, Mark Wright, that are designed to strengthen our channel partners and to improve our overall sales productivity and coverage. Specifically, we're in the process of rolling out a tiered performance-based structure to better incentivize and reward valuable channel partners. We're also deepening the CRM integration between us and our partners to improve customer intimacy and efficiency across every step of the customer experience. And, we're creating a state-of-the-art training facility in Rock Hill, South Carolina. Finally, we are building a world-class service center to enhance responsiveness, effectiveness, and coverage. Through these and other initiatives, we believe that we are better positioned to attract high caliber experienced partners that can expand our original coverage and deepen our reach in all key markets and verticals. In addition to Henry Schein, which I mentioned earlier on the call, we recently added Carolina Wholesale as the national distributor for our consumer products, expanding our coverage domestically. And, we're pleased to announce yesterday, that HK 3D Printing, a leading reseller in the United Kingdom and Ireland, chose 3D Systems and plans to sell our entire product portfolio in both the United Kingdom and Ireland. We're taking full advantage of this period to accelerate our planned integration productivity and efficiency measures. That includes leveraging and optimizing our infrastructure, which we believe has ample capacity to support future growth; driving operational synergies and cost downs throughout our global organization; creating an integrated global supply chain, and reducing our procurement spend substantially; enhancing and expanding our quality processes and organizing our business practices to better align our talents and technologies with market opportunities. We expect these initiatives to yield substantial cash operating expense reductions over the next few periods and to result in a stronger Company with significant competitive advantages. While current conditions may indicate an industry level pause, we believe that it is not unusual in emerging tech to encounter periodic episodes of equilibrium that are followed by resumption of upward growth. We continue to closely monitor conditions and note that several weeks into the second quarter our bookings are ahead of the same period in the first quarter. More specifically, we're encouraged to see that certain OEMs are beginning to resume their capital investments and are making the purchases they deferred during the first quarter. Over the past several years, we have allocated the vast majority of our M&A spending to high-growth sectors within professional products and services, including healthcare and software, and are pleased with the early returns. Now, we are focusing on specific operational initiatives that are designed to deliver greater earnings power, as our industry resumes its growth trajectory. While the current economic climate interfered with our planned cadence for 2015, we believe that the fundamentals of our business and the strength of our portfolio are intact. We remain optimistic about the market opportunities ahead and are using this period to fast-track our planned productivity and efficiency measures without impairing future growth. And with that, we will now gladly take your questions. <UNK>. We will now open the call to questions. I'd like to remind everyone that your line will be muted after you're first question. As we kindly request that you ask one question at a time and then return to queue. That's allowing others to participate in the Q&A session. As reminder, please direct all questions to the teleconference portion of this call. The telephone numbers are provided again on this slide. If you are calling inside the US, the number is 1-877-407-8291. And, if you are calling outside the US, the number is 1-201-689-8345. Okay, let's start with the guidance, which is, I think, a fair and a good question. And, the reality is, that we see indications of a recovery. And, we also want to take a little bit more time to make sure that we fully and completely understand some of the macroeconomics and FX related issues. So, to us, while the current conditions may indicate an industry level pause, we believe that it's premature to determine its duration and recovery slope. And, we believe that it is prudent to withdraw our guidance at this point and take a little bit more time to assess. Our plan is to provide an update when we have more clarity and when sector conditions stabilize. And, that is exactly what we are doing. On the one hand, we are pleased to note, that several weeks into the second quarter our books ---+ our bookings ended are ahead of the same period in the first quarter. And, in addition to that, our sales funnel looks very promising. Importantly, aerospace and healthcare customers that curbed purchases during the first quarter, are indeed, resuming purchases of multiple systems. On the other hand, we don't yet have a clear line of sight into the exact timing and pace of revenue recovery, or any further insights, quite frankly, into currency volatility. I'll even add a little bit more color on the kind of due diligence that we are doing. Over the past several weeks, we met with all of our EMEA. And, this week, our <UNK> American channel partners. We have many of our global OEMs. And, based on these extensive meetings and interviews, we believe that there is not so much a question of, if recovery will occur or is occurring, but more of when and at what rate. Next week, we are doing the same due diligence in region in APAC. And so, we are taking the time to evaluate. We think that it's the responsible thing to do. We are very excited about the future of our space. We don't see any structural issues here. We think that our portfolio is intact and attractive. And, we see lots of evidence that more and more of our partners in our OEMs are opting in to do business with us, because of the powerful nature and attractiveness of our portfolio. Now, you also asked a little bit about why were we impacted in certain areas and maybe some of our smaller competitors were not. And, let me say, that we believe that we have greater concentration in ---+ oh, I should say differently. We believe that the combination of our expanding international business, which is much greater than most of our competitors if not all of them, and our growing concentration in real manufacturing and industrial applications and customers, makes us much more vulnerable to the steep currencies decline relative to the US dollar. The aftermath of some of the other macroeconomic issues that particularly, delayed some of our aerospace and automotive customers' expenditures. The good news is that they are returning. And, that what we expected is beginning to happen. The disappointment is that it certainly disrupted our cadence. The other thing that I want to remind you is that we get into applications that require longer selling cycles. And, are subject to, sometimes, multi-year qualifications. The good news is that those are also sticky long-lived relationships. And so, we expect that industry growth trajectory will resume on the other side of this pause. And, we're just trying to assess the duration and estimate the slope of recovery. That's where we are today. Yes. So, there are a few things that we can control, <UNK>. And, the first and foremost amongst them is operating expenses. Now, that we concluded the current phase of acquisitions, we expect our cash operating expenses to peak in the June quarter. We have already initiated, as we got into 2015, a series of efficiencies and productivity improvements, and tighter integration of the remaining acquisitions that we made from the December quarter through the March quarter. And, those are expected to begin to reduce in absolute dollars our operating expenses as we get into the third and fourth quarter of 2015 and beyond. We feel that we have a good hand on it ---+ a good handle on it. The programs and initiatives have been identified. Some of them are already in motion. And, we believe that as the year progresses into the September quarter and the December quarter, we will begin to see substantial cash operating expense reductions progressively. There are other things that we can control. We can control how we enhance our attractiveness to partners and become more a partner centric Company to all of our resellers. And, we are taking significant initiatives there. We can control our order-to-delivery cycles in the Company and we are taking significant steps towards that. We have taken comprehensive supply chain initiatives that we believe would yield, in the third and the fourth quarter of this year, significant improvements to our cost of goods across the board. And, those are all planned productivity and initiatives that we commenced in the 2014 December quarter that are beginning to hit optimal pitch here in the Company, and we expect to see the benefit of ---+ the benefits of those in the coming quarters. There is another element that we can partially control, which is our gross profit margin. I say partially, because we can't necessarily control the mix, but we can certainly control our ASPs, and we can certainly control our manufacturing goods. And, those are the areas that we are focusing on. We feel reasonably confident, based on the talent that we have and the systems that we have installed, and the kind of enhanced execution that have come with the additional experienced talent that is sitting around the table now, that gives us a great deal of confidence that margins will continue to expand. And, that operating costs on a cash basis will decline in the second half of the year. Yes, I think that's another good question. Relative to organic growth, it should be abundantly clear that because the ---+ it should be crystal clear, I should say. That, our organic growth is directly related to our higher than others industrial and healthcare business, and to our greater exposure to international markets and their currencies. For those reasons, our organic growth is directly impacted by the weakening in demand from industrial and healthcare OEMs that we experienced in the March quarter, and the FX. So, if and when our industry resumes its growth trajectory, and we see a rebalancing in currency rates, we think that our organic growth rates will reflect that, and will certainly string back to industry growth rates such as they will be. Our sense is, we feel pretty good about our ability to generate healthy organic growth in periods that demand exists, and in periods where FX doesn't so adversely impact our organic growth rates. Well, let's say a few things about metals. One, is we continue to believe, notwithstanding some of the defined and isolated application and performance issues that we encountered, we continue to believe that we have an awesome portfolio of direct metal printers that is in high demand. We are further enhancing that through the combination of our Phenix and LayerWise teams, and the work that they are doing on bringing to market additional capabilities, as a result of the collective expertise and wisdom that comes from those teams. So, we're pretty excited about what we're doing and we're excited about the potential. As to the numbers themselves, revenue was up 39% for the quarter on a 46% unit increase. But, it did decline from the fourth quarter of 2014, in which we had a record quarter demand. What we see in the current period and what we see in our pipeline, is continued strong demand, which was certainly compressed by all of the macroeconomic conditions that we mentioned and further by FX. So, do we see a deceleration going forward. Not so much. Do we see that we are vulnerable in some areas to the purchasing patterns of customers that are assessing there own P&Ls and their own business plans and FX. Absolutely. Are we less excited about the open-ended opportunities in aerospace and in automotive and healthcare. No. Do we see that in any way our competitive position has been underminded over the last few periods. We don't think so. Are we in denial about some of the unique application and performance issues that we have. We're all over them. We are enhancing our capabilities and developing additional capabilities that we plan to bring in to the market in the coming periods. Strategically. So, when all is said and done, we are as optimistic about the future of direct metals and its mainstreaming, as we were over a year ago when we began to make this investment, and we are fully committed to lead within the space. Yes, let me start with Japan. We certainly experienced some unique conditions in Japan during the first quarter, as it pertains to companies' abilities to invest and how that translated into order cadence for us. We have, as part of my prepared comments around that, that we see customers that sat on the sidelines in the first quarter, are resuming their purchases. We ---+ that also includes seeing a recovery in Japan. So, we certainly view those unique Japanese conditions as being unique to Japan and being time defined. With regards to seasonality. I mean, let me be again clear, that there is no question in our mind that there will be a recovery in our sector. We have no doubt about it. We have now conducted hundreds of discussions and interviews and meetings. And, we're seeing encouraging signs, already a quarter to date, in Q2 versus Q1. So there's no question of ---+ that things are getting better. The questions that we're still wrestling with are, line of sight as to how fast and what trajectory. And, when we have better clarity and understanding that the sector has stabilized, we will come back and update you guys with guidance. As to seasonality, we ---+ from the get go, expected the revenue trajectory this year will be more weighted towards the second half of the year. And, that would have been the case in any event. We are going to start with a slow start and progress and generate more of the revenue in the second half. What we are trying to assess right now, is, when did ---+ when does 2015 order cadence begin. If it didn't begin in January, did it begin in April. Or, when does it begin. And, how does it project forward. And, as we gain clarity into that, you guys will be the first to know. The answer is yes. We believe that we will continue to expand gross profit margins throughout 2015. And, I mentioned some of the drivers when I was answering <UNK> <UNK>'s question earlier about what we can control. So, one of the Company-wide initiatives that we have underway, under the leadership of our Chief Operating Officer, Mark Wright, is a comprehensive worldwide supply chain initiative, which is designed to substantially improve our cogs in ways that we think will translate into across-the-board gross profit margin expansion. Primarily, for printers the materials. Now that we concluded the current phase of M&A. And we have all of our service bureau operations bolted on and we don't have new ones coming in for the foreseeable future. We believe that we will see a net and continued improvements in Quickpart's gross profit margins. We're seeing expansion in our healthcare gross profit margins. And, of course we see contributions from software and from Cimatron. However, I want to caution you not to place to much emphasis on Cimatron at this point. Because, we acquired Cimatron in February. They've contributed only a partial quarter. And, in addition to it, because of a deferred revenue haircut, that is required from an acquisition accounting point of view, that further had reduced their revenue contribution for the first quarter. So, when all is said and done, I just want to caution you not to attribute too much of our at ---+ consolidated gross profit margin expansion to Cimatron. Because, the rest of the story is that we've seen improvement in all these other categories. Certainly, printers continued to put pressure on gross profit margins. And, specifically, consumer printers, as we enjoyed a very strong revenue growth in the first quarter from consumer; 65%. We shipped 169% more consumer units versus the comfortable quarter of last year. But, that is being addressed through our supply chain initiatives, and we believe we will see substantial gains there as the year progresses. So, let me start with talking about the number of partners and then we'll talk about your channel inventory question. The ---+ with regards to the number of partners, we decided, <UNK>, that we're actually going to go and talk with all of our partners. Face-to-face. So, we are in the middle of doing all of that. In the last few weeks we were in EMEA. This week we have the vast majority of our partners from the United States and Latin America here in Rock Hill, South Carolina. Next week we will be in APAC. We have taken substantial steps to make 3D Systems a very partner centric and attractive partner. And, as a result of this, we also see some good partners being attracted to 3D Systems. Like, HK 3D from the UK, that we announced last night, and a few others. We also learned from our partners where are the friction points, which are not so much around coverage. Because, believe it or not, <UNK>, we still have some zip codes and geographies that are not covered at all. That we are actually encouraging good partners to step up and invest and cover. Because, we don't necessarily want to add more players. What we're also discovering is that our partners and other key distributors and resellers that are serving this industry, are interested in a more comprehensive portfolio. They're interested in metals. They're interested in SLS. They're interested in a much more comprehensive SLA portfolio that takes you from the desktop to the manufacturing floor and everything in between. And so, we're having those discussions and dialogues and we're taking specific actions on channel improvements, that we believe, are creating a lot of opportunities for our channel. Those include creating a tiered performance-based structure to better incentivize and reward our partners. Tighter integration into salesforce.com, that gives complete and full transparency in terms of performance and territories. It includes faster response. It includes the creation of a new service center that is here to enhance responsiveness and a world-class training center, that we're building for our partners here in Rock Hill. Those are the elements, that we believe from now, touching all of our channel partners, will resonate with them. Coming to channel sales. It's actually a pretty good story. Consistent with lower customer demand, our channel inventory also declined about 30% from the December level. And, so we're ---+ it was about $8 million ---+ I'm sorry, where it was about ---+ it declined about $2.8 million, which means it went down from about $11 million to $8 million sequentially, which is very encouraging and very validating. It continues to tell us that our resellers, on a rolling 90 day basis, only buy what they can sell, where they have a clear line of sight into real end-user orders. They're not in the habit of stocking for the sake of stocking. The inventory moves very fast, and it mimics really directly be ebbs and flows in the order cadence. So, in terms of FX. It's important to note that the FX impact on revenue was nearly $12 million. It was I think, $11.8 million, or some ---+ $11.7 million, $11.8 million, yes. The vast majority of it came from core businesses, which were directly impacted. Printers, materials, things like that. So, we don't have a direct correlation between FX and organic growth, but suffice it to say, when most of the pressure comes from those core activities, FX was a significant driver. The other significant driver was, as we said, many OEMs that were a little slow to get started on their own spending roadmap and CapEx for the first ---+ for the beginning of the year. Assessing their own P&Ls and what all these conditions meant to them. Backlog, on a sequential basis, was down about 19%. And, again, this is fairly consistent with the abrupt disruption of orders at the end of the second ---+ at the end of the ---+ towards the end of the first quarter. And, as we see resumption of order patterns in ---+ for the first several weeks of this quarter, relative to the first quarter, certainly the order book is expanding. Yes, it's actually a fairly simple answer. In the case of Quickparts, we have said in connection with the full 2014 earnings call, that we are actually accelerating and fast tracking what remained of the shedding activities. And, that's certainly played a part. Quickparts, because our Quickparts business is also heavily exposed to FX, it was impacted by the strong dollar as well in terms of a reduction to revenue. So, we see the modest growth in Quickparts considering these two activities. One, by design to eliminate what's left of undesired revenue buckets. And, the second from FX is pretty straightforward. In the case of materials, we saw basically three factors, that reduced revenue for the quarter. First, FX. The second is the steep decline in new production systems that are sold typically with initial material installation kits that are pretty substantial. And, those were missing in the quarter. The third, we did see some slowdown in purchases of key OEMs. Both, in healthcare and industrial that did not use as much material in the first quarter as they used previously. We're happy to report that we have seen a pick up specifically. Because, we monitor all these customers very closely. We haven't lost anybody. Utilization did not decline. And, we have seen a resumption of what we would consider more of an ordinary pace, both in terms of materials and Quickparts, so far into the second quarter. Well, it's reasonable to make a few assumptions here. One, is that as we get into the current year's September and December quarters, in absolute dollars and as a comfortable business, in the sense that we don't add or subtract anything. We continue to run the business as it is today. There will be an absolute decline in cash operating expenses that will begin to become very visible in the September quarter, and even more so in the December quarter. The next question is around gross profit margins. And, within what is in our control, which is costs of goods and what we ---+ and how effectively we sell. We expect to see a continued margin expansion opportunity here that will play in the next few quarters progressively. To the extent that we get additional help for him external sectors that are not in our control in terms of mix and currency, that could be even more pronounced. But, we're very, very encouraged. That, even in a less than ideal quarter in terms of everything that we experienced from mix and decline in revenue and FX and everything else, we were still able to expand our gross profit margins based on good operations and good executions. And, we expect that to play for the rest of the year. We haven't seen any increased M&A amongst resellers. We don't see reseller channel consolidation. In fact, to the contrary, we see lots of channel opportunities. And, we are focused on everything that we need to do to become better channel partners, and to enhance productivity and profitability of our channel partners. We ---+ what we're doing specifically, is we are creating opportunities for our channel to, based on performance, have incentives to be able to continue to invest in their business for growth. So, it's going to be based on performance. It's going to be based on realigning and allocation, and reallocating co-marketing incentives and dollars that have available to them today. To actually parlay those towards opportunities for them to add feet on the street. Opportunities for them to add training and capabilities. We've also just launched a pretty comprehensive and experienced team of presales specialists that are employed by us. And, have been employed by us for some time. We made them available to our top-tier channel partners. We're giving them greater access, direct access, to resources inside of 3D Systems, as if they are employees of the Company. So, the top-tier partners will have unfettered access, direct access, to resources as if they are a part of the Company. We're also ---+ we brought in a fairly experienced senior service center executive to come and kind of, create a state-of-the-art service center to support all of our resellers. There are many more details to this. We've been presenting it to our resellers. And, we're working with them to fine-tune it. It's going to be in a beta state for the next several months. Because we want our key resellers and partners to actually iterate with us. We're going to run it as a beta program for several months and then we're going to institutionalize it. The early returns are very, very encouraging. Thank you for joining us today and for your continued support of 3D Systems. A replay of this webcast will be made available after the call on the Investor Relations section of our website, www.3Dsystems.com/investor.

2015_DDD

2016

PCH

PCH #Yes, <UNK>, this is <UNK>. So the first part of your question was the capital spend at Warren. That was a little over $2 million for a log booking optimization project. Now when you talk about sequential earnings in wood products, and <UNK> indicated, we'll get to roughly $8 million to $10 million of earnings in Q3 in wood products. And by the way, we're about halfway through the quarter now, so we feel pretty good about that number. Part of that is going to come from what we believe will be a lumber price increase. The pundits are talking about, more or less, a 2% price increase. That should drive incremental earnings of a few million dollars. We've also got the Warren issue that we had to deal with in Q2 that will not repeat in Q3, and that ought to provide, as well, a couple million dollars of incremental earnings. So those three factors combined gets you to $8 million to $10 million. I think there's a number of packages that are on the street being valued by parties, so it's been kind of quiet about the announcements on those. I think when those come to closure it will seem like a normal level of deal activity by the end of the year. That's our feeling. I agree that maybe it's a little bit light so far, but I think there's still a number of TMOs and, certainly, REITs that are competitive on these things. Interest rates are low for the REITs that are borrowing money. I think we'll see the projects clear and I think they will continue to be at prices that are quite strong. We don't have any expectation about what they're going to be or if there will be any. I think the only thing that we know with certainty, through the softwood lumber coalition we're a part of, is if we get to October 13 and there's not a negotiated settlement, the US is free to file a trade case, and I fully expect that will happen if we aren't making progress. Yes, people have been talking, <UNK>, about a point of inflection for a number of years now and we have yet to see it, although some of the major consulting firms that are out there covering in the industry, they believe that we aren't too far from where that inflection point is. It could be with an extra 100,000 or 200,000 housing starts we could start to see prices move. One actually thought ---+ that I spoke with recently, said we would see it move by the end of the year. So our fingers are crossed and at some point it will happen, but we haven't seen it yet. Thanks. Absolutely. We wouldn't have ---+ the incremental capital that we spent last year of the $15 million to $18 million that I mentioned with a 20% return threshold or higher, I think that's kind of money we can take that bank. And I absolutely think that gets factored in when we think about dividend coverage and how much head room we have to raise the dividend on a long term sustainable basis. But nevertheless, I think you can never forget about what happened in the wood products business last year where we had our EBITDA fall by roughly $50 million to $60 million in one year as lumber prices weakened for a variety of factors. So I think the Board will factor in the improvements that we've done in our lumber business, but fundamentally we need to see southern log price improvement to have a meaningful impact. You're talking about from a log pricing ---+. Well, we're seeing strength as we talked about, Q1 to Q2 our sawlog prices were up 14%, and I think as we indicated in our call, we'll see them up again in Q3 another 4% or 5%. At these lumber prices and with the outlook being for continued strong lumber pricing, and with the fact that 70% of our northern sawlog production is indexed to lumber, we'll see continued strength in sawlog prices in the north. That's our expectation. Oh, it tends to go up right alongside the index pricing. Any given quarter it may vacillate plus or minus a little bit, but it will move in tandem. Thank you, Latonya, and I certainly appreciate everybody's attention and interest in Potlatch, and we look forward to catching up with you on next quarter's call.

2016_PCH

2016

ACLS

ACLS #Thanks, <UNK>. Yes, so we tighten that range up based on the final numbers coming in, and us coming in at 18.3%, and then Dataquest's number of $900 million sort of at the top, and our view is still the market is probably going to be in the $825 million to $875 million range, so that hasn't changed. The variables that, first of all, <UNK> we provided that range, since we don't give guidance for the second half, we try to provide enough data points that you guys can do some different modeling, and so, what would drive that is if it was more activity in DRAM, obviously that's something that would move us more towards the top. Additional recipe gains, say in the NAND market, extra activity from the non-leading edge related to automotive, or any IoT kind of thing, would certainly help. And in that particular market, we have far less visibility, so those are the things that would put us towards the top. If you do the math on the 20%, the lower number, with the different market shares, you can see where that number comes in, and we feel very comfortable with that, that essentially it looks like a relatively flat year. And so that's kind of the way we would look at it. <UNK>. <UNK>, this is <UNK>. The one thing I want to add, because, people will ask how do you get then from, even if you're on the top end of the range from 25% market share. into your 35% to 40% market share, and the answer to that is that we expect memory spending to pick up in 2017 and 2018, and there's been a lot of modeling done, and <UNK> has talked extensively about this, but if you take a 100,000 wafer start fab, and you look at the implant opportunity that is in that fab, it ranges between $120 million and $190 million, and we've also talked about how customers expect that Axcelis will win, let's say, 40% to 50% of the market share, the implant market share in a given fab. So if you do the math on that, and you take a look at the TAM, the implant TAM, that's when I mentioned that there could be a potential step function increase when we get into 2017 and 2018, and we start to see some of these multiple fabs become a reality, and we know who the usual suspects are. There are things going on in Korea. There are a number of fabs in <UNK>a. <UNK> mentioned non-leading edge, and there are even new fabs going on in that area, along with some significant expansions. So when you take what <UNK> talked about, in terms of 2016, and then you start to think about what our expectations are for 2017 and 2018, that provides really the road map in terms of getting to that target business model, 35% to 40%. Yes, I think the way to look at the margin improvement, one piece of it certainly is around the volume, but we have a lot of other initiatives in play, if you look at value engineering projects, they are taking material costs up, if you look at the Kaizen events that we have in the factory for productivity and efficiency, and then if you even look at things like warranty and install, where we're making additional gains as the tools become more mature, there's a good portion of the margin improvement, I guess I'm trying to say that comes from things other than volume. So although volume is important to our road maps and improvement, we can still get there. I still feel very comfortable this year that 36% to 38% is very achievable even if the volume drops off a little bit. Yes, we're still not doing business in Japan. We're working on it, but we're not there yet. Yes. Correct. Yes. Absolutely. So those customers are using all three Purion products, and we are actively working with them this year, even though there's not a lot of significant investment going on at one of those customers in particular, to expand the types of recipes that we are using our tool sets on, and moving across from DRAM to NAND, and both logic, those are activities that are well underway. Well, we expect, we have talked about how the piece that you missed, Dave, we talked about how we expect our mix in terms of systems to shift from about 75% memory in the first quarter, to a more flat, evenly balanced 50/50 mix between memory and non-leading edge, as we move forward Q2 and then out through the remainder of the year. So there will still be some ongoing memory spending and then, <UNK> had picked up on a question and said that the non-leading edge driven by the Internet of Things is actually seeing an increase, and we've had some very strong, positive results in our GSS business from that segment of the market, and that's beginning to translate now into additional strength on the system side of the business as well. Yes I would say we expect to continue to see NAND business. There will somebody DRAM as well. The foundry, <UNK> just brought up an interesting point, is one, we talk about the non-leading edge as kind of the whack a mole market, and don't have as much visibility, but one leading indicator is actually activity in our GSS business within that group, as their utilizations go up, then they start looking at new tools and used tools to augment their factories. So that's another reason we feel that the second half we will see it pick up on that side of the business. Thanks, Dave. I think what we're seeing with DRAM is pretty consistent with what most of our peers and competitors have reported. I don't think there's a lot of additional color that we can add to that. But as we mentioned, we have a number of activities underway with those customers, even though the spending is not very heavy right now, and we expect that when the spending comes back, we will have basically expanded our available market with those customers. <UNK>, I think some of the memory customers themselves on their earnings calls talked about a little bit of strengthening in the second half of their DRAM business. I think the uncertainty for the equipment segment right now is exactly when that translates into buying. Well, we're still very bullish as far as memory over the next several years as a whole, and these days you really have to look at all three types, where you have got NAND flash, ultimately over probably a ten-year period replacing a good portion of spinning drives. And then you've got the new memory which right now the only one on the market is 3D cross-point, which kind of fits in between DRAM in terms of speeds closer to DRAM but capacity similar to NAND. And then of course you've got DRAM itself. All three play a critical role in all of the data analytics, and that's a big growing market, as well as while the PC market might be declining, there's still a fair amount of DRAM when you add the other stuff on. So I think we look at the memory market as a whole and feel pretty strong. The exact mix will probably depend a lot on the success factors with the new memory, the new non-volatile memory and see how that does on the data analytics side. All right, thanks, <UNK>. Thanks, <UNK>. Yes, I think everyone remains on track. I mean, that's one of the major things that we've been saying, despite the fact that there's some uncertainty in DRAM right now. None of our objectives have changed and we feel like in the first quarter we've made significant progress against those milestones. We mentioned the evaluation unit at the leading edge foundry, and there are a number of engagements ongoing, and we still expect to place an evaluation unit there. We talked about how on the memory side in particular on 3D NAND, that we are in fact engaged with all of the major customers except the large customer in Japan, and as you know, that's an initiative that's been ongoing for us, but we haven't made significant progress there that we can report at this point in time. The non-leading edge, we are continuing to make significant progress. We had several press releases in the first quarter on both high energy and high current that are signposts that you can use to show that we've made that progress. So I think in terms of what we said, we are doing what we said we're going to do. Unfortunately the DRAM market is a little bit softer than we would have liked and that we had originally anticipated, but that has not stopped us or set us off track in terms of what we need to accomplish for the year. And we still expect to gain market share this year, and be well-positioned for additional market share gains next year, both at these non-leading edge customers and in the memory space. Sure. We ended the year at 18.3% total implant market share, and that's up from 12.4%. And we doubled our high current market share, up from around 6% up to 12.4%. And so that was driven, both of those were really driven by Purion H, the high current tool. This year we've tightened our range to 20% to 25% for the year for total implant, and at this point we still feel that the TAM for 2016 for implant is going to be in the $825 million to $875 million range. Gartner is a little bit higher, just north of $900 million. At this point we feel that DRAM is a little more intensive on implants, and so we think Gartner hasn't completely factored that in at this point. So that's where things stand. And then moving forward, we still feel good about getting in that 35% to 40% range as we go into 2017 and 2018, and <UNK> talked about that a couple of times, but it's really driven by the fact there's multiple, large projects planned for 2017 and 2018, and each one of those can give us a step function gain in share very similar to the large DRAM factory that was built last year. Yes. That's how we see it. The Gartner, last year we felt it was going to be $950 million to $975 million. Gartner's numbers came in just a little north of $1 billion, and as we analyzed it, we have less visibility in Japan, and actually there was some image sensor business that had a little bit higher ASP tools that drove that up a little bit. So we just feel this year that because of the mix, where it's probably a little more NAND and logic-based, implant will be down a little bit. Visibility. When we started talking about 20% to 30% in Q4 of last year, now that we know that we ended up at 18.3% and we know that the TAM looks to be somewhere in the $800 millions for this year, we just feel more comfortable in that 20% to 25% range. Some DRAM activity. I think it's been I wouldn't call it stagnant but I'd call it steady. We talked about how our customers really value the fact that now that Axcelis has a competitive tool set with Purion, that it's driving innovation, and we call it a horse race sometimes, we'll come out with some improvements to a tool, and then they'll come out and they'll make some improvements to their tool, and it goes back and forth. And we've referenced several times, for example, a recipe that one of our large customers who we sold a lot of tools to in 2015, actually doubled the wafers per hour throughput of this particular recipe, because of the competition between Axcelis and our competitors' tools. So those are the kinds of things that are going on. We do an analysis every quarter on pricing, and we haven't really seen any significant changes in that area. So I would say the battle is really more on the technology front, and we feel very good about the Purion platform, and the way that it's performed, and we said a number of times that the Purion platform was really designed for the future, whereas our competitors' platform has actually been out there since the late 1990s. So we think we have a lot of runway, in terms of the ability that the tool has from a performance standpoint. No. Their tool is still a ribbon beam based tool, and ours is spot beam. I think what <UNK> is highlighting is that as the customer asked each of us to work on a recipe, in particular then the customer gets benefit, by having two suppliers working on it. And competing to try to get better yields, better throughputs, whatever the key metric is. And that's probably the number one reason why customers want to have two equally strong suppliers in their house. All right, thanks <UNK>. I want to thank you all for your continued support, and hope to see you while we are on the road during the upcoming months. We will be presenting at the B. Riley Conference on May 25th in Los Angeles, the <UNK>-Hallum Conference in Minneapolis on June 1st, the Stifel Conference in San Francisco on June 7th, and the Credit Suisse 8th Annual Semiconductor Supply Chain Conference in Boston on June 14th. We will also be participating in the CEO Summit on July 13 in San Francisco, and we'll be available that week at SEMICON West for one-on-one meetings. Thank you all very much.

2016_ACLS

2016

CY

CY #My name is <UNK>, I'll be answering the question. Basically, from a short-term perspective what we're going to do is to create IoT platform-based solutions. Which means we combined our microcontrollers, our flash memory and the wireless connectivity stand alone chips into a solution which is supported with the Broadcom's WICED platform. WICED is the software development environment that stands for Wireless Internet Connectivity of Embedded Devices. So short-term it's very simple. We're going to be selling all products of Cypress and we're going to use wireless connectivity as an enabler, as a catalyst in order to do this. From a product roadmap perspective, we're looking at combining the Pesop architecture into Wi-Fi, and especially Wi-Fi and Bluetooth combos. And we are finalizing those road maps and we expect to launch those products shortly. Yes so the book to bill was 1.1. Last quarter I believe it was 1.09. So basically right in line. But what we are seeing is with the industrially and automotive customers, they tend to book out longer, right. So we've entered the quarter with 80% of the quarter booked, but we're also getting bookings beyond just Q3, with those types of customers. So that's the benefit of moving into that more stable customer base, is that get better visibility into your business. So that's part of the reason that you're seeing 3% growth versus the 7% growth. Your second question was ---+ . Yes, so you're seeing more growth in PSD and DCD, and, obviously, NPD will be relatively flat for the quarter. But we expect, based on what we're seeing right now, is more strength in the growth businesses of PSD and DCD. We are at 8.1 weeks. The majority of our business has now been converted to sell-in. There's just a little bit that's on a sell-through basis. But most of it has already been converted. In terms of just strength, I think you see just mix and timing for the most part. Do you with to comment, <UNK>. Yes, so that's probably not uncommon to see that much of it in distribution. We do about ---+ 75% or 80% of our business goes through distribution. And if you think about where the majority of our sales are, Japan is one of our biggest regions and 100% of that business goes through distribution, as well. So, we're running roughly at about 52% utilized in Q2. If we look forward to the end of the year, you can think about that being probably 10% or slightly higher on utilization by the time we exit the year. So you start to get the full benefit into 2017. But you start to ---+ you do start to get some of that benefit later in this year. And just as a rule of thumb, if you think about the 10% increase in utilization across both fabs, is roughly 1% of gross margin. So you can think about between now and then you've got about 1% increase in gross margins just from utilization improvement. This is <UNK> again, if you look at the current revenue profile, the mix of consumer is about 60% industrial, is about 30% industrial, and automotive is about 10%. However, the design wins that we have seeing, we are seeing the automotive percentage go up in terms of design wins, because cars are going to have Wi-Fi connectivity soon. For example, there is RealSeat entertainment, where you have two screens in the back of the car which are actually connected to the head unit in the car. Those are getting popular. And we have great technology which is called RSDB, Real Simultaneous Dual Bands which means that you have multiple streams of Wi-Fi going from the rear screen into the base unit of the car. So the Broadcom business that we bought had this product and is the first of its kind in the market. So we are very happy to have that and we are also seeing strong design win momentum there. Having said that, we see a lot of frenzy of activity in both the consumer and commercial IoT markets. In the consumer markets the variable design wins are very strong, the wins in the IP camera are extremely strong as well, while in the commercial IoT market we are starting to see wins in the retail market and the asset tracking market, and then even in the agricultural market, a few of those, as we see. So that will hopefully give you the color of what you're looking for. So, this is <UNK> <UNK>. It's are started to happen. We just had a worldwide sales conference back in June, and we invited Broadcom to come there and do a lot of training. We've already started to deploying at our salespeople are up to speed. Our FAE's are up to speed and we are actively working designs now with the Broadcom contingent that came over. So, thanks for joining the call today. We are pleased to have reported results that were in line with our expectations and our guidance and we are executing well as a company. And we continue to strengthen our position in the markets. So, we look forward to seeing you on the road at the investor conferences. Thanks again.

2016_CY

2017

IVR

IVR #Thanks, <UNK>. We are pleased to have generated attractive economic returns to our shareholders in 2016 as well as over the last three- and five-year periods in absolute terms and relative to our peers. I'm also excited about the future of IVR due to our very strong team, which will now be led by <UNK> <UNK>. Many of you are aware that several months ago, we announced my retirement and <UNK>'s elevation from Chief Investment Officer to become the Company's new CEO. <UNK> has served as our CIO since the Company's inception and is well equipped as he has keen instincts for value and timing in our markets, and of course, he has a very eminent understanding of IVR in a 25-year carrier in real estate debt markets. He is highly familiar to many of you as well as he has been a very visible figure representing IVR at numerous analyst and investor events along with being a consistent contributor to this quarterly call and other public forums. <UNK> enjoys a strong endorsement by our Board, from me personally, and I am delighted he is our new CEO. Our shareholders can look forward to benefiting from <UNK>'s guidance and his commitment to working in their best interest. Let me say thank you now to the team here for a job well done and to you, our shareholders, for the faith you've placed in us since 2009. And now, I introduce our incoming CEO, <UNK> <UNK>. Thanks, <UNK>. First of all, on behalf of the team, I would like to thank <UNK> congratulate him on his retirement. We obviously wouldn't be where we are right now without his leadership over the last 7.5 years. While <UNK>'s departure is going to leave a big hole to fill, we have an extremely deep and talented team that will meet the challenge. I am honored to have the opportunity to continue his legacy of working for our shareholders and delivering on our commitments. I would like to highlight the individuals that have been elevated within the Company and will be taking on expanded roles. Beginning officially on March 1, Rob Kuster, our Chief Operating Officer, will become President and Chief Operating Officer. <UNK> <UNK>, our Head of the Mortgage Backed Security Portfolio Management at Invesco, will become our Chief Investment Officer. And Dave Lyle and Kevin Collins, our Heads of Residential Mortgage Backed Securities and Commercial Backed Securities Credit at Invesco, will become Executive Vice Presidents in charge of Residential and Commercial Credit, respectively. This group has worked closely together since IVR's inception in June of 2009, so we anticipate this transition should be seamless. As for today's call, I'll provide some brief remarks about the quarter, and then I'll give the floor to <UNK> <UNK> who will talk about our portfolio in greater detail before opening the call to Q&A. IVR's economic performance has been strong during 2016. Despite a slight negative economic return of minus 1.1% during the fourth quarter, IVR's overall economic return for 2016 was a robust 11.3%, which compares very favorably to our peers, and you can see that on slide 5. Going into the fourth quarter and throughout most of 2016, we sought to actively reduce the risk profile of our portfolio in anticipation that the market might experience heightened volatility caused by the presidential election, the potential for the FOMC to increase the fed funds rate, and the ongoing Brexit negotiations. You'll notice that we've reduced the overall size of the portfolio and have been biased to add shorter duration agencies. This [prove proved pression] as the markets were quite volatile during the fourth quarter after the largely unexpected result of the US presidential election, followed by the FOMC's decision to increase the fed funds rate by 25 basis points in December. We saw interest rates rise sharply and yield curve steepen meaningfully. As the market priced in a high probability, the new administration will quickly enact fiscal stimulus, tax cuts, and regulatory reform. Risk markets reacted favorably as equities rallied and spreads on credit assets tightened nearly across the board while longer duration ADC spreads had trouble keeping up with the sharp move in rates. During the fourth quarter, our core EPS was $0.36 per share. Our reduced core earnings number was largely a result of our conservative positioning, lower leverage, faster-than-expected prepayment speeds, and increased funding costs after the FOMC and into year end. As we head into 2017, all of these headwinds have reversed, and we expect our core run rate to recover to levels more in line with our current dividend. We observed a material slowdown in prepayment speeds recently as the impact of higher rates makes refinancing less attractive. Repo rates have decreased as the year-end balance sheet pressures on our counterparties have [eased]. And because we were conservatively positioned, we've plenty of dry powder to redeploy capital into investments in a more favorable environment where rates are higher and yield curve is steeper. While our more conservative stance led to a temporary reduction in our core run rate, it also helped to protect our book value. For the quarter, our book value was down 3.3% to $17.48, while for the full year, our book value increased by 2%. This is despite the 10-year treasury rate rising by 84 basis points during the quarter and 18 basis points during the year with the trading rates of 124 basis points from peak to trough. While spreads in our credit assets tightened during Q4, this was not enough to offset the widening of agency spreads that occurred. Since year end, rates have traded in a much narrower range, while credit spreads continued to tighten, and our current book value is up approximately 2% year to date. Looking forward to 2017, we believe we are very well positioned for the uncertain environment that we now face. While the risk markets have priced in a high probability that fiscal stimulus, tax cuts, and regulatory reform will have a positive impact on the economy, none of these are sure things, and even if they happen, the timing is quite uncertain. On the flip side, we believe the market may be underestimating the risks of protectionist trade policies, and the chaotic news flow out of Washington. As such, we remain cautious on adding additional credit assets at these valuations. Our credit portfolio is highly seasoned and high quality and has benefited from the rallying of risk assets, but we are waiting for a more opportune time to deploy capital out of liquid agency's securities. While the opportunities in credit are limited currently, we have taken advantage of the wider spreads on third-year ADCs and the greater hedged ROEs they generate and have increased our earning assets during the first quarter. This should also increase our earnings power going forward while preserving our ability to be ready to capitalize on opportunities as they become available. I'll stop here and let <UNK> talk about the portfolio in more detail. Yes. I will start and <UNK> can add in. I think that we view it as ---+ we're always evaluating the different asset classes against each other for risk return. For the first time in a long time, we have seen agency ROEs in the, call it 12% to 13% range hedged and with rates 100 basis points higher essentially, the convexity profile looks better. Right now, that looks like the most attractive place to go. We still have a lot of assets in shorter duration, agencies also, and hybrid ARMS in 15 years. And also, we have a lot of legacy, especially on the residential side, a lot of legacy assets that continue to pay down that we need to redeploy also. I would say going forward, we think right now agencies look best but if we do see credit opportunities, we have plenty of dry powder to make that happen. I think at current spread levels, we are still comfortable holding, and that is primarily based on our fundamental view in both residential housing and commercial credit. Certainly, there is spread levels where you would likely become a seller, but I think if we were to get another ---+ significantly [like] tighter, we might start to consider potentially selling. Or if our fundamental view deteriorated at all, we might consider selling. But so long as our fundamental review remains relatively positive, we'll probably continue to hold our current position and look for opportunities to add when we find bonds that make sense. But to summarize, though, clearly there will be a spread level if we continue to tighten where we may start to lighten up and move into agencies or other sectors that might appear attractive or have lagged with tightening. There is no hard limit really to [tending] the sector subject to the REIT rules, but agency MBS are the most friendly relative to the whole pool test. So, no. There is no effective limit for agency exposure. I think that reflects just dollar prices on the bond duration (multiple speakers). Our average duration on our CMBS book is probably five to six years, so you get 85 basis point move in rates, and that's going to have a pretty significant impact. So we did see spread tightening but not enough to offset just the pure duration move there. When we break that out, the slots are separate so they are not attached to the assets they are hedging in that [stable]. We really haven't. I would say our expectations are not very far off of market with potentially two to three moves by the Fed. We do think on the longer end, though, we could establish a higher trading range here. Certainly, the expectations for fiscal policy have driven this reflation or Trump trade but you kind of see tax reform continues to be pushed off for other more pressing matters. You've got issues in the EU with Greece in the headlines again and Le Pen gaining momentum. And we do see a lot of continued factors that could hold the long end lower and potentially call into question how many times the Fed moves. Right now if the data continues on its current trajectory barring any [allergic] at risk, I think two to three probably is the right answer, but certainly we do see some risk go up there that could call that into question. You're welcome.

2017_IVR

2015

ROP

ROP #We really don't have any inventory levels in the channel. If you look at the energy systems business, the largest component of that is compressor controls, and it's always a build for a specific application for the firmware that goes along with the software that we provide to people. It's really a systems business. The little bit of products in there are really related to valves that we have, which are for these diesel engine shutoffs. And certainly, that had just come to a dramatic reduction of about 50%. So there's a little bit of inventory they've got to work off, but not a lot in the pipeline, because the factory basically sells direct on a lot of these products, and they have very fast turnaround. So there's not a lot of ---+ there really aren't channel partners out here, or stocking and reselling stuff. The only thing that we have that gets stocked are standard Neptune water meters, and that's through our proprietary distribution network, and certainly no inventory problems there. As far as CCC is concerned, it's really around slowness in people deciding what they're going to do, so they haven't lost any projects. We haven't seen any projects that are canceled, that just things are relatively slow, as you would expect they would be for people to make big capital decisions right now. Well, our gross margins were up 100 basis points. Our gross margins in energy are 57%. Our gross margins in industrial are 50%. So I wouldn't say we have a lot of pricing problems. You're probably looking at read-across stuff from others, and that's not what we do. We have very, very specific applications, not a lot of competition. But if end markets are off we catch a cold, and that's what's happened. Doesn't affect our ---+ we're not in a competitive marketplace where we're overly concerned about pricing. And in a market like this that's end-market driven, it doesn't matter what your pricing it. People aren't going to buy more because the price is lower. They have so much new money that keeps coming in from investors, that they're not the least bit worried about pricing with other people's money. I can assure you they're just as aggressive as they've ever been. You still have lots of forums. We look at the large banks, like a JPMorgan, getting told let's watch how much I'm putting on debt staples here, let's not get above five times and so forth. There's all these other kind of people out here, pension funds from unions in Canada, they've got all kinds of people that are happy to supply all kinds of debt. So we still see 6.5 times debt on anything that's really a good business. So that drives up multiples, so multiples are still high. But On Center is the perfect example of the kind of things that we do. Harry's got a very well-run business in a very nice market. It's pretty niche-oriented kind of thing. Doesn't lend itself to an Oracle or SAP coming in and trying to take it over. It's a business that management wants to stay with and drive the business, and they want to have a home that will invest in them. We fit that better than private equity. So all of those things worked to our favor and nothing like that's changed. The acquisitions that we have right now are all similar to those kind of things. So we don't see that as a constraint. That's a great question. We have an enormous benefit here, in that each month, the second day after the month ends, we know what their orders and their revenue were. And as you remember, we run this place on both economics and accounting, because GAAP accounting can give you such distorted information about what's really happening with the cash nature of the business. So we know what the breakeven of the business is going into a quarter, means what the marginal contribution will be after they have covered that on a revenue basis. So we immediately, two days after a month ends, have a very good idea about what's happening to their trend, and we will talk to them at the end of that month. They'll provide us a quadrant feedback about what's hot in the business, what's happening in terms of what they're winning or difficulty that they're having, how the quantitative nature of the business is in the month, and what they're concerned about. That becomes more of a Socratic discussion, but we're going to encourage them to take the actions that they need to take, but never harm the business. So we always start out with do no harm. And we've done it so much for so long, it's just a cultural thing. Nobody would hide stuff here. It's not like your typical multi-industry Company that many of our senior leaders grew up in, where a really bad quarter, make sure you paint the plant. So that's not how it works here, and people know that. The non-tolling business ---+ we have software businesses in there. They're high margin. The tolling services side of activity has a lower margin, but the technology product side, with the readers that we deploy, and the tags that go along with it, are much higher margin. So they come in with a blended margin that's quite good, but more like the rest of our businesses than the software businesses, which are higher. So to the degree you have higher software, it's good. But, right at the moment, you've got quite a large piece of our activity is in tolling, so it has a big effect. And they certainly are much more profitable today than they used to be. The benefit that TransCore has is, we have the best technology. So we have readers that are capable of reading what are called multiple protocols, so we can read a wide variety of things. The people who are sitting in Chicago, and the people on the East Coast are stuck with a proprietary very old technology there, out of the Austrians. And you'd have to ask them how they feel about their future, but we're heavily engaged all the time with people around interoperability, and ways that we can facilitate that. The higher degree of interoperability, when we have the best protocol technologies to read, all the different things that are already embedded should be favorable to us. The other thing I would say on that, Rick, is we've also recently introduced, within the last year, I believe, not only the multiple protocol reader that <UNK> talked about, but also a multi-protocol tag. So we're actually selling tags right now to real customers, and that tag can be used all across the country, no matter where the driver, most of these are commercial applications right now. We're on over-the-road vehicles, trucks, et cetera. We will want to be able to have that single tag that can go through all the locations. We're at the leading forefront of the technology change there. We can deploy faster than others. But also the change out coming from government sometimes is slower than they're suggesting. They did. We certainly don't see it as a threat. Omnicare is not our biggest customer. But just so people understand, we get a percentage of things that happen in terms of the billions of dollars of stuff we're processing. The revenue that we get is just a percentage of that. So we don't raise prices, in terms of that percentage that we're getting from somebody. But if generic drugs, for instance, go up in price versus where they were before, then we'll get a benefit from that, because the activity comes out at a higher price. If you have formulary drugs that get converted to generic and the price goes down, that's a decrement for us. We have benefited by generic pharma pricing being higher in the last two years versus the way we modeled it at the time of the acquisition, so that has been a benefit. And then you see today, with what Teva's doing with a $40 billion transaction. I mean, generally, the things that are going on in the marketplace are favorable to us. Well, in the software businesses they have very high marginal contribution rates. So as they grow, you get more cash to reinvest in other acquisitions. They really don't need to consume more cash inside themselves, so that helps us. The TransCore situation in RF, because it's a big piece of the segment, is flatly just better managed today than it used to be. It used to be on their service side stuff, particularly almost civil engineering and the design of things at the beginning of roadway exits and what have you, they would have cost-plus contracts, but they would have retention issues. And I think today TransCore is about 10 times better as an operating Company than it was when we acquired it. And so they don't ---+ they get pretty decent margins out of that. But big revenue growth out of them on the service side doesn't have the same margin contribution that all the rest of our RF businesses do. And the other thing I would say there is that on the toll and traffic piece, it's not the same type of compounding that's on the software side, but because we execute so effectively, because the TransCore guys execute, they're able to win projects in adjacent areas. Our execution around our software for the New York City traffic control system was the reason why we won the Riyadh project, in addition to our proven ability to execute in the region with our toll solution for Dubai. So those things don't always have a linear relationship, in terms of building on themselves, but the larger that we become there, the more opportunities that we see. I would say that the primary thing is we provide, customers rely upon. So we provide the discipline for our businesses, so they have the ability to say no to people. That's one of the benefits that we're able to provide for folks. And because customers aren't reliant upon the specific technology or the solution that we're providing, it's not something that they can just say okay, I'm not going to hold payment, you can't ship to me anymore. That's too important to our customers. So it's good execution in terms of the discipline, but primarily, it's because of the position that we have in the end markets that we serve. I would say there's another thing having worked in very large environments. If you go into a typical multi-industry Company and you ask somebody, who's responsible for receivables, you'll get a different answer than you'll get here. Because if you go and you ask somebody running one of our niche businesses, which remember, may only be $80 million in revenue, who's responsible for receivables, he's going to say it's our [outbridge], Betty, and she's been here this long, and she knows that. So there's a focus level here that is just very helpful. Thank you. And I think <UNK>, with that, we'll ---+. I think we reached the end of our time. So, I want to thank everyone for your participation today, and we look forward to talking to you again in three months.

2015_ROP

2017

GM

GM #Thanks, <UNK>, and good morning, everybody Thanks for joining The results we are reporting today on a continuing operations basis demonstrate our commitment to extending our strong core business performance while redefining the future of personal mobility Taking a look at the numbers we posted, EBIT adjusted is $2.5 billion Year-to-date, EBIT adjusted is $9.8 billion with a margin of 9% And our EPS diluted adjusted is $1.32. We returned $2 billion in cash to shareholders through share repurchases and dividends and our return on invested capital adjusted is 27.6% on a trailing four quarter basis We delivered solid results even with planned lower third quarter production in North America Although market is more challenging than expected, we will deliver another strong year Chuck will share additional details in regional numbers in a few minutes Our work to strengthen the business and focus on areas with higher shareholder return continued with the closing of the sale of our Opel-Vauxhall business We expect to close the sale of GM Financial's European operations by the end of the year In addition to the international operations restructuring we previously announced, earlier this month we shared that we will combine all GM operations outside of China and North America under Barry Engle, effective 01/01/2018. This allows us to realize greater efficiencies and supports our disciplined plan to operate in the right markets to strengthen our performance and to focus on long-term growth opportunities From a product and brand standpoint, customers are responding favorably to our new vehicle launches In the United States, retail sales of crossovers from our Chevrolet, GMC, Buick and Cadillac brands were up 25% year-over-year for our best crossover sales quarter in history The second generation of the 2018 Buick Enclave is arriving at dealership It builds on the success of its predecessor and ushers in Avenir, Buick's new upscale sub brand We have high expectations for Avenir as it joins Denali GMC's premium sub-brand in our Buick GMC retail channel Denali makes up more than a quarter of GMC's overall sales and generates higher margins and average transaction prices Avenir and Denali will offer our customers attainable luxury from our premium brands Also arriving at U.S dealerships is the 2018 Cadillac CT6 with Super Cruise, hands-free highway driving technology Journalists and influencers recently traveled coast-to-coast to demonstrate its capability with overwhelmingly positive reviews Super Cruise will also launch in China next year on the CT6. Sales in China are tracking at a record pace, led by the growth at China – or excuse me at Cadillac and Baojun To continue this momentum, we launched five new models in the quarter, including the Baojun E100 EV This is a niche build-to-order electric vehicle from our JV partner SGMW We plan to launch six additional models in Q4. Last month in Shanghai, I helped celebrate our 20-year joint venture with SAIC GM and the production of our 15 millionth vehicle It was an important milestones representing a productive partnership in our largest market And in South America, we are now gaining market share and making money in an industry still significantly depressed from prior high levels Now, I'd like to talk about the future of personal mobility We all know the industry is changing very quickly By staying focused and disciplined, we have repositioned our core business to be more resilient through the cycle and we have made key investments that will help us create a safer, better and more sustainable world and a healthy business model well into the future We believe our future mobility initiatives will be accretive to our core business because they give us an opportunity to increase our exposure to new customers in urban centers and coastal markets At the same time, our core operations will continue to generate strong profits in the markets that will be the last impacted by these new mobility trends Regardless of where we do business, we are committed to an all-electric future, and we have announced plans for at least 20 new all-electric vehicles by 2023, including two in the next 18 months We've already done a lot of the hard work, investment and innovation necessary to meet this commitment Our extensive track record with electrification, including what we have learned from the Chevrolet Volt and the Chevrolet Volt EV along with strong supplier partnerships and mass market EV manufacturing experience give us confidence that this portfolio puts us on a path to a new profitable generation of electric vehicles We will pursue both battery electric and hydrogen fuel cell technology because we will need both for solutions to meet all of our customers' transportation needs For example, we revealed a new autonomous capable hydrogen fuel cell platform called the Silent Utility Rover Universal Superstructure or as we refer to here SURUS It was designed to provide commercial vehicle solutions including flexible cargo delivery and utility services But its ability to solve tough transportation challenges created by natural disasters, complex logistic environments and global conflict also make it adaptable for military use I'm also pleased with the progress our team is making on self-driving vehicle technology GM and Cruise Automation recently deployed our latest generation self-driving electric test vehicle We believe it will meet the redundancy and safety requirements necessary to operate without a driver It is our third generation of AD technology in just 14 months The GM and Cruise teams have worked together to integrate the best hardware and software with an almost completely new and fault-tolerant systems that are unique to a driverless vehicle In fact, the latest generation of self-driving electric test vehicle has about 40% unique content compared to previous generations Another reason we are moving so fast is because we are testing in one of the most challenging urban environments anywhere, San Francisco In this environment, we encounter almost 50 times more interactions with pedestrians and other vehicles and complex road intersections compared to driving in a suburban environment This testing is accelerating our deployment of self-driving technology, and we believe it will put us on the path to the fastest path toward deploying self-driving cars safely and at scale To move with even more speed, we also recently announced we will be opening a Cruise office in New York City to begin testing our self-driving cars there as well And just two weeks ago, we acquired Strobe, gaining access to new LIDAR technology that will significantly improve the capability of self-driving cars and reduce the cost of each LIDAR on our self-driving cars by 99% Finally, in August, we launched Cruise Anywhere, a ride-sharing beta test platform for select Cruise Automation employees in San Francisco Employees use a GM smartphone app to hail a ride in a self-driving electric test vehicle Focusing on all aspects of the self-driving experience gives us more flexibility to develop the appropriate go-to market strategy Our vision is ambitious, and I believe GM is uniquely positioned to transform how we provide personal mobility for our customers We have the right team with the right technical and business expertise to solve problems along with the passion to change the world We will host an investor event later this year to share more details, so stay tuned And now I'd like to turn it over to Chuck Good morning I think when you see the new truck platform come out both full-size truck and SUVs, you're going to see us having a broader portfolio that really addresses specific customer needs including from an off-road capability Oh, absolutely We are going to be looking globally We're working extremely hard on the technology to have self-driving vehicles and looking at it from a safety perspective, a performance perspective, but we're working hard to lead in that area, and then we're already evaluating what markets make the most sense to generate the most shareholder value Generally, when we look at the capital spend that we'd had in the engineering spend, we are able to do the work that we want to do from AD perspective, and by the way an EV perspective and a connectivity perspective We're going to continue to evaluate that, but our current view is that that largely is all included, because we've been driving a lot of efficiencies, especially in the capital budget When we look at being able to reuse architectures, reuse equipment, and then also the synergies and the work that's going on in product development So, we will evaluate because we don't want to be constrained by being able to fund We know speed is important to get the first mover advantage But right now, I'd say generally it's within those bounds Yeah, I feel that we do have a lot of the puzzle pieces We continue to look at it This is a very dynamic and evolving marketplace I think the real opportunity with Strobe is we saw an opportunity, also partnering with the work that we do at the Hughes Research Labs to look at that technology, how to really improve the capability of the technology which gives you the ability to open up the areas where you can do autonomous vehicle while taking the cost significantly out and really getting to an automotive-grade LIDAR capability So we'll continue to evaluate I don't have anything to share right now But again, this is fast moving and we're going to look at what makes the most sense to allow us to go with speed, with safety, and to deliver value We are too So, I don't have anything new to say What we've talked about is it will be, first of all, will be gated by safety, so being able to take the driver out will – we have our metrics we defined to look at that and when we'll be ready to do that, but we think that's in quarters, not years And as it relates to how we deploy, we very much believe we want to maintain the relationship with the customer And so, we're exploring many options and we could partner with someone, partner with many or work on our own the Cruise application that is being used with our employees at Cruise is going quite well, in fact we have some of those people participating in their pilot that are using it for all of their transportation needs So, it continues to – we continue to develop that, and we're keeping our options open Certainly, that could be possible We're keeping all options open It's kind of in this point where the technology is evolving and the opportunity is evolving We're having a lot of conversations, kind of everyone is talking to everyone And we're going to continue to look at what provides us the greatest value for our shareholders over the long term because we think this is a very significant business that is accretive And we're going to look to get – it gets gated by the technology and that's why our focus is on technology The fact that we have everything under one roof and we can move so quickly I mentioned that we have our third generation of vehicle – AD vehicle, test vehicle on the round, we're in parallel already working on our fourth So, that speed with technology that is evolving so quickly, both from a hardware and a software perspective, is our primary focus But then we're going to look to how do we launch and put a business model together that's most advantageous for our shareholders Thanks, <UNK> I was just going to add that when you look at going back to what Chuck said about South America, Barry Engle and his team have done a great job of setting that business up in a even more cyclical business And so, looking at that and taking that leadership team and looking at all of those business together is definitely going to be a benefit, and Barry is the right guy to do it I think we've already been transparent in what we're reporting from in the Corp segment and been clear about the amount of money that we're spending on autonomous But I think when we look it, our focus, <UNK>, right now is to move as quick as possible to develop the technology, have a first mover advantage and be able to not only have the safest technology, but be able to deploy it at scale That's where our focus is right now And there's the integration and not when you – depending on how you would separate it of where is IP, where is IP formed, right now, that's why our focus is keeping it all together And I really do think it's enabling us to move quickly The amount of work that goes on between Warren, Israel, Canada and San Francisco on a daily basis is stunning And the fact that we're working on our fourth generation, that's where our focus is right now And I think we'll have time to look at it as that develops and as the business model develops, what is the best reporting and structure from a company perspective to drive the best shareholder value So, Super Cruise, which you're correct that we did delay because we were gated by safety There's a lot of learning that went into that system And it's the base that the core organization has that is now the Cruise Automation team is benefiting from of safety, of redundancy, of looking at the – one of the technologies was critically important Super Cruise is the way we monitor the driver to make sure that they're paying attention And so, all those learnings go into Cruise And then – but as I look at that and I look at where the schedule we put ourselves on Cruise and how the technology is developing, I continue to be very forward-leaning on that with the work that I see happening there, and all the learnings we had from Super Cruise are transferring into Cruise Automation Well, thanks, everybody I appreciate you participating today I hope that you see we're demonstrating that we are a very disciplined organization, that we're going to take the bold actions and make the tough decisions to drive a profitable business and a very resilient core business Also, we are committed moving with speed and we're going to continue to invest in EV, AD because we see huge opportunity in the future of personal mobility We are intent on leading the transformation of this industry, and we have created a vision of zero crashes, zero emissions and zero congestion that we believe is the future for this industry We are in a leadership position and we think it is the best way to generate long-term shareholder value and you will hear more as we move forward So, thank you very much

2017_GM

2016

AN

AN #Our CFS gross profits definitely are strong and they do weigh into our decisions on how we accept deals. To <UNK>'s point, trying to find the balance between our volume and pricing. So does play into it. But it is not a contributing factor to the compression that we are seeing on PVRs right now. Our Honda stores are performing extremely well. And like <UNK> said on the last call, I think what Honda did was fair and balanced to the market place and has performed well, both to the consumer as well as to our stores. There's been talk of others, but nothing concrete. It's very interesting. I expressed my plateau point of view on CNBC the first week of January and then got on a plane and went to the Detroit Motor Show. I would say the overall discussion agreed that the six years of rapid growth are over, that the industry is plateauing at a very high, very acceptable level. And no one is really saying this thing is going to blow by 18 million through 18.5 million or something within the industry. I know there's some others out there that have a point of view that that's going to happen. If that were to happen, I can tell you this. It would take significant price action that would be pulling forward future business from my point of view. Now, unfortunately, every executive is very confident and optimistic about their position in the marketplace. And they have plans for growth in 2016. So if you add up everyone's individual plan, you have this classic situation, that everyone is going to take share, but that means they've set the plants to run to go out and achieve that. So while they're being conservative and disciplined in saying the total market is probably mid-2017 plus or minus 100,000 units, we will take that right away, we're going to take a bigger piece of the pie. So I think that's then going to be incumbent upon retailers to really push back where appropriate and say that's more than this marketplace is going to take, particularly on the car side. To the extent you can increase production on trucks, that's fine, but it's got to be substitution for cars. It's not incremental business. I think that's a solid plan. I think if retailers push back on very aggressive production plans ---+ and by the way, we are being given very aggressive stair-step targets also, which again indicate that individually they are planning for significant growth. So the ball is kicked, debate is underway, and hopefully the industry can manage it successfully. Because it's going ---+ the challenge for the industry I see over the next several years is we can have multiple years above 17 with the pent-up demand that's out there. But in a plateau new vehicle market, can we grow earnings and the quality of earnings, or are we going to have a share fight that results in ruinous incentives for the manufacturers and for retailers. I think that's sort of a line we are trying to walk down at the moment. I think first on the consumers' commitment to pay for their car loans, whether it's leased or financed, it's unwavering. I see absolutely no sign of difficulties in auto finance. I think it's all being run very prudently in disciplined way. So no alarm bells there. There are I think 1 million more vehicles coming off of lease this year than the prior year. That doesn't necessarily mean all those individuals are going to go into new cars. They could go into CPO or something else. So you can't just add that to the top line, in my opinion. No, I think the biggest threat to used car values are additional incentives from the manufacturers or additional discounts from us. That's the big picture issue. So it's very interesting our fourth-quarter performance, where by manufacturers increasing incentives by $250 a car, us increasing our discount by $220 a car, that had an immediate impact on our used car values. And then we had to discount anything that was relatively new versus the new vehicle on the showroom floor. It's a double impact; it impacted our new vehicle gross margin. It impacted our used vehicle gross margin. So that is the biggest issue, and that's my greatest concern about overproduction. And you could say, <UNK>, what do you care if the manufacturers increase their incentive significantly. You'll just sell more new cars. It pulls the rug out from underneath the value of my used car inventory. And also to your point, it really disappoints your existing owner base, your most loyal customers, because you have depreciated ultimately the value of their trade in. So it's really a lose-lose. It's a lose in the short term and it's a lose in the long term. And I really would not want to see incentives go beyond on the manufacturer level. They are about 10% of suggested retail price at the moment. So we are approaching double digits, and I really hope we don't go beyond that. Now to your point of mix, this mix adjustment, cars versus trucks, has been going on, so it's not a shock. It's been ---+ we've gone from 45% trucks a few years ago to 60% trucks in the month of December. It's been a journey, there's been adjustments along the way, so I think that's more baked in the cake at the moment than a new development. So it's more where are incentives going, where are inventories production going, and what will that mean to resale values is my number one concern. That's correct. First, I think the widening of the spreads is unrelated to the customer's ability to pay or whether the customer is staying or not. I think it's other factors. <UNK>, you want to talk about that. Yes, I would say you assume some ABS widening and that's a result of just some broader widening in the bond market. And certainly that's around the space that they play in. But I would say not everybody funds in ABS, so a lot of people balance sheet fund, particularly if you look at leasing. Not everybody funds on that basis, and they have broader large balance sheets for their blended funding rate. So I would say it's one factor. You've seen it more in sub-prime than in regular, and I don't think it's going to be a material driver their rates provided to customers. We are not seeing a particular increase in rates related to the ABS phenomena, keeping in mind that post-2008, 2009, the ABS market is a smaller market than it was at that time, particularly in auto. And I think that the percentage ---+ and the OEMs post ---+ the OEM captives post 2008 and 2009 were very careful about diversifying their funding sources away from that one particular phenomena. So I would say that type of widening today that you see in certain tranches in sub-prime ABS is much less impactful than it would've been back in 2008, 2009 intentionally because they no longer wanted to be reliant on that type of funding source solely. I think Texas is about 24%, 25% of our business for 2016. So that's a significant overweight. As you know, our three big states are California, Texas, and Florida. Florida is absolutely booming; Texas is under stress. We had a decline in Texas: same-store sales units of 2%. But I will also tell you, it took a lot more discount to get that done in Texas, so it had a significant impact on the bottom line. So on our recall policy, you see it's relatively ---+ I would say no impact on new vehicles, and we were already repairing new vehicles. So that's not an issue. It's a significant impact on preowneds. Now just to discuss the issue for a moment, I think the auto industry really has some credibility issues it has to face up to, everything from some of these horrific recalls we've had with significant loss of life, to credibility issues around the Volkswagen situation. So we sit there and say what can we do on our part to make it better. On preowned, it's a significant issue: on any given day, 15% of our inventory has open recalls. Now let me be clear: these are not that the wrong tire pressure sticker isn't on the car or some other little minor item; it doesn't have an owners' manual. That's all new cars when they're first released; you get the sticker issue or the owners' manual issue. It has one page missing. These are significant safety recalls, and we feel the time has passed that it's appropriate to take a vehicle in trade with a significant safety recall and turn around the next day and sell it to consumer. So we are the only one that's done it, we think it's a brand attribute, we will work to make it a brand attribute in 2016, and we feel in the long term it will be a tremendous advantage to us. In the meantime, it is very disruptive to our used car business. Because we see no way to get it below 15%; there's new recalls arriving every day. We have to increase inventory to get to the same point. And a same point of frontline availability, and at the same time, we have to then work very hard to get the vehicles repaired as promptly as possible. So it remains a disruptive issue. I would say if I looked at our decline in front-end gross for the fourth quarter on used vehicle, I would put the majority of it to higher incentives from the manufacturers and higher new vehicle discounts from us. But recall disruption remains part of it. And probably will continue for the first half the year until we get it all sorted out. No, we really haven't. Our premium ---+ our subprime business for the fourth quarter was 10%. For the full year, we are at 11%, so it actually dropped slightly in Q4. But there's been no material impact as far as credit availability. You didn't hear much discussion about it because it's a complete success. We made the pivot last year away from third-party lead providers who required a substantial additional discount in order to get the business. And were expensive to do business with. The third-party lead providers who we stayed with ---+ and they are now about 8% of our business overall ---+ we have a wonderful new partnership where we are allowed to bring our brand into their sites, which ---+ and that is a condition of doing business with us. And so that is a huge step forward. And as I said, we've gone from trending towards 15% of the business with third parties; in a couple more years, it would've been 20%. Now it's going in the other direction and that gives us more resources to go into our brand. We now generate fully 25% of our business from AutoNation sites, which is a spectacular success. The customers like the ability to be able to transact on the site. We still have capabilities that we are adding step-by-step that continue to roll out. I think the most difficult piece remains the documentation. That may push into 2017. There's different pieces of it that we can get done, but we need some regulatory change to get it completely done. That's probably rolling into 2017. Everything else we talked about, we expect to have operational in 2016. There is a cost to just continue with this level of digital intensity. I have no issue with that. But I don't see ---+ I think I said this already in the fourth quarter: as far as investment in digital, we've probably hit peak. We will run at that in 2016, and after that be able to go down to more of a maintenance level. But you can check with me a year from now on that when we get the final plan on how we're going to tackle documentation. The $100 million was what we're going to do ---+ I forget which year it was, 2014, 2015. I don't remember exactly. And it was a combination of what we were going to invest in the brand that we could attract traffic to our sites, and the digital capability (inaudible). So it was a combination. So I'm saying in 2015 the brand was strong enough that we could walk away from third-party lead providers and have the traffic come to our sites. And then the other piece of the puzzle was to invest in our digital capability, that once they came to our site, they were happy with the experience. So there we are declaring victory. And as far as exactly where we are on that $100 million, I think we are probably through that. But there will continue to be investments in 2016. We've already said on the marketing side we will adjust our spend this year versus last year. So that's part of it. And on digital, we'll probably run at the same level as 2015 without an increase. First of all, on parts and service, we see continued strong growth in parts and service. As far as it relates to recalls, <UNK> talked about it earlier. Every day we get additional recalls that are coming in. You just heard that Takata added 5 million additional cars to the recalls for their airbags. In addition, Ford just announced a large recall on Ranger trucks. So we see no slowdown in the amount of cars being recalled. It's just moving away from the ignition switches and the initial Takata airbag to a more broad spectrum of units and manufacturers. VW ---+ correct; there is no fixed that's been called out right now, but that represents a very small percentage of our business, less than 1%. There will be no real impact to us on that end, but parts and service will continue to remain strong. That was our last question. Somebody said it earlier in a statement calling out our ability to adapt to circumstances, how we've demonstrated that in the past. We will do that again; can't tell you exactly how long it will take, but it's underway. We still totally believe in the validity of our diversified model. We are one-third domestic, one-third Asian, and one-third premium luxury. Obviously the domestic business with trucks is as strong as you can imagine, and Asian is challenged because fuel economy, which is their strength, is not valued by the marketplace at the moment. And we have a surprising challenge with premium luxury here in the fourth quarter. We are diversified by business type, we went through all that, and we are diversified geographically. Yes, we have a storm in Texas at the moment that will take some time to blow through. But in total, it's an adaptable model and we will do that once again. So thank you for your patience today, thank you for your very constructive questions, and we will look forward to talking to you again in the future. Thank you very much for joining us today.

2016_AN

2018

CRAY

CRAY #Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cray Inc. Fourth Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. <UNK> <UNK>, Corporate Treasurer and Investor Relations contact. You may begin. Thanks, <UNK>. Good afternoon. I'd like to thank everyone for joining us today. Participating from Cray are <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer. Today's press release is available on the Investor Relations section of our website at www.cray.com. This call is being broadcast live on the Internet and recorded for replay purposes. A telephonic replay will be available shortly after the call. You can access it by dialing 1 (855) 859-2056. International callers can dial 1 (404) 537-3406. You must then enter the access code 56308204. A replay will also be available in the Investor Relations section of the Cray website for 180 days. I'd like to remind each of you that today's conference call will contain forward-looking statements that are based on our current expectations. Forward-looking statements include statements about our financial guidance and expected future operating results, our product development, sales and delivery plans, our ability to expand and penetrate our addressable market and other statements that are not historical facts. These statements are only predictions and actual results may materially vary from those projected. Please refer to Cray's earnings press release dated today and annual report on Form 10-K for the period ended December 31, 2017, as well as Cray's documents filed with the SEC from time-to-time concerning factors that could affect the company and these forward-looking statements. Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors. Non-GAAP measures other than non-GAAP outlook have been reconciled to their related GAAP measures in accordance with SEC rules. Our non-GAAP measures adjust for certain noncash, unusual and infrequent items included in our GAAP results. Typical adjusting items include stock-based compensation, amortization of purchased and other intangibles and purchase accounting adjustments. We also adjust our book tax provision for certain items, including the impact of noncash items, such as benefits principally related to our net operating loss. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures and a discussion of our non-GAAP outlook in our earnings press release, which is posted on our website and which is included with a related 8-K furnished to the SE<UNK> With that, I would like to turn the call over to <UNK> <UNK>. Thanks <UNK>, and thank you all for joining the call today. I'll start with some comments on our fourth quarter and full year performance, then turn it over to <UNK>, who will take you through our financial results and outlook. I'll wrap up by discussing our plans for 2018 and then open the call for Q&A. As we announced in January, we finished the year on a good note, completing all of the large acceptances we were targeting and most of the smaller ones, recognizing more than $160 million in revenue for the quarter. As we expected for 2017, revenue was down considerably as our target market continued to be in a significant slowdown. We saw this across the board at the high end of supercomputing, impacting each of our product groups as well as most of our target geographies, several of which were down substantially year-over-year. We believe multiple factors contributed to this slowdown, including a challenging government funding environment in multiple countries around the world, a slowdown in the pace of technology improvements in processors, increasing memory cost, a slowdown in the energy market and a general delay in decision-making as large customers took a pause in replacing older systems. All told, we believe our target market was down by more than 60% in 2017 when compared to our peak in 2015. The impacts of this are evident as many systems in the field are beginning to age well beyond the typical 4-year replacement cycle. This is impacting our customers in many ways, including extended maintenance and service contracts, longer wait times for end users as the demand on these systems continues to expand, higher-than-anticipated operating costs and changes in deployment plan. While this has certainly been a more pronounced, sustained downturn than what we've seen in previous cycles, we do not see a fundamental shift in the industry and we continue to believe that the market will rebound over time, beginning this year. The long-term demand drivers are intact, and the trends continue to favor the incorporation of more and more data into large-scale simulations, deep learning algorithms and big data analytics. Now let me take you through how we did against our 3 main focus areas we laid out for the fourth quarter. The first was to execute against our outlook and continue to win new business. We didn't quite hit our goal here as we missed our $400 million revenue target by about $7 million, as a few smaller acceptances weren't completed before year-end and are now expected to be recognized in the first quarter of 2018. That said, we did complete all of the large acceptances we were targeting in the fourth quarter. Among these were 2 XC supercomputers and ClusterStor storage systems, which we installed at the Ministry of Earth Sciences in India. This is a significant upgrade to this weather center's high-performance computing capabilities and on a combined basis, it is the largest supercomputer complex in India. For Cray, this is our largest win to date in India and it further extends our leadership position in the worldwide weather forecasting and climate research markets, where customers select our systems to improve their accuracy of numerical weather prediction. In fact, more than 75% of the world's global modeling centers now run Cray systems for this important lifesaving service. On the awards front, we had a nice quarter of wins across each of our product groups. Our XC supercomputing system was selected by several government and commercial customers, including several customers in our Asia Pacific region, which has been one of our strongest geographies over the last couple of years. In Europe, an F1 racing company selected our CS cluster system as did a public research university in the Middle East. Our second focus area for the quarter was to continue to expand into commercial customers and the big data market. We did well on this goal as revenue from commercial customers increased both on a dollar basis and as a percentage. And we finished the year with more than 12% of our total revenue coming from commercial customers. In artificial intelligence, Samsung Strategy and Innovation Center selected our CS-Storm solution to power its work in systems for connected cars and autonomous driving. Our CS-Storm is a densely packed GPU accelerated supercomputer that excels at running deep learning workloads at scale. This is a great win, and we're excited to be collaborating with Samsung in their innovative efforts. A leading financial services company also selected our CS-Storm to leverage deep learning techniques to expand its property and casualty life insurance claims and processing capabilities. Also, a government customer selected 2 of our Urika-GX systems for their use in big data analytics. Our final focus area for the quarter was to continue to integrate the strategic transactions we completed in the third quarter with Seagate. We took over a large majority of Seagate's ClusterStor high-performance storage business, which we now sell both directly and through third-party resellers. While we're not entirely done with the integration, we're making good progress across each of our organizations and are now shipping systems and software directly through Cray. Overall, I'm pleased with the speed that we delivered on this important goal. Shifting gears, we made a notable addition to our leadership team. In December, Catriona Fallon joined our Board of Directors. She is currently the Senior Vice President of The Network segment at Itron, and she was the CFO of Silver Springs Networks before Itron's acquisition of the company in January. Previously, she was the Executive Vice President and CFO of Marine software and she has held executive level positions at other technology companies, including Cognizant and HP. I'm pleased to welcome her to our board and look forward to working with her. With that, I'll turn it over to <UNK> to take you through the numbers. Thanks, <UNK>. We have 2 key focus areas for 2018. The first is to win new business for this year and beyond, and the second is to continue to expand into commercial customers and grow our big data solutions. As <UNK> just mentioned, we're expecting to drive growth this year, which, while not up to the revenue levels we were at just a couple of years ago, is pretty exciting given the market environment we recently faced. We also came into 2018 with several contracts already in hand, which, on a percentage basis of our total targeted revenue for the year, is more than what we entered 2017 with. Our win rates have remained strong, especially on large procurements. And we'll continue to expand on our value proposition as we'll be refreshing our entire product line in 2018. So stay tuned for more on that in the coming quarters. Market activity at the high end is not yet as strong as we would like, but we're seeing early signs of a rebound beginning this year. Customer plans are beginning to firm up, as well as necessary funding. As such, 2018 is shaping up to be significantly more active, especially in bidding for new systems. It is currently looking like we'll bid on more than 3x as much business this year compared to 2017. Some of this is for revenue in 2018, but much of it would be for ---+ targeted for delivering acceptance in coming years, including 2019 and beyond. As a result, in addition to driving revenue growth over 2017, we're cautiously optimistic in the prospects for significantly higher bookings over the next couple of years. While the budget process is not settled here in the United States, things are progressing and the government funding environment continues to look positive for high-performance computing, both in the U.S. and around the world. Some of the long-term projects that our customers are discussing are extremely significant in size. These systems, specifically at the exascale level, could be several hundreds of millions of dollars in total contract value. Some of this funding would likely go toward R&D work related to the significant performance jump for these systems, but most of it would be for the supercomputing and storage systems as well as the long-term maintenance and service. This is clearly a big opportunity for systems vendors like us, who are dedicated to delivering high-performance solutions. It is looking like the supercomputing market is shaping up to be strong over the next several years. And with this unique exascale opportunity on top of that, the period from the early 2020s through the mid-20s may shape up as one of the best high-end supercomputing markets in history. This is why we're investing as much as we are now in R&D to position ourselves to take advantage of this significant opportunity. Our second focus area for 2018 is to continue to expand into commercial customers and big data markets. In commercial, we're pursuing multiple avenues to drive growth. First, we're leveraging our core technology to deliver the scale and performance that commercial customers need to take their work to levels not possible on commodity based systems. Second, we're investing to make our systems more usable and adaptable for commercial customer environments. Third, we're working with partners who have end-user applications expertise to create unique solutions that are specifically targeted to individual segments. And finally, we're working with partners to create alternative delivery methods for our technology, such as through public clouds or other as-a-service offering. These alternatives to on-premise or third-party hosted solutions provide a unique value proposition, which, we believe, is compelling for certain customers. These areas are still small from a revenue perspective, but have the potential to drive faster growth over time as these markets continue to grow rapidly. In big data, we're focused on 3 specific areas: analytics; high-performance storage; and artificial intelligence and deep learning. All of these markets are growing faster than our target supercomputing systems market, and each is benefiting from the explosion in data that is driving so many opportunities in tech today. These markets are also converging as customers look for the ability to run traditional simulation and modeling on the same systems that they run data analytics and deep learning algorithms. In storage, we're focused on expanding our leadership position and on winning new business through each of our sales channels, both direct and through our reselling partners. Our ClusterStor storage is the most cost-effective production Lustre file system solution in the market, with the ability to deliver the world's fastest data access rates that feed simulations, artificial intelligence algorithms and big data analytics. Let me wrap up by saying that while 2017 was challenging, I'm pleased with our performance to close out the year and with our strong competitive position going forward. We have highly differentiated solutions in each of our targeted markets, and I'm excited about our prospects to drive higher growth in the coming years. With that, I'd now like to turn the call over to the operator to begin the Q&A. Yes, Joe, great question. The pipeline ---+ we've been talking about it over the last few quarters that the pipeline has been solid, but it's been really slow and things have been kind of staying at the top of the pipeline and not working their way down to bidding. And what we're seeing right now is that more and more deals are starting to get into that bid stage. So I mentioned that we expect that we'll have ---+ bid on more than 3x the number of opportunities that we bid on last year. And that's really across both government and commercial. So we had nice growth in commercial markets last year as a percentage of our revenue, and we're starting to see that starting to creep back up again. So it's really across pretty much all of our segments and across most all of our geographies, too, Joe. Yes, it was right in the mid-single digits area. So it was roughly half of where we were last year for 2017. Yes, great question. So we just announced our Microsoft partnership towards the end of last year. And we're getting it underway and getting going now. We're actually engaged jointly with the Microsoft and the Azure team with a few customers as we speak. We don't expect to really see monetization from that until maybe the second half of this year and then starting to ramp after that. Yes, great question. I mean, there's clearly additional revenue that's going to ---+ and growth that's going to come from kind of, let's say, the pent-up demand of systems that are just getting extended another year or 2 longer than their traditional life cycle. It's hard to break that out about how ---+ what part of the growth would be from one aspect or just kind of traditional new systems. But I would say that there is probably a good 20% of the added extra growth that's going to be kind of getting those older systems up to speed, again, versus kind of the normal market coming back and just being a good strong market again. So that's why I feel like the overall supercomputing market over the next few years and several years is going to be pretty strong, because we feel like the core market\xe2\x80\x99s coming back, but we also know that there is some pent-up demand in systems that are just getting a little older and longer in the tooth. Yes, that's a great question. It's been really kind of fun. It's been fun for us because when we brought the Seagate team in, it's been really easy from a cultural perspective just because we worked with the team for a long time. And there, kind of, we had a really good easy meshing of the team that we had already existing at Cray and the team from Seagate. But what we really did was just dramatically expand both our reach into the market as well as just the number of people we have doing development in R&D around storage. And so one of the things that's been really exciting for us is over the next few years, we've talked a lot that the memory and storage hierarchy is going to be changing a lot in our systems. And there's a number of new technologies that are coming out in the market that customers could take advantage of that could dramatically change the storage environment, let's say, 3 or 5 years from now versus where we are today. And we now have really just this unique capability of having a lot of people that can really interact with customers in a very different way than we could before. We've always had really good storage architects at Cray that could architect an overall system. But we didn't have a lot of development capabilities within the company to really develop that next generation of storage platforms. So we've had a really different ---+ have been able to really expand that conversation overall, especially from that development side. And I do feel really strongly that we're going to be able to deliver on kind of our premise when we acquired and did a strategic transaction with Seagate, of bringing over that team that we're going to be able to grow our kind of noncredit [cache] or third-party storage business, and we're already seeing that. So that's ---+ we're feeling pretty good about our opportunities there of really growing a broader storage business. Yes. That\ Thanks, and I want to thank everybody for joining the call today. I do want to clarify that some of the exascale level systems that I mentioned, that each of those systems could be hundreds of millions of dollars in total contract value. I believe I said that it could be hundreds of millions of total contract value overall. I wanted to make sure that it's each of those machines. But I do want to thank everybody for joining the call today, and for your continued support of Cray. Have a great evening. . Thank you.

2018_CRAY

2016

POOL

POOL #Both. Depending on the product. Or depending on the need. For equipment, that is sold to a contractor that installs that equipment. In certain cases where it's what I will call basic products, I'll call it do-it-yourself products where that hotel or resort may have their own staff of people that put the chemicals in and do the basic maintenance, then that would be a direct sale. You make a very good point, <UNK>. And certainly it will be tougher. I would rather have a little bit more time to give you better insight. Again from an annual standpoint, we would be looking at, call it 5% to 6% topline growth for the year. A lot of it ,frankly in the first quarter depends on how mild the weather is in the snow belt in February/March and how, when people start opening their pools and then the rush of business that happens as people open up their pools. But you make an excellent point. And it could very well when we refine our commentary in February, we could very well be coming out and saying expect f<UNK>ttish-type numbers but, it doesn't change anything for the year. It just changes how it p<UNK>ys out over the quarter given the seasonality of the business. Thank you. I would see that there would be the ongoing very ---+ from my standpoint, very slow gradual recovery of new pool construction and what will change is when financial institutions begin to open up a little bit, their horizons for home improvement lending to existing homeowners, and that's when it will really kick up and recover at an accelerated rate. Until then it will continue to grow at a modest, call it 10ish type percent, 5,000 to 7,000 more pools per year. Between blue, green and international, probably it would end up being another 5 to 7 locations for 2017. And so that will add, close to 1% of call it new sales, not necessarily base business. Acquisitions, at this juncture, that's very specu<UNK>tive. Certainly always talking to people and trying to figure some things out that would make sense for us long term as we ---+ I talked about a few minutes ago and a lot of those transactions historically over time happened in the wintertime frame after the season is over and before the next season. Overall, very solid throughout all of Europe. In fact, in euros and in Canadian dol<UNK>rs, which are, collectively Europe and then Canada are by far our two biggest international markets representing well over 90% what we do internationally. Both of those markets grew at a modestly faster rate than the US market. So they're both doing well. The UK is doing fine. In fact I reviewed those numbers. We're on track to be a little bit more profitable this year than <UNK>st year in Europe. So although ---+ and we have a good chance of hitting our budgeted profit there as well. So we're moving right along. I think the impact from Brexit will be more in the medium term, in the next several years as certain industries and finance sector and IT relocate. But again, the existing pools are the existing pools. They'll need to be maintained. Things break down, they'll need to be repaired and after a while, the product will need to be rep<UNK>ced or the pools remodeled. So I don't see any of that changing. On an annual basis just to give you a little context, in the UK, they build less than 2,000 new pools per year. And if you compare that, that would be analogous to a medium-sized market in Florida like for example I would say ---+ I mean they build more pools in that Miami, Fort Lauderdale, West Palm and Tampa and Or<UNK>ndo. That's more like a Pensaco<UNK>-type market. The market is growing, just like the residential market is growing. But our growth is primarily ---+ our growth rate has been primarily driven by our growing market share. There is certainly the opportunity for M&A there. There are certain established distributors that focus on the commercial sector. We have talked to several of them over the course of time. But like we have done with the residential side of our business, if you look back at our history, there was a time way back when that there were a number acquisitions done to enter new markets. We pivoted off that about 15 years ago and the lion's share of our growth since then has been organic. Once we enter a market, the return on capital is far greater doing it organically. And we've also entered and opened locations in over 100 new markets over the course of time. So we can do it every which way. In the case of the commercial sector, location is not as important because the key there is the specialized talent that you need on working with the customers on a technical front as well as having the ability to create the bill of materials. And then separately having the right stocking so that it can be delivered same day next day. And so we can do that organically. I can't rule out an acquisition. But we can certainly get to the our objectives organically. The nature of the beast here, <UNK>, and you ask a good question. And this applies to residential products as well as commercial. Generally speaking when you are selling a higher priced product, let's say when you're selling a variable speed pump versus a single speed pump and that goes with a higher price, generally speaking the higher the price of the item, the lower the margin percent. Again, and I can point to the margin percent and margin dol<UNK>rs. So much the same applies. So when we are selling equipment for example to commercial customers and you're talking about <UNK>rger filters and <UNK>rger pumps, that is sold at lower margin percent than when we are selling a residential sized pump and filter. Certain product categories, I'll call it accessories which are lower dol<UNK>r items, the cost to serve from a percentage of sales price standpoint higher tend to have higher margin percents. And that applies to commercial as well as residential and that applies also to parts, residential and commercial. When you're talking about tax dol<UNK>rs deferred, I think you're talking about the long discussion that I had on the ---+ oh, I'm sorry, you're talking about the tax payment dol<UNK>rs. That was about $37 million was our expected cash tax payment in the third quarter which will be made in the fourth quarter instead. $37 million, yeah. Thank you, <UNK>. Thank you, William and thank you all for listening. I think we set a record in terms of time and I appreciate everyone's questions. I apologize for sometimes rambling on too long but hopefully gave you color where appropriate. Our next conference call is scheduled for February 16 in 2017 when we will discuss our final 2016 results. Thank you again and have a great day.

2016_POOL

2015

WRLD

WRLD #Thanks. So let me clarify on the $1 million, and then I'll hand it over to <UNK>. We didn't say it was $1 million in net income; we said it was $1 million in gross sales per month, just to clarify. And I'll let <UNK> answer from there. As it says in the releases, $1.8 million in gross sales. Actually, net sales. But not net income. It'd be 63% of that, approximately. So the new customer volume and (inaudible) was down around 4.8% quarter over quarter. That's number of customers. That's correct. I don't have the fourth quarter in front of me, but it may be. There is a contract in place. Again, it's too early to discuss that and speculate. The annual grant typically happens in the fiscal third quarter. Again, it's just too early. We've [been on] this for days. So it's too early to speculate. It's less than 1%.

2015_WRLD

2017

IRM

IRM #Thank you, Bill, and good morning, everyone I'm pleased to be reporting on another strong quarter that demonstrates the durability of our business and the success of our business plans Similar to Bill, my comments will be brief this morning and cover key highlights, certain operational and financial metrics, and our outlook for 2017, which remains unchanged since February Before diving into the details, let me walk you through the key financial highlights First, we achieved strong internal storage revenue growth of 3%, excluding Recall and other smaller acquisitions This is consistent with last quarter's performance of 2.9%, and reflects solid underlying business fundamentals and continued volume growth across all major markets Second, we maintain consistent adjusted EBITDA growth of over 24% from the acquisition of Recall and underlying margin improvement Third, the integration of Recall and our Transformation Program continues to be on track, as evidenced by the 100 basis point decline in SG&A as a percentage of total revenue this quarter, as Bill discussed Let's now turn to slide 8, which shows our key financial metrics First quarter total revenues growth of 25.1% was in line with our expectations, driven by acquisitions and the strong internal storage revenue growth The internal storage revenue growth of 3% was driven primarily by net internal records management volume growth of 1.9%, as well as benefits from our revenue management efforts Service revenues increased 26.6% in the first quarter, 0.6% of which was internal growth The improvement in internal service growth resulted from higher paper prices, as well as increases in project-related revenue At current paper pricing, we expect to benefit to the first half of the year until we begin to cycle against last year's price increases Compared to a year ago, the first quarter adjusted gross margin declined 120 basis points due to the mix of Recall's lower margins, including higher rent expense, as pre-acquisition Recall leased close to 90% of their facilities on a square-foot basis Sequentially, adjusted gross margins declined 80 basis points from the fourth quarter as a result of the seasonality of utility cost and compensation expense Adjusted to exclude Recall integration costs, selling, general and administrative expenses increased 20.1% from a year ago SG&A as a percent of total revenues, however, decreased 100 basis points from last year due to the transformation integration benefits, as well as a reduction of bad debt expense The 24.4% increase in adjusted EBITDA was driven by acquisition benefits, top line growth and the SG&A improvements just noted Adjusted EBITDA was impacted by $6 million of expense this quarter related to the innovation investments, which we talked about last quarter As a percentage of total revenues, the adjusted EBITDA margin in Q1 was 31.2%, 10 basis points lower than a year ago due to the mix of Recall's lower-margin business, mostly offset by other business improvements Looking at the adjusted EBITDA margin on a sequential basis, that is to track progress on synergies and transformation, the EBITDA margin declined 50 basis points from Q4, due partly to the seasonally higher operating expenses in the first quarter, as well as the $6 million of expense-related innovation Excluding just for the $6 million, adjusted EBITDA would have been 31.8%, up 10 basis points sequentially from Q4 2016. Growth of adjusted EPS to $0.24 per diluted share for the quarter was negatively impacted by $0.03 related to the year-over-year increase in our structural tax rate, which was 14% a year ago and 23.1% this quarter The tax rate was above our guidance, partly driven by a change in U.K tax legislation, whose application was recently clarified The legislation affects our interest deductibility, and we have included this in our effective tax rate, while we are actively pursuing remediation and restructuring to mitigate its impact In addition, our tax rate has been impacted by our anticipated mix of earnings Despite our Q1 structural rate, we expect that our full year 2017 structural rate will be closer to the higher end of our guidance, or approximately 20% AFFO was in line with our expectations at $170.9 million Compared to a year ago, AFFO growth was limited as we lapped against a cash tax benefit, resulting in a $34 million swing in cash taxes paid Remember that the calculation of AFFO was changed in the third quarter of last year, so that it reflects cash taxes While annually, cash taxes will generally reflect our structural tax rate, we will have some quarterly volatility, such as this quarter when AFFO is reduced by a net $30.4 million compared to a year ago, when cash taxes were actually a benefit of $3.6 million Let's turn to slide 9 to cover internal growth performance by segment for the quarter The North America records and information management, or RIM, internal storage revenue growth continued to be strong This performance was driven by price improvement and volume growth We saw improvement in the North American internal service revenue due to growth in the shred business, including the higher paper prices, and improvement in information governance and digital solutions, which provides digital imaging services to our customers The North American data management internal storage revenue grew 2.7% However, internal service revenue declined due to the ongoing reduction in tape rotation, as discussed in our Investor Day The adjusted EBITDA margin in North America data management declined year-over-year, primarily as a result of increases in investments associated with product development, however, remains a very healthy 52.3% The internal storage revenue growth in Western Europe of 1.7% improved from the fourth quarter, while internal service revenue growth of 4.4% benefited from an increase in special projects in the U.K and new customer wins in Germany and Spain The Western Europe adjusted EBITDA margin declined year-over-year due primarily to a one-time tax benefit in the U.K of approximately $3 million, which we discussed a year ago In the Other International segment, which includes the larger legacy Recall Australian business, we continue to see strong storage and service internal revenue growth, and improving margins As for Corporate and Other, adjacent business internal service revenue showed a small $600,000 decline related to lower project revenue in art storage Moving to slides 10 and 11 quickly, consistent with the fourth quarter call, slide 10 shows the relative size of each segment and its contribution to our results through a storage and service lens Storage continues to provide more than 80% of adjusted gross profit with the remainder from services As you heard in our Investor Day, we continue to innovate on new service offerings for our customers, focusing on value-added services which deliver gross profit growth Slide 11 contains the same information as slide 10, but viewed on a product line basis Before turning to our outlook for 2017, let me quickly touch on the composition of our global business The chart on slide 12 remains consistent with the data provided on the Q4 conference call As you can see, roughly 60% of worldwide revenues are generated in the U.S And importantly, approximately 70% of adjusted EBITDA is in U.S dollars This demonstrates that the impact of foreign exchange fluctuations are somewhat muted on adjusted EBITDA Also, we continue to match our foreign denominated debt to create natural currency hedges to mitigate translation exposure, while also being tax efficient At quarter-end, 23% of our debt was in currencies other than the U.S dollar Let's turn to our guidance for 2017, summarized on page 13 of the deck Our outlook for business trends and fundamentals remains unchanged since February on a constant dollar basis For full year 2017, at the midpoint, we expect adjusted EBITDA to grow by 17.5%, with adjusted EBITDA margins expanding to around 33%, an increase of about 200 basis points compared to 2016. In addition, AFFO is expected to grow by 11.5% of the midpoint, supporting our expected dividend growth of 7% in 2018. As noted in February, our guidance assumes that we invest about $20 million in operating costs associated with innovation initiatives and global shared service programs We continue evaluating several storage and service line innovations, and should these innovations meet or exceed specific success-based hurdles, related operating expenditures associated with commercialization of these initiatives could have a minor impact on full year adjusted EBITDA expectations That being said, we have not made any commitments at this point and have not changed our guidance to reflect this Turning to slide 14, our projected cash available for distribution and investments, or CAD, also remains unchanged from the Q4 earnings call For 2017, we continue to expect CAD to cover our anticipated full-year dividend and required maintenance capital expenditures, with approximately $125 million of capital remaining to support core growth racking and other discretionary value-accreting investments, and requiring about $200 million of external funding for the remainder, excluding Recall costs Shifting briefly to the balance sheet, we had liquidity of nearly $1 billion at quarter-end, and a lease-adjusted debt ratio of 5.8 times, which is in line with our expectations In the short-term, we expect our leverage ratio to remain above long term targeted levels following the Recall acquisition, and then trend down as we collect divestiture proceeds, fully realize the synergies and transformation benefits, and continue internal growth We expect our lease-adjusted debt ratio to be 5.6 times at year-end, and then trending down to 5 times in 2020, as we laid out in our Investor Day To remain in our targeted capital structure and to take advantage of market conditions, we expect we will term out a portion of our borrowings with longer-term debt and attractive rates, thereby extending our average maturity Overall, we are pleased with our first quarter performance and results that are consistent with expectations We are well positioned to deliver on our financial projections for the year having started with strong internal growth momentum As I said last week at our Investor Day, our steady growth, strong margins, and very effective field leadership will allow Iron Mountain to thrive in all business cycles With that, I'll turn the call over to Bill for closing remarks Good morning, Michael What you see, we've been through a little bit from paper pricing, but to take a step back, I mean, we've been experiencing a decrease in activity in records and tape rotation, as we've talked about And so the team has been doing a great job talking to customers and working more on solution selling So while the new activities that we're working on for our customers will likely be at lower gross margins than our storage business, when you look at it compared to our service business, we wouldn't expect any real degradation of gross margins from that And again, we're focused on gross profit and solution selling So, when you think about different activities that we've got going on out there for our customers, and they're looking for help managing things like HR records, scanning businesses so that they can monetize and take advantage of the records that we store for them, we think that there's not going to be any real degradation in the gross margin to that And over time, the innovations that we're working on today is – a number of these, as Bill talked about earlier, are still in the garage in early days; these are things that we're going to continue to innovate on as we talk to our customers <UNK>, hi, this is <UNK> If you think about it, first of all, 2016, we really had an uptick in storage growth last year, in the second half of the year And again, I'll point out that, that was after the Recall acquisition, so really showing that our commercial team is really staying focused on delivering And so we anticipate that we'll be, in the second half, on a year-over-year growth basis, it will slow down because we will have tougher comps That said, I think at this point, having what we've delivered in the first quarter, we'll be closer to the 2.5% than the 2% in the guidance

2017_IRM

2017

HLX

HLX #Right now there's nothing in our forecast for it. It's just with the way that the schedules are booking up, the fact that the Skandi Constructor has been a good vessel and operates well. We've got a good relationship with [Doph] and the decision was to leave our equipment on board, which enhanced their opportunity to find work for the vessel. And we will jointly try and ---+ we will do our share in trying to find work for the vessel. Of course we'll fill up our other vessel schedules first, but with the way the schedules are working out, it looks like there could be potential conflicts of scheduling that would require additional tonnage and if so then we would press that ---+ we would talk with [Doph] about bringing the vessel back into service. But from a cost perspective our charter does complete on April 1st, I believe it is, <UNK>. So after April 1st there is no additional cost to us other than maintenance cost for the equipment on board. I can tell you the ---+ both systems are jointly owned between ourselves and OneSubSea, the alliance, so the capital is split on the 15,000 PSI system. That's 100%, so our share ---+ (inaudible - multiple speakers). Then on the ROAM system I believe it's 11 and our share is about 5.5. The economics are such typically an IRS system in the market place on a rental basis will go from anywhere from 50,000 on up to 90,000. You know, it's a broad range depending on market conditions and whose system it is. We would expect the 15,000 PSI system to certainly carry a premium. Yes. We have very little ---+ we have zero revenues assumed in our forecast for the ROAM and a little bit for the 15K, but it really doesn't move the needle. Yes. We haven't provided specifics. It's a good backlog. It's similar to what we had entry in 2016. Obviously we do have the dry dock in there. We do have some gaps that we need to fill, but we believe that when we get a vessel it will have high utilization absent the dry dock. Okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our first quarter 2017 call in April.

2017_HLX

2015

KEY

KEY #Essentially what happens here is that, based on the accounting rules, that we have a threshold established based on the interest rate component of our pension expense. With rates being so low that hurdle for this year was $32 million of lump-sum distributions. And as soon as we go over that it triggers a settlement loss. So, if rates remain at this low level for a long period of time there risk that we could continue to see that in the third or fourth quarter of subsequent years. But at this point in time it's difficult for us to predict when that would occur and how. You're right. There is the exposure there. But what would have to happen is each of those participants would have to retire and then each of them would have to have a lump-sum distribution; otherwise, you're going to see that $250 million being recognized over a 30-plus year time period. Difficult to predict exactly what people will select and the timing of that recognition. And, <UNK>, this is <UNK>. I would just add that it is, as <UNK> accurately points out, a function of the interest rate environment. But if you also look at our FTE line this charge has been triggered for the last couple years related to our significant repositioning of our workforce, which we have brought down over the last several years. And, as you heard, we've been adding to client-facing and senior bankers but overall we've been bringing down our headcount. So, that remixing and reduction in headcount is also triggering the opportunity for people to make those elections as they exit. So, it really takes both of them to happen in order for us to incur a charge. As far as our loan growth exceeding deposit growth, we've been talking about that for a period of time because we expect that to be an area to help us see a little bit more stable net interest margin. And you are right that we're still below where we would target as far as our loan to deposit ratio long term. So, we think that is an area that we can continue to manage up. If you look at the LCR at the end of the third quarter, we were north of 100%. Our requirement is to be at 90%-plus range in the first quarter of next year so we think that we're well-positioned from that perspective. And I'd also like to note that in the third quarter we did see some of the more short-term focused deposits leave the bank and that will put some additional pressure on a linked quarter basis as far as the deposits being down slightly compared to the second quarter. I'll take a first crack at it and then asked <UNK> <UNK> to chip in, as well. If you look at the charge-offs, the change over the last four quarters really has been in the level of recovery. The actual growth charge-offs are pretty flat over the last five or six quarters, so we haven't seen much change from that. The recoveries are down primarily in the commercial category and that just reflects that we haven't been replenishing the inventory, which is good as far as problem assets to collect on and therefore don't have the higher level of recoveries. We think that we're getting closer to more of a stable level of recovery. To your point, we're still well below that 40 to 60 basis point range. We would expect to continue to be under that for a period of time but we have seen some increases in charge-offs reflecting the lower level of recoveries. <UNK>, anything else you would add to that. This is <UNK>. We think that our business model is unique. We're focused on seven sectors. We're focused on the middle market. For example, we have 46 research analysts covering 777 companies. And while clearly our model can be replicated, it's not just as easy as hiring a few bankers because you need the product experts and you need the industry experts. Because of that, we feel like we have a bit of a competitive advantage in the marketplace. <UNK>, this is <UNK>. The one thing I would add that we also always talk about is when you look at the growth in our loans to our commercial clients, and as you look at it also with our investment banking and debt placement fee, you can see a high correlation that that's where the business model comes to light ---+ that it's both what we can put on our balance sheet how we attract clients and actually lend into them but also through our broader product suite, which as <UNK> says, we think is unique and differentiated. We're able to drive M&A fees, debt placement fees, equity fees, and a variety of robust fees coming out of our payments capabilities. So, it's really a very holistic approach. And loans are a significant part but also, I think, indicative of the broader model that we are able to bring across a continuum of commercial and middle-market clients. What we just said is our full-year number would be in our guidance range of mid-single-digit growth. So, that would imply that it's going to be in the 4% to 6% range on a full-year basis. Our principal investing gains with market conditions overall and with the size of the portfolio shrinking, I would say that the $11 million that we have in the current quarter and for the past couple quarters is probably an appropriate run rate for us. You will see some volatility there but generally I think that's a decent outlook. The operating lease income line item is down this quarter and that reflects a couple things. One, we had about a $4 million loss in the current quarter and we had a slight gain in the previous quarter. So, that really created the change on a period over period. But I'll say that the current level is probably a little low given the impact of that loss. This is <UNK>. Because of the fact that we are in the transaction business you will from time to time see lumpiness, particularly with respect to commitment fees. But underlying the entire line item ---+ and this cuts across both the Corporate Bank and <UNK>'s business in the Community Bank, as well ---+ we have seen elevated levels in both foreign exchange and derivatives. So, yes, there's some lumpiness but the underlying trend line is also positive. Yes, Geoff, this is <UNK>. As we've said before, we have articulated our capital priorities and have said our capital position is the strength of this Company. So, we're pleased to continue to be among the peer-leading level return of capital to our shareholders. As you've seen over the last couple years, we've also used the opportunity to enhance our business model and our strategy as we've expanded our product offerings such as acquiring our credit cards last year. We are on the one-year mark of our acquisition of Pacific Crest Securities. And we've done some things over time to enhance our distribution. So, as we look at it we would look at opportunities that are consistent with our model, things that would add to our client base and would be good for our shareholders. And I think the things we have done in recent years have met that standard. It is good to see that some transactions have been announced and approved and the market has cleared those. I think it is an indication that there is more confidence or perhaps certainty. I think that's good for the markets, I think it's good for buyers and sellers alike. This is <UNK>. Let me just step back for a moment. We don't really look at it as separate. In other words, we don't look at the loan product, the fee product. What we're really doing in a very holistic way, in a very targeted way, is pursuing client relationships. And when we pursue those we get the benefit of both fees and loan growth. If you look, for example, in the Corporate Bank, our noninterest income this quarter is about 51%. We like that mix of half and half. We think it's a competitive advantage to have a balance sheet. But we really think it's our job to identify clients and serve them in any way that we possibly can. As I mentioned earlier, the preponderance of the time that involves us accessing capital elsewhere. In terms of the actual pricing on loans we have seen a slowdown in the rate of decline. So, if a year ago the year-over-year rate of decline for a similarly risked loan was down maybe 25 basis points, maybe this year it's down maybe half of that. But with our business model we're able to generate very good returns for our shareholders and not take excessive risk in terms of growing growth. We don't look at them as one or the other. We focus on client relationships. And the outcome of those could be loans, could be fees, or any derivation thereof. The only thing I would add to that are two points. One is that if you look at the new loan originations, they have a better credit quality than the existing portfolio, so you would expect to have a little bit lower yield if the credit quality is better. That's helpful for our overall credit picture but it has a little bit of additional pressure on the margin. And then, second, I would say that linked quarter we did see our loan fees come down a little bit, which cost us a couple basis points there, as well. So, not necessarily reflective of the aggregate pricing for the portfolio but from time to time we do see some variance there, as well. Great. And you're absolutely right, one of the things we focus on quite a bit is just what kind of return on capital are we generating from our customers, and whether that's in the Community Bank or the Corporate Bank. Our fee businesses clearly have a stronger ROE for us. So, that's something that we're very excited about. And if you look at just, for example, the Corporate Bank, the return on capital in that business has been hovering around a 30% type of level, clearly north of 20%. So, that clearly is in an area that we want to see growth going forward. Sometimes that comes in areas where it's a higher efficiency ratio and we're fine with that as long as we can get the return on capital and get the return for our shareholders, which we think is exceeding the cost to deliver that. Again, we look at it as accretive. As far as digital, we continue to make a lot of investments there. If you look at our technology deployment, I would say that somewhere between 15% and 20% of that budget on an annual basis is facing off against our digital investment, and it is enhancing our customer experience and providing more opportunities for those customers to engage and open new accounts with us. <UNK>, anything else you would want to add there from the digital side. Thanks, <UNK>. The only thing I would add is you see a deliberate remixing of our distribution to our clients ---+ so, you see the branch counts coming down meaningfully over the years ---+ while that investment in digital is taking place. So, there's no doubt that we see significant growth in the engagement of our clients from a digital perspective. You see a real focus on the relationship strategy so that the investments we make are to bring ease, value and expertise to our clients through the digital environment, making sure that there's relevant offers to them in the digital space. You see some partnerships that we've announced to bring that to life, as well. That's in the run rate. We've really ramped up the investments in digital and I'd expect to see that continue. <UNK>, I will tell you that we will provide more clarity as far as our 2016 outlook at next quarter's call. But as we've talked about over the next quarter and on a year-over-year basis we're still expecting to have net interest income increase from the low single digits. So, not seeing anything fundamentally that would change that dramatically. But then, again, we will provide more clarity after next quarter. Sure. If you look at just the salary line by itself, that $7 million, linked quarter, a little over half of that is because the number of business days increased by one this quarter versus the second quarter. So, it was a little over $3.5 million of the increase there. The rest of it really is the investments in the talent we talked about, and also reflective of in the current quarter is our first quarter of every year where we add our new rotational programs, whether it's in the Corporate Bank or credit or other areas. We bring in a group of college graduates to the Key organization and that resulted in an increase in headcount linked quarter from that effort. If you look at the incentive and stock-based compensation, it's down $6 million and that really is tied to that change in our capital markets revenue. Not only did you see a decline in the investment banking and debt placement fees but you saw an increase in some of the corporate services income which was primarily driven by capital markets related areas, as well. So, the net change there of roughly $19 million had an impact of about a $6 million decline in our overall incentive and stock-based compensation expense. We would continue to have some branch consolidations. We didn't call it out but we recognize that's more a part of our ongoing run rate, that we did have our branches come down by 17 this quarter, would expect to continue to have a 2% to 3% decline year over year. That would imply some additional branch consolidations in the fourth quarter. Nothing outsized from what we experienced this quarter, that's correct. This is an ongoing question that we have not only for our investors but also for our Board and our management team. We're always trying to read the signals and messages that we're hearing from DC and our regulators to see if there is more willingness or appetite to see that type of payout increase. We do recognize that we are highly capitalized and we want to be one of the top returners of capital going forward. So, we're looking for every indication we can get to see if that tone has changed or shifted. Right now we just want to make sure that we're disciplined with it, that we recognize that part of our value really comes to our shareholders in the form of dividends and our share buyback. And we want to make sure that we can continue those going forward. We think there is greater opportunity for us long term. We still think our loan to deposit ratio is lower than where we would like to target it long term, so we do have some additional flexibility. I'd say that the current quarter coming down by $1 billion in the short-term earning assets is probably outsized from what you would see in subsequent quarters because it reflects some of the impact of some of those short-term deposits that we expected to go out of the house over the last quarter, and wouldn't expect the same pace going forward. When we take a look at that, part of our challenges that we see is we're not seeing a differentiated performance market by market. We're seeing improvements across the footprint and seeing better performance in all of our markets. And our challenge really is if we exit the market what happens is that we eliminate 100% of the revenue and a portion of the expenses, but not 100% of the expenses because we still have an infrastructure that supports the technology, risk management and other functions that may not be quite as variable in nature. We haven't seen a benefit to our shareholders for truly exiting the markets. But our focus, really, is continuing to improve the performance across our footprint And we're seeing that and it's starting to translate to bottom-line improvement from that, as well. Absolutely the case. And all my business partners here are all nodding their head across the table from me, so I think we have absolute agreement on that. A commitment and confidence to be more productive and more efficient. This is <UNK>. Let me address that, if I could. There's a couple areas that we've invested in significantly that we're really starting to see a lot of traction. First is the purchase card business. And what we've done ---+ and I'm going to turn it over to <UNK> in a minute ---+ but what we've done is worked very closely with the Community Bank, not only in terms of penetration rates which are 3X or 4X what they've been but also the size of the clients are higher. So, that's one area. Another area where we've had a lot of wins but it isn't really reflected yet because it takes a while to set up these programs is we got into the prepaid business. And we've had some very significant wins out of our public sector area. Those don't really come online until 2016 but it gives us confidence as we look forward. The other area where I think we've had some success ---+ I'm going to ask <UNK> to comment on it ---+ is on the merchant side where <UNK>' team has been very closely aligned, and thanks to <UNK>, have been really coordinated. Thanks, <UNK>. The cards and payment line, to <UNK>'s point, you see on that line tangible payoff of the investments that we've been talking about. We acquired our credit card portfolio and we now self-originate. To <UNK>'s point, you see that same activity in the merchant business. You also just see core client growth occurring across the Community Bank, across the consumer and business banking portfolio. With client growth comes activation and active cards. Very proactively managed businesses. But you can see a portfolio of investments that are really paying off with client growth and the active evidence of our relationship strategy. Every one of these clients, every one of these products is not a standalone but in the context of the broader relationship we're bringing to market each day. We're always looking for a new vertical. As we look back, I think the most important thing about Pacific Crest has been the fit from a cultural perspective, the willingness of our team at Pacific Crest to be part of a bigger platform where they can offer more things to their clients. And it does give us confidence that if we could find the right niche ---+ and, again, our business is all built around niches ---+ if we could find the right niche we would definitely look at trying to continue to leverage our platform, which we think is not as leveraged as it could be. Josh, clearly the disruption in the market in the last part of the third quarter caused some of our deals and probably everybody else's deals to be pushed out a bit. So, there's no question. And it also, as I mentioned earlier, for us I think opens the opportunity for us to look at alternative ways to finance transactions for the benefit of our clients. The answer to your question is yes, some things undoubtedly were pushed off. As far as the expense build we are already starting to occur some of that because we're really investing in the infrastructure to make sure we do it right. So, we have added to our team already and you'll see a slow add to it over the next several quarters. As far as truly launching it, we're looking at some time later in 2016 are far as really when you start to see the revenues pick up. Anything else you would add to that, <UNK>. No, <UNK>, I think that's correct. As we've talked about before, we try to calibrate our investment with our other expenses. And you wouldn't expect to see much difference in that business until the second half of 2016. All right, thank you, operator. And, again, thank 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 thank you again.

2015_KEY

2015

CHUY

CHUY #Yes. We're still comfortable on that range and we like the 20%. Last year, when we made the moves, we just want to be very thoughtful on how we're moving into these markets and really backfilling it to make sense for us. So yes, long term, we expect it to be a 20% and you'll be able to see that in the 2017 probably. Yes, that's exactly it. Thank you. Well, thank you. Thank you so much. Jon and I appreciate your continued interest in Chuy's and we will always be available to answer any and all questions. Again, thank you and all have a good evening. Bye-bye.

2015_CHUY

2017

NJR

NJR #Thanks, <UNK>, and good morning, everyone. As I begin this morning, I wanted to congratulate Steve <UNK> on his recent promotion to Executive Vice President and Chief Operating Officer of New Jersey Resources. I think many of you know Steve, but for almost 3 decades now, he has been a valuable member of the team. He has made significant contributions to the company, particularly on the development of our successful wholesale energy and midstream strategies, and I am confident that he will continue to deliver results for our customers, our shareowners and all of our stakeholders. As you note from our news release this morning, we reported another strong fiscal year, thanks to the performance of our employees and their hard work, their focus and their dedication. As we look at Slide 4, we reported net financial earnings, or NFE, of $1.73 per share for fiscal 2017, and that compared with $1.61 per share last year and represented a very strong growth rate of 7.5%. Our results were in line with financial community expectations and our stated guidance range of $1.65 to $1.75 per share. I would also point out that the results from each of our businesses were within the ranges that we have provided to you at the beginning of the fiscal year. Consistent with our plans, New Jersey Natural Gas once again had a very strong year and drove our financial results. Higher utility base rates and record customer additions led to a 14.2% earnings growth rate over the prior year. Demand for solar continues to grow in New Jersey, and we remain well positioned strategically in this market. Our Clean Energy business, NJR Clean Energy Ventures, has become one of the largest residential solar providers in New Jersey. This year, we also placed 5 commercial solar projects into service, and our solar portfolio now includes almost 190 megawatts. During the fiscal year, NJR Energy Services acquired natural gas transportation, storage and supply agreements with large industrial customers from Talen Energy for $55.7 million. This acquisition will support our wholesale energy services strategy, which is to provide physical natural gas services to customers across North America. Our strong financial profile and performance allowed us to increase our annual dividend rate by 6.9%, and to provide our shareowners with a total return of nearly 32%. As we plan for future growth, we made progress on our key infrastructure projects, including our Southern Reliability Link, which will strengthen our system, ensuring safe, resilient and reliable service to our customers. Moving to Slide 5. Earlier this year, we increased our dividend by 6.9%, which represented the 24th increase in our dividend in the last 22 years. Our dividend strategy targets an annual growth rate between 6% and 8% with a payout ratio of 60% to 65%. We believe that this approach should provide a competitive current return to shareowners, while reinvesting earnings in the company to support future NFE growth. Turning to Slide 6. As we look to fiscal 2018, this morning, we announced an NFE guidance range of $1.75 to $1.85 per share. Our longer-term NFE per share goal remains in the 5% to 9% range. On November 7, Phil Murphy won the gubernatorial race here in New Jersey. During his campaign, Governor-elect Murphy stated his intentions to make New Jersey a national leader in solar energy production and job creation, and we look forward to working with his administration to help realize that vision. Just after the end of the fiscal year, we signed an agreement with Talen Generation to acquire an existing pipeline in Southeastern Pennsylvania. This project involved converting an oil pipeline to natural gas to serve customers in the Greater Philadelphia region. The investment is consistent with our strategy and is expected to benefit both customers and shareowners. As you look at Slide 7, you can see we give a breakdown of the expected NFE contributions from each of our businesses in fiscal 2018. New Jersey Natural Gas will continue to provide the majority of our earnings. Customer growth and infrastructure investments remain the principal earnings drivers. We anticipate that NJR Midstream will contribute between 5% and 15% of NFE, which will be driven by the performance of our existing assets and recording of allowance for funds used during construction, or AFUDC, from PennEast. In total, our regulated businesses, New Jersey Natural Gas and NJR Midstream, are currently expected to contribute 55% to 75% of NFE in fiscal 2018. We expect that NJR Clean Energy Ventures will contribute between 20% and 30% of NFE this fiscal year. And finally, we expect NJRES to perform within our guidance range and contribute between 5% and 10% of NFE this year. All in all, the performance of our portfolio is meeting our expectations, and we expect another strong performance in fiscal 2018. And with that, I'll turn the call over to Steve <UNK>. Steve. Thanks, Larry, and good morning, everyone. I'd like to begin by discussing our midstream business and recent announcement regarding the Adelphia pipeline acquisition on Slide 8. Shortly after the end of the fiscal year, we signed an agreement to acquire an 84-mile, 18-inch pipeline, which runs from Marcus Hook, Pennsylvania, just south of Philadelphia, north to Martins Creek, Pennsylvania for $166 million. At the same time, we announced an Open Season for the Adelphia Gateway pipeline. NJR Midstream intends to convert the 50-mile southern section of the pipeline to a natural-gas-only line, and we'll bring the pipeline system under FERC jurisdiction under the new name, Adelphia Gateway. Capital costs for the conversion are expected to be in the $80 million to $130 million range. Today, the Philadelphia market is constrained with limited access to affordable energy sources. Adelphia Gateway will serve this need, fueling economic growth and job creation as businesses and manufacturers expand their operations. The project will have minimal impact on the environment because the pipe is already in the ground. The conversion process to natural and gas involves minimum construction and utilizes brownfield locations and existing rights of way. We expect the project to be in service in 2019 and to contribute to earnings in 2020. Our other midstream pipeline project, PennEast, is expected to construct a 120-mile, FERC-regulated interstate natural gas pipeline system that will extend from Northern Pennsylvania to Western New Jersey, and is estimated to be completed and operational in 2019. PennEast is currently awaiting a FERC certificate to move the project forward. Turning to Slide 9, New Jersey Natural Gas once again provided the majority of their earnings this year due to higher base rates, customer growth and infrastructure investments. During fiscal year 2017, we added over 9,000 new customers, representing an increase of nearly 12% over last year. These new customers will add about $5.5 million annually to utility gross margin. We expect that growth to continue and will spend approximately $120 million over the next 3 years and add up to 28,000 new customers. This equates to a growth rate of 1.7%. About 60% of that growth will come from new construction and 40% will come from conversions to natural gas from other fuels. Our BPU-approved infrastructure programs, including SAFE II and NJ RISE, ensure the safety and reliability of our system, while providing current returns on our investment capital. The SAVEGREEN program has helped our customers make energy efficiency upgrades to their homes and businesses. Since 2009, we have invested nearly $150 million in SAVEGREEN and these investments are authorized to earn return on equity that ranges from 9.75% to 10.3%. Our BGSS incentive programs have saved our customers nearly $944 million over the life of the programs, while contributing to an average of $0.05 per share annually to New Jersey Natural Gas's earnings. Turning to Slide 10. As you know, we have the strategy of hedging our SREC inventory to lock in revenue for future energy years. Results of this strategy are shown on Slide 10. You can see on the chart that nearly all of our SREC sales from (inaudible) facilities currently operational and under construction are hedged for energy year 2018 at an average price of $222 per SREC. And we will continue to hedge through fiscal '18. Energy years 2019 and 2020 hedging percentages should continue to rise along with prices as the market becomes more active to satisfy mandated clean energy requirements. Now I'll turn the call over to Pat for some details on the numbers. Thanks, Steve, and good morning, everyone. This morning, we reported our fourth quarter NFE loss of $12.5 million or $0.14 per share compared to the loss of $2.1 million or $0.02 per share in the same period last year. For the year, we reported NFE of $149.4 million or $1.73 per share compared to $138.1 million or $1.61 per share last year. On Slide 11, you can see the drivers of the quarterly decline and the improvement in our annual results. For the fourth quarter, higher O&M expenses resulted in lower quarterly contribution from New Jersey Natural Gas. However, for the year, higher base rates and customer growth led to a $10.8 million improvement for New Jersey Natural Gas. Both our quarterly and fiscal 2017 results continued to benefit from AFUDC equity of PennEast, of which NJR Midstream is a 20% owner. We began recognizing AFUDC in the second quarter and have recorded approximately $3.6 million for the year. Results in NJRCEV were both ---+ were lower on both the quarterly and annual basis as a result of sale leaseback financing arrangements executed in the fourth fiscal quarter of 2017. Finally, results of NJRES were higher for the quarter as compared to the prior year, but marginally lower for the full year, which is in line with our expectations. Turning to Slide 12, I'd like to review our recent solar sale leaseback transactions. Under this type of financing arrangement, we retained effective ownership of the solar projects because we still have all the revenue streams, including SRECs, and also responsibility for the operation and maintenance of the asset. We are, however, surrendering our rights, the investment tax credit and bonus depreciation. Since we're not a cash taxpayer for several years, this transaction structure creates additional economic value for us and the system managing our tax credit carryforward. Under this structure, there is no upfront earnings impact from the ITC. Rather, the value associated with the tax benefits is captured over time through the terms of the lease. Slide 13 brings together our capital plan for NJR for the next several years. As you can see, our investment in New Jersey Natural Gas approximates over $1 billion from fiscal 2018 through 2021. Also, we plan to invest approximately $0.5 billion in Midstream over the next few years on our PennEast and the Adelphia Gateway projects. The other item I'd like to highlight is our solar spending. We're estimating our residential solar customer growth rate will be in between 8% and 10% in fiscal 2018, resulting in approximately $42 million of capital investment. We also have 4 new commercial solar installations, some of which we currently estimate will be financed through the sale leaseback structure. Moving to Slide 14. You can see that our capital plan is anchored by strong cash flows from operations as well as our dividend reinvestment program to help finance our capital investment and dividend growth targets. The balance will come from the issuance of approximately $250 million of equity over the next 2 fiscal years and also long-term debt. As we do this, we remain mindful maintaining our current credit ratings and believe our cash flows and financing plans will continue to support our strong financial profile now and into the future. Before I turn the call back to Larry, I thought I'd cover the effect of any changes of the corporate tax rates on Slide 15. For New Jersey Natural Gas, a low corporate tax rate would result in lower bills for our customers. The current versions of the House and Senate tax reform bills exclude the utilities industry from bonus depreciation and limits on interest deductibility, thereby mitigating most of the potential downside risk from tax reform. For our nonregulated businesses, we would see a large one-time benefit as we remeasure net deferred tax liabilities associated with our clean energy investments and an ongoing benefit from a lower corporate tax rate. The lower corporate tax rate would result in a slightly longer time for us to use our tax credits, but would not likely result in a material change to our planned investments. That said, it is early in the process. As the status of any tax reform package becomes clear, we'll continue to update you on our position and future actions. I'll now turn the call back to Larry for some final thoughts. Thanks, Pat. Before we open up the call for questions, I want to summarize the key elements of our plan to create long-term shareowner value. Looking at Slide 16, we have illustrated our accomplishments in fiscal 2017 as well as our path to future growth. We continue to believe this path will support our long-term growth targets and provide solid returns for our shareowners. We've spent the last decade building a portfolio of energy infrastructure assets to help meet current and future energy demand. And we've used our knowledge of energy markets to offer services that help both large and small customers manage their energy needs. Our primary strategy is to invest in natural gas and clean energy, the 2 fastest-growing areas of our nation's energy supply. And we will continue to provide energy efficiency programs that help our customers use less energy and save money. As the demand for clean domestic affordable energy continues to grow, natural gas and clean energy will play leading roles in our future supply mix. Our infrastructure investments are aligned with this opportunity. Also, as advances in technology make natural gas production more accessible and efficient and as natural gas demand continues to reach record levels, we are investing in natural gas infrastructure to meet customer needs. Our solar investments will advance this transition to a cleaner energy future. Supported by state and federal policies, declining costs and growing customer demand, clean energy is currently projected to grow to 20% of our nation's energy mix by 2040. We believe that energy efficiency is another important part of our energy future. With new technologies, building codes and energy appliance standards, along with an increased interest in reducing emissions and lowering energy bills, the focus on energy efficiency continues to grow. We believe that energy efficiency benefits all of our stakeholders, including customers and investors, and it's the least cost alternative for saving money and improving the environment. We continue to be leaders and innovators in the energy efficiency space for customers who are increasingly interested in saving energy. Our collaborative relationships with our regulators has been a key element in our ability to advance energy efficiency in New Jersey. To achieve our long-term NFE growth targets, we will maintain a disciplined capital allocation strategy as focused on achieving an appropriate risk-adjusted cost of capital. We will also maintain a strong and efficient financial profile that will provide access to external capital as needed. So before we go to questions, I want to say thank you, as always, to the outstanding work of our more than 1,000 employees. These dedicated women and men are the foundation of our company and the driving force behind all we do. And the results that we are reporting today have been achieved through their commitment to excellence and their passion for serving our customers every day. So I want to say thank you to everyone for joining us today, have a wonderful Thanksgiving. And we will now welcome your questions. Hopefully a couple of quick ones for me. Pat, perhaps, first to you. How quickly can the sale leaseback agreement be kind of the standard for the new solar operations. I mean, will we see kind of a 50-50 split between sale leasebacks and ITC-eligible stuff or is that perhaps too quickly to make that shift. So, <UNK>, in our long-term capital plan, we included an estimate of what we expect to sale leaseback finance in both 2018 and 2019 today. The sale leaseback structure, we actually have 90 days after the commercial operation under the asset, with one of those a service to execute that. And so it provides us with some flexibility to ramp that up during the course of the year if other businesses of ours are performing better than expected. Okay. That's very helpful. Also, kind of sticking with the sale leaseback item. Correct me where I'm wrong here. But was there a negative contribution from ITC, specifically in the fourth quarter, perhaps as we adjust the earlier quarters for the sale leasebacks we saw in Q4 or is my math just off there. No, I think that's accurate. Unfortunately, we have to estimate a future tax rate and take into consideration future investment tax credits. So the fact that we did not record the investment tax credits on the Pemberton (II) and Princeton solar projects in the fourth quarter resulted in the negative ITC adjustment, if you will. But I think the important number to look back ---+ sorry, <UNK>, I think the important number to look at is the year-on-year comps. Okay. Great, great. I just wanted to make sure I wasn't losing my mind here around the holidays at home. So versus the $29.6 million NFE IPC comp for 2017, what's the comparable 2016 number. Slightly less than that, right. Yes, the CapEx that I have right in front of me is $85 million roughly for this year, and it was $87 million last year. So a modest decline year-on-year. Okay. Perfect. Final question, perhaps, Steve, to you for a second. First of all, congrats on the promotion. Thank you. Welcome to the [calls here]. And you made a short comment about perhaps forming SRECs as we look over kind of the 2019, 2020 years. Was that more a qualitative assertion about support for clean energy from the new governor there. Or was that a comment perhaps on simply the structural dynamics of the way the curves are structured in a way that those end-use customers buy those SRECs. I guess, you could answer that as, probably, a yes for both. I would imagine that the 2 are somewhat joined. Certainly, our new governor has expressed some lofty clean energy goals. So I think that, that has been somehow seen in the marketplace. And certainly, we've seen some uptick in SREC buying and interest, not only for '19 but also for '20. And that's translated in some increase in prices. In February, as you remember, there's a BGSS auction, generation service auction, so those load-serving providers will have to buy SRECs in order to complement their load and to adhere to the guidelines of servicing load within New Jersey. So that certainly adds upward pressure to the market. And I think all these are coming together. So not ---+ try not to make predictions on the forward market, but it certainly has some strong support at this point. Hey, Mike, it's Steve. So basically, the way that, that came about. That asset had been on the market for quite some time. And we actually had gone through multiple bidding processes to finally achieve and win that asset. And essentially, we were able to identify constraints in the market, and we felt that, that line would have significant value due to the constraints in the market. Specifically, that Philadelphia area, south of Philadelphia area, industrialized zone, was very short on gas supply. So they need new supply down in that area. So that ---+ that's what really drove us to pursue this asset in the marketplace. As far as upsizing goes, we have no plans at this point to upsize that asset. That pipeline is already in the ground and it's been tested. We should be able to convert this pipeline with very minimal construction. And just some short laterals that need to be put in place to asset the market down in the Marcus Hook area. So at this point, it will stay an 18-inch pipeline and operate as such. We don't have any at this point to discuss. But certainly, repurposing some certain assets is an easier way to develop gas infrastructure. <UNK>, we have about $200 million of wind investments slated for fiscal '18 and '19. I think it's fair to say with the Adelphia Gateway announcement, we're redirecting that capital into a higher-return asset with some attractive cash flows. We will also ---+ so wind will shift to a more opportunistic profile over time. SRL is currently earning AFUDC equity on the balance of the spend. The in-service dates shifted a bit for SRL, given the delays we've had in achieving the road-opening permits and the easements that we need to complete the project. But I would say, not materially moving off from what was before. We've got <UNK> Sperduto in the room. He might want to follow up on that as well. <UNK> <UNK>. Yes, <UNK> <UNK>. (inaudible) <UNK>, do you want to add. <UNK> <UNK> has joined us probably about 6 or 7 months ago from PS (sic) [PSEG], now leads our regulatory group. So <UNK>, why don't you comment on that. Yes. So right now, we're working with Craig Lynch in the operations to kind of plan out on his construction schedule. When he thinks we'll likely get through this process and then we'll begin starting the plan for the rate case. It's somewhere on the slides. But we're going to try and think that up as pretty closely as we can to when it will go in service, so there's not any regulatory lag on that asset. We may file before that if we have clear ---+ if we have a clear shot of being able to get that done and get in a rate [before ---+ once that] sets in. I think we'd like to. But the infrastructure clauses that would do that aren't really kind of purposed for that. We'd have to have a conversation with the board in order to do that. Yes, <UNK>, at this time, we're not expecting any AFUDC equity on that project. And it has to do with the fact that a portion of it's already in service and so that presents some challenge getting to the account conclusion on AFUDC. If that changes, we'll certainly update it. I have got in the capital planning side. So we are ---+ hang on, one second, <UNK>, sorry, not on top of mind probably right now. Here we go. All right, so for 2018, we've got roughly [$93 million] of ITC-eligible solar investment. So times the 24% investment tax credit, you're looking at close to $18 million to $21 million of ITC ---+ of investment tax credits in 2018. And then the balance of investment is $43.8 million of sale leaseback solar investment and that will be recognized over time. So in 2017, our ITC-eligible solar CapEx was $87.5 million. And that compares to a $93.5 million in 2018. So you see a slight step up in ITC-eligible solar CapEx. So leaseback, you'll also see a slight increase with $33 million roughly this year and it will be $44 million next year.

2017_NJR

2018

CDR

CDR #Thanks, Nick, and welcome to the First Quarter 2018 Earnings Conference Call for Cedar Realty Trust. As always, I am joined this evening by my Senior Executive colleagues who I'm ---+ who I refer to as Cedar's kitchen cabinet. In addition, the balance of team Cedar is dialed into the call or participating online. Before jumping into my prepared remarks, I would like to take a moment to thank all of team Cedar for their help in strengthening our culture of collaboration and collegiality as well as their commitment to everyday excellence. Beyond team Cedar, I would like to also recognize our Board of Directors for their leadership by example in setting a tone in overseeing the company that reinforces these very values. On the topic of the board, it is fitting to take a moment to acknowledge Paul Kirk, who, as was previously disclosed, advised us of his intent to retire from the board effective as of this year's Annual Meeting, which occurred yesterday. It has been an honor to have Senator Kirk as a board member. The senator is the rare example of a truly great American. He was the chair of the Democratic National Committee, one of the organizers of the modern-day presidential debates, and a United States Senator from Massachusetts. His association with Cedar has been a source of pride for all of us, and we will miss him very much. While we will never be able to replace him, the search for his successor is well underway, and I look forward to announcing our new Director in the coming weeks. Although <UNK> and Phil will spend time on our leasing, redevelopments and finances, I just wanted to take a moment to highlight a few items: first, leasing volumes this quarter were the highest since I have been at Cedar. This is largely a function of our decision, as previously disclosed, to renew 5 anchor tenants at reduced or flat rents in order to ensure they remained at our centers. These are all strong anchor tenants, and we concluded that the tradeoff of some rent relief for assurance of term was likely to result in a materially better economic outcome than the alternative of losing the anchor and expending capital and resources to retenant the vacant space. In a related vein, I will let <UNK> expand on the status of the retenanting of our 2 Bon-Ton boxes. I will, however, comment on how pleased I am with the proactive approach taken by our leasing team, which has resulted in excellent momentum and letters of intent or solid prospects for all of the vacated Bon-Ton space. More generally, I am very proud of the work of our leasing team and commend Tim Havener, our head of leasing, for the energy and focus he has brought to the team since joining Cedar just over a year ago. Second, the reinvention of Cedar as an owner and redeveloper of urban mixed-use assets is continuing at an impressive pace. <UNK> and the development team are making remarkable strides. Numerous letters of intent for anchor and junior anchor spaces have been completed with lease negotiations underway at all the projects, and our target of breaking ground towards the end of the year remains within reach. I simply cannot overstate how significant this positive momentum is for our company. Currently, we are viewed by many as the owner of a portfolio of predominantly grocery-anchored centers with middle-of-the-road demographics. We are in fact at the cusp of beginning our transformation into the only retail REIT with a majority of its capital invested in urban mixed-use assets. This makeover will take a number of years as we sell our assets in lower density markets to fund our redevelopments, but the transaction from talk to action is at hand. Before passing it to <UNK>, I wanted to comment briefly on our 2 held-for-sale assets. Both assets were bottom quartile assets and did not warrant further investment of financial or human capital. Notably, Carll's Corner was the last of our 5 vacant anchor properties. Although we were negotiating a lease with a high quality supermarket anchor, the reality was that as the lease negotiations ad<UNK>ced, we got to the point where we were simply not creating meaningful value and were ending up with a deal that filled a large vacancy and improved an occupancy statistic without achieving an adequate spread to our underlying cost of capital. Accordingly, consistent with our rigorous focus on disciplined capital allocation, we decided to divest this center so we can focus our financial and human capital on better value-creation opportunities. And on the topic of better opportunities for value creation, I will hand the call over to <UNK> to discuss all the various ways we are doing just that for our shareholders. <UNK>. Thanks, <UNK>, good evening. Our central mission has been and continues to be value creation for our shareholders. We have been methodically and steadily working towards that goal through a combination of thoughtful leasing, employing a disciplined operational strategy and aggressively ad<UNK>cing both our large-scale and smaller scale value-add redevelopment projects. On the leasing front, we had a strong leasing volume this quarter with 48 leases executed totaling 578,700 square feet of which 10 were new deals comprising 46,900 square feet. The average new lease spread was 3% with an ABR of $14.22 per square foot excluding one 2,000 square foot cell phone tenant at Oakland Mills that was leased in a difficult space with a challenging configuration. More generally, during my tenure, we have been highly focused on cultivating stability by reducing turnover and the frictional costs associated with it. Rather, our focus has been to keep our strong tenants in place as a stable core off of which to grow occupancy and drive positive rent spread. Accordingly, under Tim's leadership, the leasing team has emphasized maintaining current occupancy by reducing the number of tenants that simply return possession at the end of their terms rather than renew. This quarter's results is a good example of those efforts with 38 executed renewals totaling 531,800 square feet. Beyond the 5 anchor renewals <UNK> referenced in his comments, there were 33 renewals for both small shop and anchor tenants executed, totaling 228,700 square feet. The renewal lease spread for those 33 deals was 3.5% with an average ABR of $15.59 per square foot. The other 5 anchors were executed at flat or reduced rents in order to assure their continued tenancy and with it, the vitality of their respective centers. These renewals were key anchor centers in the grocery, fitness and home-improvement categories that demanded a flat or reduced rent. As <UNK> described earlier, in agreeing to these renewal rents, we made the strategic determination that accepting the reduced rental rate to achieve the renewal with a better option than the potential vacancy. The ABR for the 48 total comparable leases for the quarter totaled $13.06 per square foot, representing a negative 7% spread, which adjusts to a positive 2.8% spread upon removal of the 5 strategic anchor renewals. Notwithstanding the volatility in the macro retail market, we have nonetheless maintained solid leasing traction achieving a portfolio that was 91% ---+ 91.6% occupied and 92.6% leased as of the end of the first quarter. We had a 50 basis point decline in physical occupancy and a 100 basis point drop in lease occupancy quarter-over-quarter, which was primarily due to the closing of Tops at Tiffany Plaza in Gardner, Massachusetts on the heels of their bankruptcy filings. We are actively pursuing backfill options for this tenant and have already identified some attractive prospects. We have been employing a proactive strategy for backfilling vacancies created by tenant bankruptcies. For example, even prior to the Bon-Ton bankruptcy filing, which will result in 2 of our stores closures in second quarter 2018, we had begun to negotiate leases with 2 tenants to backfill the 62,000 square foot Bon-Ton box at Trexler Mall, which are in a mature phase of discussion. And with 1 tenant to take the entire 54,500 square foot Bon-Ton box in DuBois, Pennsyl<UNK>ia. NOI growth for the quarter was flat year-over-year, which was consistent with guidance. Beyond the basic blocking and tackling of leasing, our core portfolio today, the other area of focus related to value creation is, of course, our redevelopment pipeline. We continue to be excited about the momentum we have on both our large scale and smaller value-add redevelopment projects. East River, Port Richmond and South Quarter Crossing are moving forward favorably. The political support and community enthusiasm for these projects is palpable. The strong tenant interest in our signature mixed-use project has been overwhelmingly positive with multiple high-quality anchor and junior anchor LOIs and lease negotiations underway. This phenomenon has demonstrated the importance of migrating our capital into higher quality markets and assets in order for our portfolio to have leverage relative to tenants given today's choppy-retail environment. Upon completion of the execution of our leasing deals, we will commence the first phase of construction. We anticipate the timing to be end of 2018 or beginning of 2019. The value-add renovation at Carman's Plaza is still underway with the second phase currently under construction and last phase expected to be completed in September 2018. Team Cedar has been very busy. The groundwork is laid for strong strategic growth for this company. I'm very proud of the team we have to work with from Tim Havener, heading up our leasing efforts, to Charles Burkert and Oody Kupperman heading up our development and construction. We take our company's values to heart and truly strive for everyday excellence with a disciplined strategic focus. I will now turn the call over to Phil. Thanks, <UNK>. I'm going to add just a few brief highlights to <UNK> and <UNK>'s remarks before opening the call to questions. Starting with operating results. For the quarter, operating FFO was $11.9 million or $0.13 per share, and same property NOI when compared to the comparable period in 2017 was flat. Both of these figures were in line with our expectations and full year 2018 guidance discussed in our last earnings call. During the quarter, as <UNK> discussed, we classified Carll's Corner and West Bridgewater Plaza as held for sale. In connection with this, we recorded an impairment of $21 million. Notably, once we began moving forward with the marketing of West Bridgewater Plaza, we negotiated and accepted, just after the end of the quarter, a $4.3 million termination payment from the dark anchor that had occupied 55,000 square feet or slightly more than 40% of the property. Clearing out this dark anchor should reduce the marketing, negotiating and closing time required to complete the sale of the property. Further, we believe that the termination payment received along with the now anticipated sales proceeds will be very similar to the standalone sales proceeds, we would have received if the property were sold with a dark anchor still in place. Finally, the termination of this dark anchor will have a positive earnings impact of $4.7 million or $0.05 per share, consisting of the $4.3 million cash payment received along with GAAP accounting adjustments for accelerated below-market lease amortization and straight-line rent offset by the foregone rental payments for the remainder of 2018. Moving to the balance sheet. We ended the quarter with almost $100 million of availability under our revolving credit facility and debt to EBITDA of 7.9x. Our debt to EBITDA is slightly elevated from the end of 2017. As we previously discussed, this is the result of utilizing the proceeds from the sale of 2 million shares of our 6.5% series C preferred stock in mid-December of 2017 to temporarily reduce the outstanding balance on our revolving credit facility until we could complete the redemption of an equivalent number of shares of our 7.25% series B preferred stock in January of 2018, after giving the requisite 30-day notice period. One last balance sheet note and reminder, we are in the enviable position of having no debt maturities until 2021. And now with regards to the guidance, we are updating our full year 2018 guidance to an operating FFO range of $0.58 to $0.60 per share. This is essentially reaffirming our initial 2018 operating FFO guidance adjusted for the favorable $0.05 per share impact resulting from the termination of the dark anchor at West Bridgewater Plaza. With that, I'll open the call to questions. Sure. So as we've talked about before, we are proactively going after our anchor tenants that roll. And as we look out, we don't have any others that we are anticipating rent reduction, as we see the horizon today. That being said, given the current climate, I never say never, but based on the purview that we see as we look out at our current lease roll that's out there for the rest of '18 and '19 and the conversations that we're having currently, I think we have taken the biggest brunt of it already. Yes, yes. If you take our original guidance and add $0.05 to the high and low, you'll get our current guidance that's out there. Sure. So as I mentioned in the prepared remarks, for the Trexlertown box, we're looking at taking that 62,000 box and splitting it between 2 tenants. We do expect to have a fairly positive rent spread there. And then, the capital outlay to get that done between landlord work and TI will probably be in the $3 million to $4 million range between both landlord work and TI. But as I said, we are expecting a rent spread there that, looking at almost 40% to 50% range because we did have a pretty ---+ we had a pretty low rent there from the previous Bon-Ton box. And then at DuBois, we had a higher existing rent from Bon-Ton, so not expecting as positive a lease spread there and a little lighter on the capital, so that deal won't be quite as attractive. But we do have a tenant that we're looking at, that will take the entire 55,000 square foot box. And we're expecting rent starts on both to be late 2019. I mean, as we go ---+ as these deals happen depending on what market it is, who the tenant is, what leverage we have, some will be positive, some will be negative, some will be flat, but as I've mentioned in previous calls, one of the things that we do try to do in all of our new deals and even in the renewals, is try to get annual rent bumps of 2% to 3%, so that we have that contractual rent bump coming through there in all of our leases to have that contractual rent growth coming through there. So we do have that. And so I would expect to see somewhere in upwards of 3% as a baseline and then from there, it honestly just depends on what shopping center you're dealing with, who the tenant is, and what the situation is. And so it really does vary quarter-to-quarter depending on which deals we did that quarter and which pool of leases you're looking at as we present it from quarter-to-quarter. This is going to be on a per pound basis. These are both not significantly occupied centers. And in terms of timing, call it 4, 5 months to get them done. So between the 2 deals, we might end up with $10 million or $12 million at most. And so I would imagine ---+ and that's inclusive of the termination fee. And so I would say that we're just going to kind of use it for regular corporate purposes. Well, so some of what you're asking probably isn't necessarily illustrative of anything, but just to give you a feel for the deal dynamics and our thought process. So we were effectively at just about the finish line with these folks in terms of doing a deal. So this wasn't the kind of thing where it was highly speculative or theoretical. We were pretty much down to the very, very final details. The challenge with a Carll's Corner is that the market is such that even after installing this terrific anchor tenant, we weren't going to get to the kind of cap rate nor be able drive the kind of rental activity that would justify the very aggressive capital expectations that the tenant had. And so where we were ending up is that we weren't really ---+ we weren't able to achieve a meaningful spread to our cost of capital. So essentially, we were going to invest capital and not have created meaningful value at the center. And as a company that has articulated ambitious plans for what we plan to do with our capital for which we expect to get very meaningful returns, we try to be pretty thoughtful about how we spend our money and to put out meaningful capital without generating an attractive return just didn't seem like a good ---+ as I described, a good use of either our financial capital or of our human capital for that matter. Yes. Yes. So our same-store NOI's $20 million a quarter. So $200,000 bounces it up 1% or down 1%. It generally will be pretty flat each quarter, maybe slightly positive, slightly negative, but close to flat each quarter and close to flat for the year, maybe ramping up a little bit better towards the end of the year. I would say that it's pretty consistent with how I described it in February. As you know, from listening to all of our calls and spending a lot of time with us, <UNK>, we very carefully track the deal activity in our markets. So just to give you a feel, since, call it December of last year, we've seen about 25 deals that, broadly speaking, we would call comps in our market. And it's pretty clear that there's no fire sale going on right now. There's still very strong demand for grocery-anchored shopping centers and more broadly, with certain limited exceptions, demand for retail has held up reasonably well and a lot of it's a function of the continued supportiveness of the conduit market. So there still is financing available to buyers for most of the retail assets that are trading. That said, as I mentioned in February, there clearly has been some softening in the market, but we're literally talking about basis points truly. So the highest quality shopping centers that we're tracking and a great example is, Regency just bought an asset in Dobbs Ferry, New York and that was a sub-5% cap rate deal. We have been tracking that for a while. And so we're hoping that we'd see some widening in the cap rates, but in fact, the pricing held up. For solid quality assets with grocers, we've seen a little bit of slippage, but again, we're talking about 15 to maybe 20 basis points in terms of observable cap rates relative to where things were. And when you look at our bottom quartile assets, as I described in February, it's pretty much held steady at a widening, call it 25 to maybe 50 basis points. And so pricing is still pretty solid. Certainly, we're not seeing things priced as aggressively as we had been, call it, over the last 2 years, but it hasn't gotten to a point where we're panicky or where we're terribly concerned about pricing, but more we're just observing that there seems to be more of an equilibrium and a balance between buyers and sellers right now. Obviously, we've spent a lot of time dealing with construction and pricing and staying in tune with what's going on there. Generally speaking, we think that there could potentially be 3% to 4% of inflation due to labor uncertainty, material costs, inflation and things of that nature, but we factor that into our pricing on our redevelopments. And so we're fairly comfortable with what's going on there. We also think that the timing of when our projects hit the market going into 2019 that there could be some softening in the market relative to that timing just based on in talking to other folks and what's going on in the construction market. So based on those factors, we're pretty comfortable with what's going on in the market and how we've priced our projects accordingly. First of all, <UNK>, that's a terrific question. So thank you for asking it. It's of course, something that we think about. It's one of the reasons that we so carefully monitor cap rates. As you appreciate the lower quartile assets that we'll be selling are fairly yieldy assets and so they kick off a substantial amount of net operating income. And in a similar vein, the widening of the cap rates for these high cap rate assets don't dramatically change their value. Because of that thought process, so on the one hand, these assets generate a fair amount of annual cash flow, and because they're relatively high cap rate assets already, even with cap rates widening, we're not seeing a meaningful erosion in value. It continues to make sense for us to hold onto these assets to benefit from the cash flow they generate and to only sell them when we need the capital. Now that said, if there was some strategic ---+ larger strategic benefit to doing a portfolio transaction we might do it, but we wouldn't sell these assets as a large portfolio before needing the capital out of a concern that cap rates are widening based on the information that we have in front of us today. So my only qualifier is that if, for some reason, we see cap rates really falling out of bed and widening to a point where our premise is off. In other words, where the cash flow that these assets generate doesn't offset the slight value erosion that we're seeing with cap rates widening we might change our opinion, but for right now considering the facts on the ground, we think the best strategy is to hold onto these assets until we need the capital. You're, of course, correct, as an absolute statement, <UNK>, that because we're more levered than a lot of the other companies that if cap rates were to go up it would have a disproportionate impact on our NAV, and we're, of course, mindful of that. And the way we think about our cost of debt really works its way into our analytics on 2 fronts. So first of all, we of course have a corporate forecast model and we incorporate the forward yield curve or the forward LIBOR curve, I should say, into our interest rate projections. And of course, the forward curve, as it always has been, is upward sloping, and that suggests that interest rates are going to go up. And so in terms of our earnings forecast, we assume interest rates are going up. As a participant in the market beyond that, when we think about, for example, our weighted average cost of capital, we assume that interest rates are going up. So we take our in place cost of debt and we add roughly 75 to 100 basis points to that when we think about our weighted average cost of capital. But all of that said, the impact that rates might have on our cap rate and the fact that we have more leverage, what it might do to our net asset value, are all just considerations that we weigh in thinking about our capital allocation alternatives. And so it's not something that would cause us to change what we're doing dramatically, but rather it's just another factor as we think about how to invest that dollar ---+ that next dollar, if you will, of capital that we have to invest. I would say that the ---+ our thoughts around share buyback are probably very similar to how our peers think about it. So we do think about share buyback as a tool in our toolbox, so to speak, but it's just a tool in our toolbox, right. What we're trying to do when we invest a dollar of capital is we're trying to maximize the return. And so we have measured the return opportunities that are presented by various capital alternatives and certainly that's one of them that we weigh. What you're referring to when you say that we can't do it as readily as others is of course that considering our leverage and considering more significantly our relatively small size, there are other things that get factored in when thinking about share buybacks, and we do think about all those things as we evaluate share buyback as an alternative. Thank you for joining us this evening. We appreciate your continued interest in Cedar and look forward to seeing many of you at the upcoming ICSC and NAREIT Conferences.

2018_CDR

2015

NWN

NWN #<UNK>, this is <UNK>. Good morning. Yes, that's correct. New expenditures that were not covered by the previous ruling, we'll have to make sure that they go through a process with the Commission that after they've been spent that they were in fact prudently incurred. And that will be done on an annual basis. <UNK>, this is <UNK>. We are not expecting lower prices in next 12 months. There is a gas storage contracting period, usually starts every April 1. A year ago, there were headwinds in the market, primarily there was a lack of storage because after the cold winter there had been a lot of draw in storage, and so the front end of the curve was higher. This year we started to see a more normal forward curve with lower prices at the front end of it. So, we're not expecting to see lower prices than a year ago. In fact we've seen a little bit of an increase, a modest increase in prices this year, but nowhere near what we had seen a years ago when prices were lower. It doesn't look like we've got any other questions. I know we're going to see many of you down in Palm Springs here in the couple of weeks, looking forward to that. And again if you have questions about that event, feel free to call <UNK>, and looking forward to it. Enjoy the rest of your day.

2015_NWN

2016

COLB

COLB #Thank you, Cheryl. Good afternoon, everyone and thank you for joining us on today's call to discuss our second quarter 2016 results, which were released before the market opened this morning. The release is available on our website, columbiabank.com. As we outlined in our release, this was a good quarter for us. Our second quarter results have traditionally been strong and with the earnings of $25.4 million, this quarter was no exception. Our loan production was second highest in our history at just under $340 million, thanks to the talented bankers throughout our footprint. I said last quarter that our credit portfolio doesn't keep me up at night. Our non-performing assets to period end assets ratio this quarter was 0.36%, the lowest in eight years. As we move forward, our priorities will continue to be growing quality loans, improving our operating leverage and effectively utilizing capital. On the call with me today are <UNK> <UNK>, Columbia's Chief Financial Officer, who will begin our call by providing details of our earnings performance; and then <UNK> <UNK>, our Chief Operating Officer, will cover our production areas; and finally, <UNK> <UNK>, our Chief Credit Officer, will review our credit quality information. I'll conclude by providing our take on the economy here in the northwest, including Washington, Oregon and Idaho. We'll then be happy to answer your questions. Of course, I need to remind you that we will be making some forward-looking statements today, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filings, and in particular, our Form 10-K filed with the SEC for the year 2015. At this point, I'd like to turn the call over to <UNK> to talk about our financial performance. Good afternoon, everyone. Earlier today, we reported earnings of $0.44 per diluted common share. Our reported net interest income increased $2 million from the prior quarter. The linked-quarter change was driven by an increase of $279 million in average earning assets. Non-interest income, before the change in the FDIC loss-sharing asset, was $22.9 million in the current quarter, up from $21.7 million in the prior quarter. The increase was due mostly to higher loan, card and merchant processing revenues. Loan-related revenue was up $540,000 on a linked-quarter basis, driven by increases in loan fee income and interest rate swap income of $285,000 and $190,000, respectively. Our volumes of card and merchant processing transactions resulted in an increase in non-interest income of $569,000 over the prior quarter. We continued to see improvement in our mortgage banking revenues, but at $600,000 for the quarter, it remains a small part of our non-interest income. Reported non-interest expense was $63.8 million for the current quarter, a decrease of $1.3 million from the prior quarter. However, the prior quarter's reported number was viewed higher with $2.4 million of acquisition-related expense. After removing the effect of acquisition-related expenses, OREO activity and FDIC clawback liability expense, our non-interest run rate for the quarter was $63.6 million. This is a $1.3 million increase from $62.3 million on the same basis during the prior quarter. This increase is primarily attributed to higher incentive compensation expense as well as timing related items, such as advertising expense, and legal and professional fees. Last quarter, our reported occupancy expense of $10.2 million, included $2.4 million of acquisition-related expense. After removing the effect of acquisition-related expense, our first quarter occupancy run rate of $7.8 million was consistent with the current quarter's expense of $7.7 million. Excluding OREO activity and FDIC clawback liability expense, our non-interest expense to average assets ratio was 2.76%, down from 2.79% in the first quarter. Please remember that, for comparative purposes, the calculations for prior quarters also excludes acquisition expense. On last quarter's call, I mentioned that our expense ratio would likely remain within the 2.79% to 2.89% range in the near term. Robust asset growth during the current quarter was enough to lower this ratio further, despite the modest uptick in expenses. We still anticipate that our expense ratio will move within this range as we continue to make infrastructure investments in areas we believe will further enhance our long-term competitiveness and profitability. Our current expectation is a quarterly expense run rate of $63 million to $65 million. The operating and interest margin declined 3 basis points during the quarter, as a result of a slight shift in our average earning assets mix. During the quarter, investment balances increased 48 basis points to 27.3% of average earning assets. Now, I'll turn the call over to <UNK> to discuss our production results. Thank you, <UNK>. Total deposits at June 30, 2016, were $7.67 billion, an increase of $76 million from $7.6 billion at March 31, 2016. On a year-to-date basis, total deposits have increased $234 million, or about 3.2%. About $145 million of this increase was a noninterest-bearing DDA. Core deposits were $7.45 billion, which represents 97% of the total deposits. The average rate on interest-bearing deposits remained low at 8 basis points compared to 7 basis points for the prior quarter. The average rate on total deposits remained unchanged at 4 basis points. About 54% of our deposits are linked to business and 46% to consumers. Our branches continue as the most important touch point for our customers and represent one of our largest investments. We evaluate the performance of our branches on an ongoing basis and look for opportunities to improve the customer experience and become more efficient. This discipline has positioned us to identify opportunities to consolidate 10 branches over the last 18 months. Loans were $6.11 billion at June 30, 2016, representing a net increase of about $230 million or a 3.9%, over the first quarter of 2016. The second quarter increase was largely driven by significant levels of new loan production in the amount of $338 million and more active line utilization. Line utilization increased from 52.6% in the first quarter to 54.5% in the second quarter as seasonal borrowings became more actively, most notably in agriculture. Historically, agricultural activity builds in the second and third quarters and then recedes in the fourth and first quarters. New production was predominantly in commercial real estate and construction loans and C&I. Term loans accounted for $220 million of total new production, while new lines represented $118 million. The mix in new production was fairly granular in terms of size. 22% of new production was over $5 million; 25% was in the range of $1 million to $5 million; and 53% was under $1 million. In terms of geography, 59% of the new production was generated in Washington; 26% in Oregon; and 15% in Idaho and a few other states. Following the pattern of new production, net loan growth in the second quarter was concentrated in commercial real estate and C&I. Commercial real estate and construction loans ended the second quarter at $3.14 billion, up about $127 million from the prior quarter. The mix of asset types was well diversified. For the first quarter, the largest increase by asset type were the following; hotel/motel, multifamily and office. C&I loans ended the second quarter at $2.52 billion, up about $117 million from the previous quarter. Industry segments with the highest loan growth in the second quarter include agriculture, finance and insurance, construction and health care. During the second quarter, the tax adjusted weighted average coupon rate for the loan portfolio was 4.36%. The average coupon rate for new production was 4.20%, well below the loan portfolio coupon rate. Under current market and competitive conditions, this GAAP is likely to continue. However, we've seen a pace of decline in the tax adjusted portfolio coupon rate begin to diminish. The tax adjusted coupon rate for the loan portfolio declined from 4.40%, as of December 31, 2015, to 4.36% at June 30, 2016. For the same period during the previous year, the tax adjusted coupon rate dropped from 4.54% to 4.44%. And looking forward, the bank's deal flow remains active and the pipeline volumes are holding fairly steady. I expect positive net loan growth in the third quarter. That concludes my comments. I will now turn the call over to <UNK>. Thanks, <UNK>. For the quarter, we had our provision for loan losses of $3.6 million. As you know, we maintained separate allowance accounts for the different portfolios. The breakout of provision expense by portfolio is as follows. The originated portfolio had a provision of $3.75 million; the discounted portfolio had a release of $200,000; and the purchase credit impaired portfolio had a provision of $91,000. The provisions were driven by charge-offs and loan growth in the originated portfolio, net recoveries and the continued contraction of ---+ in the discounted portfolio and a change in expected cash flows in the purchase credit impaired portfolio. I would like to add a little more color concerning loan growth. For the quarter, across all portfolios, loan growth was approximately $230 million. However, loan growth within the originated portfolio was $300 million, as the discounted and PCI portfolios contracted by $58 million and $12 million, respectively. So as you can see, loan growth had an impact on the provision for the quarter. We had net charge-offs of $2.8 million for the quarter, split between the originated portfolio, which had net charge-offs of $2.3 million, and the purchase credit impaired portfolio, which had net charge-offs of $610,000. The discounted portfolios had mixed results, with a consolidated net recovery of $90,000. So when you put all together for the quarter, net charge-offs amounted to about 23 basis points on an annualized basis, down from last quarter's 28 basis points. So as of June 30, 2016, our allowance to total loans was 1.13% compared to 1.18% as of March 31, 2016. The modest decrease in the provision to total loans continues to reflect the overall credit quality of our loan portfolio. This quality can be seen in our impaired asset quality ratio, which remains extremely low at 12.7%, our reserves cover non-performing loans by a margin of 3 times and OREO is a modest $10.6 million. For the quarter, non-performing assets decreased $14 million, primarily due to a decrease in non-performing loan. As a result, MPAs were about $35 million or 38 basis points of period-end assets. As we discussed last quarter, we anticipate to keep bouncing around at these low levels. At quarter-end, loans 30 days, or more past due and not on non-accrual, were about $10.4 million or 18 basis points. This is up from last quarter when past dues were around $8.4 million or 15 basis points. In summary, we are pleased with how the portfolio is performing. That concludes my comments. And I will now turn the call back over to <UNK>. Thanks, <UNK>. The economies in our three state area, consisting of Washington, Oregon and Idaho are as diverse as our landscape. However, leading economic indicators in this part of the country, particularly in the metro areas, are continuing their forward momentum. Overall, we have excellent job creation and strong gross domestic product. Washington and Oregon are Number 1 and Number 2, respectively for personal income growth in the country. And the population in labor force of all three states continues to grow. While Washington added more than 101,000 jobs over the last year, the unemployment rate for June held steady at 5.8%, where it's been since last December. This is due to the concurrent growth in the labor force, which increased by over 97,000 from a year ago. Over 33,000 were in the greater Puget Sound area. Seattle now ranks fourth for growth among the 50 biggest cities. And as Seattle Times' columnists recently noted, Unless Amazon stops hiring, you may as well get used to it. Unemployment data for Oregon continues to bring good news, even though the unemployment rate ticked up to 4.8% in June from 4.5% in May. This is far below the 5.8% level posted a year ago and slightly lower than the national average today. The state's labor force grew to an all-time high of over 2 million last month. However, recent job gains have been more than enough to keep pace with population growth. In fact, Oregon reached a milestone in terms of recovery and expansion. Not only has the state added enough jobs to regain all of the great recession losses, they have caught back up with the population growth. Even as the economy faltered, people were still moving to Oregon. Idaho's employment picture continues to be quite healthy. For the third consecutive month, the state's employment rate has been a low 3.7% compared to 4.2% a year ago. The US Census Bureau recently reported that the state ranked fifth nationally for overall job creation coming out of the great recession. We often get questions about the rural agricultural place in our economy, so I thought I'd briefly cover some highlights. Agriculture has remained a key component of our economic success. We are very lucky to live and work in the northwest, with our diverse climate, rich soil and usually abundant water. Washington is Number 1 in apples and hops in the country. Oregon is Number 1 for Christmas trees, hazelnuts and all different types of berries. And you won't be surprised to hear that Idaho produces the most potatoes in the United States, but it also produces the most food-sized crowd. In 2014, the state reported $16 billion worth of food and agriculture products to people around the world, half of which were grown right here in Washington. In Oregon, agriculture directly or indirectly supports more than 325,000 full or part-time jobs, making up almost 14% of total jobs in the state. And Idaho generates $25 billion in sales or over 20% of the state's total economic output. Our ports are very important to our region as well. They certainly help us to move all that agricultural production. Northwest Seaport Alliance, the consolidated container operation of the Port of Seattle and the Port of Tacoma, reported container imports grew 4% month-over-month in June, the highest June volume in the past four years. However, the weakened Alaskan economy, due to the low oil prices, has hurt domestic volumes, which are down 11% year-to-date. We're closely watching economic indicators in light of concerns about international economic conditions, particularly in China as well as more regional concerns. And we regularly survey our business customers throughout our market area in a variety of industry segments to better understand the economic conditions and identify what they see as opportunities in areas of concern. Our recently completed second quarter survey revealed that over 90% of our business customers remain confident in the future of their own business. And in fact, their feelings about their industry's business conditions were at an all-time high, particularly in retail. However, there was no improvement from last quarter's survey about the uncertainty regarding the political climate, which continued to be the second-most frequently cited reason to postpone expanding their business. And just under one quarter of the business owners are planning capital expenditures in the next 3 months to 6 months. Government regulations and taxes continued to be the top issue most of our customers face in their companies. So to summarize, our diversed economies and our part of the country continued to perform better than most, and we continue to be optimistic about our future here in the northwest. I'd like to wrap up by talking a little bit about our dividend. Our financial performance and our optimism about our continued opportunities in the northwest help us to support our decision to increase our regular cash dividend to $0.20 per common share. This is a 5% increase from the regular dividend we paid during the second quarter, and an 11% increase from the regular dividend paid during the first quarter of this year. For the 10th consecutive quarter, we are also paying a special cash dividend, which will be $0.19 per common share. Both dividends will be paid on August 24 to shareholders of record as of August 10, 2016. The total dividend payout of $0.39 constitutes a payout ratio of 89% for the quarter, and a dividend yield of 5.2%, based on yesterday's closing price. So with that, this concludes our prepared remarks this afternoon. As a reminder, we have <UNK> <UNK>, <UNK> <UNK> and <UNK> <UNK> here with me to answer questions. And now Cheryl, we'll open the call for questions. <UNK> or <UNK>. <UNK>. Well, I'll start with deposits, and you can talk about FHLB advances. Deposit growth for the quarter was really driven by the business side of our portfolio. And that we didn't see much lift in the consumer side, and a lot of that is attributed to, I believe, the reward for deposits. We're not able to provide high levels of rewards for deposits. And so the consumer side of the deposit business is steady and static, but businesses where we're seeing growth that we do have. And I would probably anticipate the growth rate to be at about the same pace in the future. I'll just add on the Federal Home Loan Bank advances. Our strategy as it relates to overnight funds is to manage them at or near zero. And so what happens is, from time to time, we'll have some deposit inflows and cash flows off the portfolio. We put those to work, and then maybe loan growth kicks in. And so it does create, just if you're looking at it a point in time, like the balance sheet does, the potential that one day, one week, a couple of weeks it could be $100 million, $200 million of borrowings and/or $100 million or $200 million in overnight funds. So our strategy hasn't really changed, but when you look at it over the course of several months or the year, I think you'll see that we tend to be at or near zero with our overnight funds and borrowings as well. No, no, not with the borrowings. Now, we have extended the duration a little bit on some of the things that we are putting into the investment portfolio. The portfolio duration is still 3.7 years, an instantaneous shock of 300 basis points. It did only extend to 4.2 years. So we certainly have flexibility. But with respect to the advances, that's not an interest rate risk play. No. It's just that our prior repurchase program had expired. And we always like to have as many tools in our tool chest as we can. It's just another tool, so it just kind of rounds everything else for us. Well, we still have enough capital that we believe that we've got a lot of dry powder. So doing the special dividend has just been one of the levers that we've used. And we don't want to send a signal that we are not interested in doing acquisitions at all or that we wouldn't be able to them from a capital perspective. I suppose that, that is how you could interpret that. The regular dividend was increased this quarter. I think that, that would be the stronger message how confident we are in our earnings. And we just look at it every quarter and kind of look at what the potential acquisition targets might be out there and how it all relates. And then, of course, you look at your different loan backups and how the loan portfolio is growing. So it's all a big picture and a lot of different factors that go into those discussions. As we talked last quarter, it was impacted by a couple of credits, and we were able to resolve those. So what bumped us up last quarter is ---+ a lot of that was resolved this quarter, and so we were able to get back down. So, one, as I had mentioned to you before, was a real estate transaction, that property got sold. So that kind of resolved that issue. The other one was a food-related company and they sold to a larger national competitor and so we got paid off on that one. Actually, it's pretty static compared to what we saw in the first quarter. So first and second quarter is pretty consistent. And my expectation is, is it will hold that way into the third quarter. I think a lot of the list in Idaho is related to ag borrowings as they've come on in the second quarter, plus we've been able to identify some new clients that were reasonably sizable, so it made a difference there. I think that the activity in Idaho is fine and we expect to grow that market over time. As you would expect, it just takes time to build a rhythm and that's what we're in the process of doing. There is one thing to factor into that. The thinking is what's coming up for repayment in the next year. We've got about $1.3 billion that's churning over and that, of that $1.3 billion, the coupon rate on that is about 4.17%. And so what you can see is that the new production, and what we expect to turn over, at least given the results of this last quarter, are fairly within the same range. And so part of the answer to your question is I would expect that differential to remain and in part, I'm thinking about what I just spoke to regarding the portfolio that's turning over and the pricing that we've got on it. Hopefully, that's helpful for you. I mean if you look at the bank's performance over the like seven or eight quarters, I think our provision averaged out about $3.2 million, $3.3 million. And I wouldn't expect the provision to be all that different. We might be a little bit under that, we might be a little bit over that, but it's going to be in that range. Well, I think that if you want to go back in time, I'd say at the beginning of 2010 and I'm going to ---+ this is going to be an approximation, there's about 39 branches that have been consolidated, some of which of, course, are related to the M&A activity that we've had. And we've had an ongoing effort over that period of time and looking at our branches and developing performance-related criteria that represents what we'd like to achieve. And that we never really are in a hurry to close branches, preferring to find ways to make those locations profitable and accretive for the bank. And that ---+ in cases where we feel that there are better ways to achieve that, meaning consolidating with another branch, we do that. So it's an ongoing effort and it's a well thought out disciplined approach. And so I would expect that to be a story going forward. But there's not like a big bulk of branches that we're looking at right now. Yes. Just a second, I'll get it for you. Go ahead and ask another question. I'll find it. Feel like we need a little music here. Well, I think if we just extrapolate where we're at today and how we got there, then it looks like a 2017 organic event. But that doesn't mean that an acquisition couldn't take as well over that number. In either way, we are prepared for it. Organically, it's just going to cost us more money initially until we make up the impact from the Durbin amendment. <UNK>, the payoff activity or prepay activity for the second quarter was about $100 million. First quarter was about $81 million. We updated that number, the $7 million was when we looked at our full-year 2014 activity. Based on 2015, it's just a touch over $9 million pretax. It's seasonal and I think that's most of the activity. Yes, there's normally kind of a push here at the year-end, and then it goes down, as you go through the holiday season and then it tapers off. Well, we've got a fair number of construction projects that we'll continue to draw down over the next 36 months. And so we've got a decent pipeline of that type of activity. And I think that we're fairly selective, as we've said before, as it relates to construction activity that's related to multifamily. So we're carefully moving forward with that, saving room for customers that we've done business with over the years that have the type of projects that fit our credit criteria. But the construction book, I'm feeling reasonably good about it actually. Absolutely. No. What I was trying to highlight, because I read all your notes this morning, and expenses went up. And so I was trying to do a better job of, I guess, articulating and I guess maybe I failed at that. That from quarter-to-quarter, we kind of have a core run rate, but there's always something where ---+ whether it's one quarter versus another that maybe we have an advertising campaign going on, maybe it's legal or professional services, depending on when those hit. And over the course of the year, you would look at it, it'd be a fairly smooth annual number. But from quarter-to-quarter, it's not uncommon for us to have our expense base move around $1 million or $2 million. And so I think that our goal hasn't changed. And what we've said last quarter was we expect to see that ratio continue to trend down. But we also know that, for example, in the first quarter, legal and professional and advertising came in a little lower than what I would have expected. And you know, back to the timing element of it, in the second quarter, those came in higher than what they were in the first quarter. And so you mix in that with asset growth ---+ we had really strong loan growth in the second quarter. So that increased earning assets, I think, it was $279 million and those things helped the ratio. I think that if we look at our expense run rate and kept our average assets flat with the first quarter, we would have come in at $285 million. So just trying to give you guys two different ways of looking at it, give you a hard dollar kind of range of what we think would be normal course of business stuff, but then also give you the expense ratio, so that as we continue to grow and reinvest in the franchise, that you kind of have a way to gauge the improvement in our operating leverage. Well, and I'll let <UNK> jump in here if he wants to add to this. Because I know that mortgage production is something that he pays close attention to. It was $600,000, as I mentioned in my prepared remarks. And part of the reason I wanted to include it, even though it's a small piece of the total pie, was many of our competitors have a lot more substantial portion of their non-interest income coming from mortgage activity. And so I wanted to highlight for you that our number is fairly modest in relation to nearly $23 million in total non-interest income. For perspective, in the first quarter, that number was $513,000. The fourth quarter of last year was $450,000. So it is up, but $150,000 out of $600,000 and $600,000 out of $23 million, it's not a huge driver to the bottom line results. <UNK>, anything you want to add. I would just add that it's a business line that we spent some time trying to get better positioned and better organized and staffed with the right people and we believe that we have that. And that I would expect over time, for you to see the mortgage component of our non-interest income start to grow and that's the intent. I think 31% is a good estimate. I mean from one quarter to the next, it might flip to either side of 31%, but when I look at it, 31% is kind of the number I typically plan on. All right. Well, thanks, everyone, for being with us today. We really appreciate your interest and we hope you enjoy the rest of your summer. Thanks.

2016_COLB

2017

IVC

IVC #Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Invacare Fourth Quarter and full year 2016 Conference Call and Webcast. After the management overview, we will open the call to questions. Investors and analysts interested in asking questions will need to dial in as questions cannot be submitted via the webcast. For the first part of the call, all phone lines have been placed on mute. This conference is being recorded Thursday, February 9, 2017. I will now turn the call over to <UNK> <UNK>, Invacare's Senior Director of Investor Relations and Corporate Communications. Thank you, Lian. Joining me on today's call from Invacare are <UNK> <UNK>, Chairman, President and Chief Executive Officer; and Rob <UNK>, Senior Vice President and Chief Financial Officer. Today, in addition to reviewing the fourth quarter and full year 2016 financial results, we will give investors an update on our multi-year, three-phase turnaround plan to re-orient the Company's resources to a more clinically complex mix of products and solution particularly in North America. To help investors follow along, we had created slides to accompany this webcast. For those dialing in, you can find a link to our webcast on [www.invacare.com\\InvestorRelations]. On our Investor Relations page, you will also find a PDF file of the webcast slide presentation that we'll refer to during today's call. Before Matt begins, I'd like to note that during today's call, we may make formal-looking statements about the Company that, by their nature address matters that are uncertain. Actual future results may differ materially from those expressed in our statements today, due to various uncertainties and I refer you to the cautionary statements included on the second page of our webcast slides and in our fourth quarter earnings release. For an explanation of the items considered to be non-GAAP financial information, that will be discussed on today's call, such as free cash flow, constant currency net sales, adjusted earnings and loss, adjusted consolidated gross margin and EBITDA, please see the explanatory note in the appendix on our webcast slides and in the related footnotes and reconciliations in the earnings releases posted on our website. Also, please note that the Company completed divestitures of certain other businesses in the third quarter of 2016 and 2015. Those businesses are included in the 2016 and 2015 results that will be discussed on the call, unless otherwise noted. With that, I will now turn the call over to Matt <UNK>. Thank you <UNK> and good morning, we appreciate you joining the call this morning. As <UNK> mentioned, our Company is undertaking a comprehensive transformation that is essential for growth and profitability. As we have shared with investors before, the magnitude of what we are changing is significant and fourth quarter results reflect this. During the quarter, we accomplished a lot of the heavy lifting, but before we dig into the details, I'd like to make sure everyone on the call has the same essential overview of our Company and the reason for this major renovation. Slide 3, in our webcast presentation gives a basic overview of Invacare, from it, you will see that our Company makes products that help people move, breath, rest and perform essential hygiene. And with those products, we focus on supporting people with congenital, acquired and degenerative conditions. These are important parts of care for people with a range of challenges from those who are active and heading to work or school each day and may need additional mobility or respiratory support to those who are cared for in residential care settings at home and in rehabilitation centers. Invacare has been broadly a one stop shop provider of these products worth nearly 40-year history. Starting several years ago, especially in the United States with reimbursement reductions focused on basic aids for daily living, the market for these products has changed and where customers have intensely focused on lowest cost, single use alternatives it has become impractical and uneconomic for Invacare to continue with a common infrastructure, geared for making sophisticated products needed to solve clinically complex problems to also be making basic aids for daily living it durability is not a focus. Since the middle of 2015, the Company has moved away from our one stop shop strategy and has elected to shed products and business infrastructure associated with lower clinical and economic value. Our new strategy focuses on the parts of our portfolio that engage our expertise and resources to solve tougher clinical challenges with better returns. This leverage is the best what Invacare has long done and eliminates the dilutive parts of the business bringing alignment of resources focused on patient centric solutions for tough challenges. This transformation is substantial, especially in our North America businesses where we need to change product mix, the commercial approach, our sales organization and reduce the less strategic parts of the business in a quick and orderly fashion. At the same time, we're shifting resources to execute a heavier emphasis on the more clinically complex parts of our business and making progress on quality remediation. To do this, we divided our renovation program into three phases, as you'll see on page 4, beginning in 2015 in taking us through 2019 and beyond. This is a crawl, walk, run kind of program. The three phases of this transformation are first, assessing our strengths and reorienting our business to match long-term market trends followed by phase two, which is about rebuilding the Company in alignment with our new direction and finally phase three, which is growth and acceleration built on the foundation of phases one and two. In 2016, we made significant progress through phase one of our transformation, we strengthened our balance sheet with a convertible debt issuance in February which financed our transformational activities for the year, we had a talent at the global leadership level and quality, regulatory, and engineering and leading our European business. Within North America, we added substantial resources to our commercial, marketing and product management team. We have continued to make progress going up culture, quality excellence. And we've shifted our product mix to more clinically complex products while also discontinuing a broad swap of non-core product lines and divesting our single-user aids for daily living portfolio. In 2016, and especially in the fourth quarter, we saw the impact of significant costs from investing in the North America sales forces, quality remediation and resource research and development ahead of the expected benefits and efficiency gains and commercial results. We chose to do this to hasten change and get to building momentum sooner. People will ask, if fourth quarter was worse than expected. In the fourth quarter, we made a lot of change and we had a few things that did not go as planned. For example, we put up vast amount of change through a very new North America commercial organization especially in October with the announced discontinuation of products and a normal amount of supply chain variability, which prevented us from getting the traction generally in the North America HME and especially in mobility and seating that we expected. Given the combination of lower net sales and slower inventory velocity, our lower payables balance drove down our free cash flow. Despite this, we completed a lot of foundational work that will help us in the future, such as building the new North America commercial organization which sets us up well for 2017. Two weeks ago, I attended our US sales training meeting in Phoenix, where over 40% of our US commercial team is new and practically a 100% of our sales force have been re-oriented in some way, new call points, new products or new geography. The positive conversations and tone of the event combined with consumer insights, clinical panels and great clinical content give me great confidence that we have built a strong team to execute our strategy. We sought to ask, was the business worse in fourth quarter. And I turn to my house renovation strategy, which I've used before, someone has a big kitchen remodeling project and during the initial phase, all the dry wall have to come out and [foreign] cabinets have to be removed, is it worst on the first day in the [desk]. Well is if you wanted a dinner party that date, but not if your objective is to execute a major renovation, part of the process needed for real change and a great result. That's our objective and that's the plan we're executing. On slide 5, you'll see the results of the fourth quarter compared to the key financial indicators of Phase One, that we referred to at our investor presentation. Revenue, as I mentioned has to come down in the short term to reduce less strategic business and focus on growing the part of our business that provides more value and rehabilitation and post-acute care. We need to be able to shed this type of business to the extent possible, which then allows us to reshape our business infrastructure for efficiency and cost. If we still do most of everything we've ever done in the past, we will not get to the resize, [recosted] business we need. As a result of these actions, the fourth quarter consolidated constant currency net sales decreased 11% for the quarter, compared to the fourth quarter of 2015. Constant currency net sales increased for the Europe and Asia Pacific segments, but were more than offset by declines in the North America HME and IPG segments, where this renovation is most intensive. Excluding the divested Garden City Medical business, constant currency consolidated net sales decreased 8.1%, compared to the fourth quarter of 2015. Along the way, in phases one and two, we expect gross margin is going to shift. First with gross margin percent increasing and later with gross profit dollars increasing, with adjustments as described in the release in North America HME, consolidated, adjusted gross margin was lower by a tenth of a percentage point comparing fourth quarter 2016 to fourth quarter, 2015. Despite favorable sales mix, gross margin was lower, primarily due to unfavorable pricing from customer rebate and product discontinuation activity, as well as increased warranty and R&D expense. Gross profit dollars declined for all segments except Asia Pacific, with majority of the decline occurring in the North America HME segment. Excluding foreign currency translation and the divested Garden City Medical business, SG&A expense decreased $1.8 million or 2.3 percentage points for the fourth quarter, 2016. The SG&A expense for the fourth quarter 2015 included a write-off of a canceled legacy software program excluding this write-off, SG&A expense increased largely due to product liability expense, partially offset by decline in employment cost. In the fourth quarter 2016, the Company reported negative $10.6 million of free cash flow compared to a positive $28.6 million of free cash flow in the fourth quarter, 2015. Free cash flow in the fourth quarter was driven by increased net loss and reduction to accounts payable and accrued expenses. EBITDA in the fourth quarter was negative $3.2 million compared to positive EBITDA of $6.1 million in the fourth quarter, 2015. The decrease in EBITDA was impacted by lower net sales, reduced gross margin and unfavorable foreign exchange partially offset by reduced SG&A expense. While not noted on the slide, I would also like to point out that the adjusted net loss per share was $0.46 compared to adjusted net loss per share of $0.09 for the fourth quarter, 2015. The increases in net loss and adjusted net loss were driven by lower net sales. The Company incurred net interest expense of $4.6 million in the fourth quarter of 2016 compared to $0.9 million dollars in the fourth quarter of 2015. Net increase was primarily due to the Company's 2016 convertible debt issuance. I'll now turn the call over to <UNK> <UNK>, our CFO to discuss the performance of the segments and additional financial results to the fourth quarter. Thanks, Matt. As you'll see on slide 6, constant currency net sales for the Europe segment increased 2.7% in the fourth quarter of 2016, principally due to increased net sales of mobility and seating and lifestyle product categories. Operating earnings decreased by $2.5 million compared to last year. The decrease in operating earnings was driven by unfavorable gross profit and increased SG&A expense related to employment costs, gross profit was negatively impacted by pricing, largely due to higher customer rebates, foreign currency and R&D spending. Gross margin as a percent of net sales and gross profit dollars decreased in the quarter compared to the fourth quarter of 2015. For the fourth quarter of 2016, constant currency net sales for the North America HME segment decreased 27.4%. Excluding the net sales impact of the divested GCM business, constant currency net sales decreased by 21.4%. The decrease in constant currency net sales was across all three product categories, most notably in lifestyles and respiratory. Operating loss for the fourth quarter increased by $8.2 million, compared with the same period prior year. The increase in operating loss was primarily a result of the net sales decline and an unfavorable gross margin, partially offset by reduced SG&A expense. While gross margin benefited from favorable sales mix, it was more than offset by warranty, pricing and R&D expenses. Including the adjustments that are detailed in the release, adjusted gross margin would have been only slightly lower comparing fourth quarter of 2016 to fourth quarter of 2015. The reduced SG&A expense in the fourth quarter of 2016 was related to the 2015 write-off of a canceled legacy software program, the sale of the Garden City Medical business and reduced employment costs, which were partially offset by increased product liability expense. In the fourth quarter of 2016, gross margin as a percent of net sales and gross profit dollars decreased compared to the fourth quarter of 2015. For the fourth quarter of 2016, IPG constant currency net sales decreased by 19.4%. The decrease in constant currency net sales was driven by declines in most major product categories. Operating earnings decreased by $0.5 million compared to the fourth quarter 2015, primarily related to the net sales declines and gross margin impacted by unfavorable sales mix, partially offset by reduced SG&A expense and employment cost. Gross margin as a percent of net sales and gross profit dollars decreased compared to the fourth quarter of 2015. For the fourth quarter of 2016, Asia-Pacific constant currency net sales increased 2.7%, compared to the fourth quarter of 2015, driven by the Australia and New Zealand distribution businesses. For the fourth quarter of 2016, operating earnings increased by $1.1 million to a positive $0.2 million, primarily due to volume increases and an improved gross margin driven by favorable sales mix and reduced SG&A expense related to employment cost. Gross margin as a percent of net sales and gross profit dollars increased in the quarter compared to the fourth quarter of 2015. Moving to slide 7, total debt outstanding was $196.5 million as of December 31, 2016, compared to $197.2 million as of September 30, 2016 and $48.3 million as of December 31, 2015. The Company's total debt outstanding as of December 31, 2016 consisted of $163.4 million in convertible debt and $33.1 million of other debt, principally capital lease liabilities. The Company had zero drawn on its revolving credit facilities as of December 31, 2016. And since year-end, as announced in our release on January 31, 2017, we retire the remaining 2007 tranche of convertible debt for approximately $13.4 million in cash on February 2, 2017. As of December 31, 2016, day sales outstanding were 42 days, comparable to December 31, 2015. Inventory turns were [4.3] as opposed to [4.9] as of prior year, year-end. I'll now turn the call back to Matt, we then can address questions. Thanks, Rob. Turning to slide 8, I'll summarize some key actions from 2016 and then we'll look forward to 2017. As we've discussed today, the fourth quarter has the challenging combination of significant investments ahead of anticipated benefits. That said, we made good foundational progress in 2016, and on this slide we've highlighted our most recent updates in green. In terms of strengthening the balance sheet, at the end of the fourth quarter, the Company had over $124 million in cash, we made progress with our quality efforts. First with the third-party certification, of the third phase of the consent decree in February, 2016 and more recently by completing the remediation of the specified design history files in December 2016, which have been submitted for third-party expert review in January this year. We largely rebuilt the North America commercial team, with significant investments in the complex rehabilitation and post-acute care sales teams, including a lot of recruiting and training. As I mentioned, over 40% of our US sales force is new and they were fully on boarded in the fourth quarter. We expect the new sales representatives to be accretive by the end of 2017, as we started the rehab salesforce process earlier in the post-acute care team, we expect to see improvements in that area first. Also in 2016, we reshaped our North America product portfolio, for example we integrated complex rehab products from several highly focused specialty subsidiaries including Alber electromotive technology, Adaptive Switch Labs alternative drive controls and Freedom Designs pediatric and adult tilt-in-space wheelchairs, all into the Company's broad product portfolio. These products now are available across the full North American commercial team but previously these were standalone businesses with [unintegrated] commercial programs. Company has also been ramping up its global innovation pipeline with a focus on clinically complex solutions including the fourth quarter launch of our new Invacare Platinum Mobile Oxygen Concentrator. The new Platinum Mobile has better battery life, durability and ease of use in comparable models with the same oxygen output, sound level and weight, a very exciting program. Also in December, the Company received 510(k) clearance to launch the Swiss Kuschall line of wheelchairs in the United States, which brings a whole new line, lightweight, high-performance wheelchair products to the US active segment. Kuschall has long been an innovator, mixing great performance, lightweight materials and attractive designs. We're excited to bring this great product line to the market To effectively re-orient the Company towards clinically complex product portfolio, we significantly reduced sales of non-core products. This was partially done through the divestiture of Garden City Medical at the end of September, which sourced and distributed primarily single-use lifestyle products. We also discontinued many nonstrategic and uneconomic product lines, including basic consumer power wheelchairs in North America, and we're still making great power wheelchairs from millions of combinations of options with even faster order to ship times for highly customized configurations. Finally on page 9, let's look forward. After heavy investments in 2016, 2017 will be more of an execution year, as we shift to Phase Two activities in North American businesses and start capitalizing on commercial improvements we made during 2016. Our new product pipeline is filling with more than 10 new products that were released in the complex rehab and post-acute care markets in 2017. In the next phase of this transformation, we'll begin shifting our focus to operational improvements, including the realignment of our infrastructure and processes to drive efficiency and reduce costs. As an example, on January 31, 2017, we announced a workforce reduction that will begin to align our organizational structure with our new sales level and drive simplicity. As part of this realignment, we announced the closure of our Kirkland, Quebec facility which while relatively small represents another step towards optimizing our supply chain footprint. We expect these actions will result in annualized savings of $6.6 million. We plan to continue implementing broader, sustainable quality improvements throughout the business, which include making progress with the consent decree and continuing to drive a quality culture. The combination of these efforts is critical to moving us forward, particularly as we expect continued pressure from foreign exchange, especially in our Europe segment and as we work to complete the remaining reductions in non-core sales during the first half of the year. The magnitude of Invacare's transformation is significant and we appreciate the support of our shareholders and associates through this process. We have a long-term strategy to rebuild this business to be a sustainable leader in our markets and we're committed to delivering our long-term objectives. Thanks for taking time to be on the call this morning. We now have time for questions. (Operator Instructions) <UNK> <UNK>, CJS Securities. Matt, [more of nature] complement towards the end there, in terms of the ongoing transformation of more complex [maybe] complex products. You talked a little bit about R&D in the quarter, can you tell us overall where you stand in terms of new product sales now and how much of your future sales are going to come from products being in development and just give us kind of the timeframe and pipeline of the new products [release] and potentially if there are new categories that you're looking into [growing into]. Okay, I heard question on R&D in the quarter, sales of products in development, pipeline and new categories. So, R&D in the quarter was really focused on getting remediation done and I'm excited to have reported that we met our internal deadlines of getting these design history files remediated ahead of our internal deadline, which is a substantial body of work, just speak to that for a second. If people don't know, a design history file isn't just a [vanila] folder file, it's an entire body of work that represents the Company's consideration of user needs, how are products designed to meet those, how the product is specifically design, tested, validated and verified. And we took those four design history files and printed them and lined them up, it probably be 20 feet of paperwork. Which is a lot of paper, but more importantly it's a representation of a tremendous amount of effort by the Company to harmonize our design, just clearly document what the products do in a world-class way. So, R&D in the quarter was really in the second half focused on getting that done, with many, many associates and we chose to keep on that timeline and support new product development like the launch of the Platinum [global] oxygen concentrator. As I mentioned in the past, we look forward to R&D in the future, it's not about really an increase in R&D spending, it's about focus our R&D resources on more essential work, fewer non-essential line extensions and a better clinical portfolio which I'm pleased with what we did in the quarter, things like the Kuschall line and the 510(k) taking a lot of effort. Matt, the only thing I'd add to that and I agree 100% particularly in North America HME, you're right, it was all driven by the DHF work. I would point out that we had increases in Europe and we did have an increase in Asia-Pacific. Europe working on new products too and Asia-Pacific working on the LiNX product which we introduced. So there was ---+ there were other things too and again just wanted to expand on that So sales and development, <UNK>, the pipeline is, I'm sure you and other listeners know is, it takes a while to get traction. So for example on the Platinum Mobile oxygen concentrator, we started showing that in the United States, first week in November. As an example, we use that to show customers what the new products are about. It takes a little while to get customer appointments to get into the details. Customers typically will give you an RFP for a small number of units to start trialing to see how they're going to fit in their fleet maybe watch those for 90 days or something like that. And then get into a greater order pattern. So we're excited about having this product portfolio coming into market in 2017 which really has meaningful new products in all our categories. No new categories, but in all our existing categories, we have meaningful new products, which start being accretive immediately from the sense that it gives a sales associate a reason to have a deep conversation with a customer about what Invacare is about and how we help patients. So I would say, while we're not going to see increased sales from new products immediately in the year, we're going to start seeing stimulated activity of our commercial team as a result of that and we believe we have a sustainable pipeline process that will continue in the future beyond 2017. Okay, great. Well glad you could join us,. Thanks <UNK>. Sure, and if you can, I will try one more too as well. You have this multiyear history of organic growth in Europe, and obviously that business is very strong. Can you just remind us again and compare and contrast the similarities and difference between the operations in Europe and the US in terms of distribution and payers reimbursement, and particularly as you're moving the US furthermore clinically complex will be more or less like Europe when you get to the end of this transformation. Europe has a lot of similarities in terms of the type of needs we meet with our products and the types of products that we have, but I'd say there is one significant exception in Europe and that is most of the countries have if not a single-payer system, a strong federal payer system and in single payer systems as implemented in Europe and Sweden and Norway and UK , you get a strong value for total cost of care, and there's still an appreciation for durable medical equipment. So if you look at a Nordic government, they're going to buy a product with the intended use and reuse an ability to refurbish and reuse products over and over again for their citizens, which I think they can demonstrate reduces total cost of serving a population. Specifically in North America, it has got different through national competitive bidding because there's been such a severe reduction in reimbursement to our customers for aids for daily living that is not always economic to even pick up the product that's been deployed with the patient. So in that case, a customer of ours has often turn out to get a single-use product, where it's not about total cost over a long life, it's about cheapest cost to buy one with the expectation it's going to be left behind and that's fundamentally different because Invacare long been based on building really robust durable products and in North America, the shedding of lifestyles is really because there is a change in market expectation around single use. Now in the residential care facilities and in the [BA] and other institutions where costs are managed more looking at total cost of care and less on purchase price, we still have a great exchange of value, durable products at a reasonable price where we get rewarded through margin by being innovative and delivering, but there is more change in that area in the United States because of reimbursement cuts, I would say then in any place else in the world. Great, thank you very much. Okay thanks, <UNK>. <UNK> <UNK>, KeyBanc. Yes. Good morning, Matt. Could you first dig a little deeper into some of the events in the quarter in particular around, I guess you mentioned supply chain that impact mobility and I think some of the discontinuation of the consumer power products and what impact that had on the quarter. Okay. Well fundamentally in fourth quarter, we had North American results, and honestly, they were a little disappointing. We had expected to bring sales down to a certain extent and for everybody's recollection, the North America HME business is really lifestyles, respiratory and senior mobility. We continue to plan to take lifestyles down as we've talked about for some time and we did that in the quarter. Respiratory was a little softer than we had expected, that's a kind of continuation of what we've seen in 2016, and it's still early days for our Platinum Mobile Oxygen Concentrator, that's going to be a great product, but it takes time to get going. And then in seating and mobility, I think that was really the myth, we have this great new sales team that's out with a good understanding of the products and the customers and our new quota process and everything, but with the amount of change that we were driving through that team, I think we underestimated the amount of less productive time that was going to be required talking to customers about discontinued products, shifting quotes and orders to the configurations that we're going to continue past discontinuation and doing a lot of things that didn't result in a number of direct sales that we would normally expect for that same number of people in that same amount of time. Those really a tremendous amount and then, you don't go through a big product discontinuation which is effectively a supply chain hustle, to execute all the orders for products that are about to stop and then stopping. So, there's a lot of work with vendors and internal supply chain operations to make sure that that gets done as efficiently as possible and those kind of things required even more explanations with customers, so we were clear on all dates and milestones along the way. I think in the future, as we mentioned, there is a little bit more sales reduction to do, but it's not of the wholesale variety, especially in the seating and mobility lines like we've had recently, that discontinuation of consumer power really took a lot of time. Is it possible for you to look at North America HME and the sales decline there and say that what is that can quantify what the impact was of the discontinuations and the rationalizations versus what the impact of just the underlying business, the underlying environment as on your results. Tough to do precisely, but I'd say, we start with the market. So I think fundamentally, the market is as it's been, the number of new needs for people and those kind of products continues, pricing continues more or less the same. We had some customer rebates, those were based on volume achievement that other forms of pricing really ---+ and then I think our fourth quarter was really that execution miss on sales and mobility and lifestyles, we expected respiratory that with still soft. So, when we look back at the quarter and think about what would have been a better quarter for us, I'd say 80% of that decline would have probably been closer to what we had anticipated and the difference would have been better performance in seating and mobility as a result of less disruption through that process. Respiratory, we've been talking about coming back for some time, that's our anticipation. We thought it would come back a little sooner with more distance between now and national competitive bidding that last round of rollout because that HomeFill system is still a great way to eliminate transportation costs for customers that are willing to go to non-delivery methods of oxygen, but I think it's a big CapEx expenditure and it's still a big shift, so that's a change that still remains in our future that we expect to have happened. And then our product portfolio in respiratory, it's getting a little tighter, so it's time to get the Platinum Mobile out there, but it's still early to see that making material improvement yet on respiratory. We expect that to happen through 2017. And as we note in the release, (inaudible) respiratory with some majority of the decline, so obviously mobility and seating was down, it was primarily the less (inaudible) business. Okay, got it. I think, that's helpful. And just following up on the respiratory, I believe you've indicated in the past that the customer base there is a little bit more consolidated, a little larger, and you kind of deal with them more on a corporate sales level. And I'm just curious if you can give us a little bit of indication around what your conversation have been like begun with a C-suite around the new Platinum Mobile Concentrator and how your customers are kind of looking at that. They're looking at it with interest. I think that is a new segment in our market relative to the age of the market where consumers want to get away from the cord in a lot of lifestyle conditions. They want to be very, very mobile, and this battery operated relatively small output, portable oxygen concentrator is a great lucrative market because it brings more people into this part of therapy. The challenge is, these are more expensive to operate and maintain for a provider in a fleet if compared to more sturdy modalities like oxygen tanks or stationary concentrators which aren't moving. So one of the things that smart operators do is evaluate products for the total cost to serve their customers. And we're getting good interest on our Platinum Mobile and we're in that phase of them evaluating numbers of these in their fleet on a trial basis to make sure they're holding up the way that they need to meet the cost to serve for their markets. So that's one of the things we really focused on with the Platinum Mobile was same weight, noise and output as the best competitive product out there, those are important for the consumer, but we've also really focused on durability, which is important for the customer who's got to do as much as they can to manage cost to serve those end users as possible. We think the Platinum Mobile is going to be really good in that area, but it's going to take us a couple of quarters to get through the 90 day trials, the results reviews, the RFQ and then bringing us more fully into their fleets, but we've got really good engagement. Okay, great. And then on the shift to phase two, which I think is really encouraging. In the presentation, it basically indicates that, in that shift you'd expect sales dollars and gross profit dollars to be up later in 2017. I just wanted to assess your confidence that in the back half of 2017, you're going to start seeing those results turn and you're going to get some positive comps in the business, as you exit the year. We have a great commercial team that we've built, that's the team we're going forward with so the increased cost affiliated with the selling of our products is going to start tapering off. I mean, it's, only might have a few here and there but it's essentially where we needed to be and 2017 is about sales execution, so you're right. From now, we're looking for a shallowing out of the sales decline, and ultimately leading to that increase and we expect 2017 to be an execution year that way. And 2018, is the year where we have anniversaried out all those other things, so you look at like fourth quarter this year where we discontinued consumer power in North America, while that's only the first quarter of that discontinuation. So, we've got three more quarters of consumer powered anniversary out in 2017, but the focus on the more clinically intensive more economically contributing products will be at play really immediately. And then last questions from me for Rob. I think. Do some of the changes in free cash flow in the fourth quarter reverse out some of the seasonality you typically see in the first quarter. And on tax expense that's been higher the past couple of quarters, I'm just curious your explanation as to why it's bounced. Okay, let's hit the second one, first, Matt. So in terms of looking at tax and I'll focus on the adjusted interest in particular, which only removes the amortization of the discount on the convertible debt, but the big drivers there ---+ sorry, on the tax, I'll focus on the adjusted tax. So, the advantage point I have for you is that, we ended up having $5.1 million in the quarter as opposed to $3.7 million on tax, which is $1.4 million higher. A piece of that was related to a valuation allowance, that we put on in European country and then additionally, we had some discrete withholding issues in some European countries. So at first blush, you could say, hey those are not necessarily quote unquote, repeatable, but I guess the key for me is Europe's becoming a little less profitable. I'd emphasized earlier, about <UNK> <UNK> said, they're still showing organic growth and most of their decline in operating performance is driven by the FX pressure that they are seeing particularly on the pound, a little bit on the euro. So but as Europe gets less and less profitable, we get less benefit from our Swiss [commissionaire] structure, which is a much lower rate. So we're paying tax in higher jurisdictions, so that's been slowly but surely going up, really Europe is the key taxpayer location. We've got Canada too, we've got some other locations where we pay tax, but the biggest piece by far is Europe. So again, that was true in the quarter and true in the year in terms of an increase, so I wouldn't say that I had seen any move though again there were some very discrete items, the business in Q4. In terms of cash flow, let's talk about that maybe as a year as opposed to specifically the quarter. These are always timing issues in a specific quarter. If we look back and Matt related in the release description we had for the webcast, we ended up having a drain of ballpark $67 million as opposed to in 2015, $10 million in free cash flow, that's a swing of about $77 million. I'll give you a couple of things that won't repeat, we know that we paid in that year 2016, $12.5 million related to the Danish tax, the issue that we had. So we had some payments and [$12.5 million] is substantial that would explain a portion of that. I would give you the other big buckets because I think they're going to be important for talking about 2017. So, let's go through first the GAAP loss, we lost in 2016, versus 2015, we lost [$16.7 million] more but in that GAAP loss in 2016, we had a gain on the sale of business and in 2015, we had a loss on a write-off of a legacy system. So if you sort of adjust for those, and sort of look at the GAAP loss after I would call it non-cash impacts, we went down by $27.5 million, it's going to be very important as Matt related that we continue to see a turn both in terms of lowering our cost but then additionally starts see North America deliver that improved sales line, and gross profit dollars. The biggest opportunity off the balance sheet is the inventories, we ended up having a generation in 2015 of about $12 million and in 2016, we ate $10 million. That is not a good performance for us, we were [4.3] inventory turns down to [16] versus [4.9]. We've been at [4.9], we would have been better on cash flow by about almost $17 million. So we've got a lot of opportunity on inventory. We've got to reduce the problem that we saw with the loss both GAAP and the adjusted number throughout and then finally, we've got the fact that the Danish tax won't return. So, from my vantage point, those are the big buckets, we got to look hard at those in terms of making some movement, but lowering inventory continuing to look at cost to reduce our loss, whether that be SG&A or footprint in terms of cost for our supply chain. And then finally, I'd say looking at the DSOs, those perform well, but we are going to have to keep a close eye on those as we sell more mobility and seating those will slightly go up. So, I want to give you a sense of the year and what we need to focus on as opposed to focusing on one quarter. Alright, Thank you and look forward to that dinner party when it's all done. <UNK> <UNK>, <UNK> & Company. Good morning. Can you hear me. Yes, <UNK>. Good morning. Good morning, <UNK>. So, just bookkeeping for Rob, Garden City Medical, that was about to $8 million to $9 million in the quarter a year ago. Is that right. You're talking about the sales line. Right. Yes, ballpark you are in that range for net sales for external sales they actually were larger, if we include they are inter-company, but I don't think that's a concern for you. Okay, so you'll face that headwind for three more quarters and then in the fourth quarter of 2017, that should be apples-to-apples with that Yes, I think if we're looking at external sales, I think they were about ballpark $27 million for 2016 and then just so the people on the call have it and you can see it from ballpark from an 8-K we filed, when we sold it but, it might be ballpark $2 million of operating income pressure, but again that's a ballpark on both those numbers for three quarters (inaudible) for three quarters. Right, so just to be clear, so you may report it down a quarter, let's say the third quarter of the year, but if it's less than $8 million, it's actually an up quarter on an organic basis. Well, <UNK> ---+ sorry <UNK>, that's a good point. And what I'd say is what we're going to do, when we put this together is we always indicate what the sales will be excluding Garden City Medical, even though that's not a discontinued business. We'll always make sure to give you vision to that, <UNK>, so investors always see like we did in this release what the sales change was not just constant currency, but constant currency excluding Garden City Medical. Okay. And then you mentioned, there were some unfavorable pricing, I believe in the HME business this quarter, was that due to reimbursement change or competition or can you give us little more color on what caused that. There were unfavorable pricing in both North America HME and in Europe in both the segments. Europe was primarily catching up on a customer rebate accrual just because we had some larger customers who bought strongly at the end of the year, which is a good issue to have. There were also FX pressures, which we've mentioned before, particularly on the [GBP] that went down substantially. So both those were really the key drivers there. In terms of North America, we went through a number of impacts in the release in terms of talking about unfavorable pricing, so I guess, I just focus on two and Matts talked about them earlier, one is we were exiting the consumer power business and as part of moving that product and moving demos and other pieces that was not as a high margin businesses we would normally see from the other efforts. And then finally we look at ProBasics. We did have some inventory on the North America HME balance sheet that wasn't on the Garden City Medical balance sheet. It is part of just the overall sale, we transferred that inventory cost and that ended up also obviously being a margin impact too. So, those were the two major unfavorable pricing issues for North America HME, does that help. You are right. So, at least for North America, you don't expect those issues to recur in 2017. Very true, <UNK> and I guess, I'd say, one, we don't expect those to reoccur on a margin basis. I would say on those pieces, we made a little bit of money on consumer power and we basically made no money obviously transferring the cost, but we don't have much headwinds in terms of the gross profit dollars on those pieces, but to your point on the margin, yes, we don't expect that to continue. All right and then just a couple more, Matt, do you think you're about done with the demolition mode or do you think there is more businesses that you'll have to share or do you think that you are at the end of this. We've got a little bit more to do in lifestyles which we'll do in the first half of this year, we didn't get it all done last year when we looked at the impact on customers in different segments, we parsed that. The majority of it was at the beginning of 2016, we'll do a little bit at the beginning of 2017 and then the anniversaring of the other things that we have discontinued through the year like consumer power, but when you look at the products that we have going forward, now the things that we're focused on are substantially, we're going to move forward with plus, the new things. Are the pieces that are left, that you might still shed are they the same order of magnitude as Garden City or are they smaller. . At this point, everything that's in our portfolio now is coherent with our strategy and that's important because now whether you are an employee who is being asked to focus their time on things that are essential or a customer or a commercial person who is interfacing with a customer, everything we're doing now is germane and coherent to our strategy. So I think, we like the portfolio we have in the future, then there's always the question of capital allocation and if somebody came along with something that looks fantastic, you might have a different consideration, but right now we like the portfolio we have, so that's what we're going to move forward with. Okay. And then with regards to consent decree, you said that you submitted your design history files to third-party expert for their review. Is that a process ---+ it takes weeks or is that more months. Probably, weeks ---+ maybe I'll give you the process. As I mentioned in my earlier comments, there is probably 20ft of stacked paper that document all these thousands and thousands of hours of good work. And the diligence of our third-party will require that they take some time to go through those and the test that they're performing is to assess the compliance with our design control procedures and ensuring that those fit with the FDA's requirements. We think they do, but it will take some time, let's say weeks or maybe little more than a month to complete that work. We got to assume a little bit of time for Q&A or maybe there's a little dressing up we have to do and then they will write a report, we assume it'll be a favorable report when we get to that point, it'll take a few weeks for them to get that done. And then we would turn that over to FDA along with our own report called the 5H report. And that report or those two together will take some time for the FDA to examine. I am sure there's a Q&A cycle in there and then we'll be at the point where we're talking to the FDA about next steps, which if things continue to go well would be at third phase inspection. So, will you report to us when you've submitted this to the FDA or will you wait till you get FDA approval. I think these are meaningful milestones along the way and as I said before, it's important that we give information to shareholders, that's likely to be correctly interpreted and I think if those milestones look unambiguous we'll be reporting them. So, I think there are few things we'll be talking about in the next couple of quarters that reflect continued milestones on quality progress. Okay, alright, thank you. Okay, thanks <UNK>. It appears there are no further questions at this time. Mr. <UNK>, I'd like to turn the conference back to you for any additional or closing remarks. Thank you.

2017_IVC

2016

ETFC

ETFC #We don't break out what portion of retirement assets are IRA versus other. With regard to Stock Plan business, it shouldn't impact our opportunities of continuing to make those participants great customers of ETRADE and in fact, may give us some opportunities to have some discussions along the way as they may not be getting as well served by some of their other providers as a result of this. Well, it's definitely burdensome but I think it's an opportunity for our model relative to others. Well, we already do have a robo-advisory capability. We've had it for some time. We have our new version coming out later this year and something I look forward to talking more about on a subsequent call. But I would say there are several fronts for us on this accelerating organic growth. One is you will have seen us do some significant hiring over the last year and that's primarily across hiring more financial consultants. It also has to do with adding along with account growth, additional customer service people so that we're providing good service, and adding some professionals into the corporate services participant experience area where some of our nascent efforts there are actually turning out very nicely. The second is, we interact with every one of our customers digitally and you're seeing us do things to continue to improve our engine/mobile and to make our overall web experience and mobile experience the type of experience that makes people want to engage more fulsomely with us and with improving their financial health. So it's a bit of doing a lot of little things better and continuing down the path. Well, one of the things we are, as we said in the prepared comments, looking at is more along, as you think about the excitement that's taking place in the payment space across some of the fintech areas, are the type of things that we are starting to look at analytically with regard to, is that something we should build or is that something that I want to consider acquiring. But there are definitely ways we can improve some of the capabilities of our banking and banking like activities. Specifically, in the payments area. Specifically in the payments area. Thank you. Well, I can tell you over the course of the quarter, we saw less initial activity in the early months and it did pick up a little bit in the later months but not meaningful enough to have an effect on the commission per trade, being down $0.02 from Q4. But if you look back to last year, you will see that typically, there's a pretty powerful effect on commission per trade that we didn't see directly come directly through this quarter. Whether we see some of that come through this quarter or not, I think we're going to have to wait and see how things progress. Let me try and take those in turn. I would say the ---+ jumping over the $50 billion mark is impacted by two things. Clearly, you want to have a quantum of cash that makes it worth your while to earn on that cash. Because the costs are the same, whether you're at $51 billion or $61 billion. And the rate environment, obviously, makes it easier to jump more quickly; just do the math. With regard to looking at fintech opportunities, I think the question for us continues to be, how quickly can we deploy something across our customer base and would it bring incremental revenues. Would it strengthen the customer tie with our Company and so we're continuing to look. I do think the valuations make certain deals difficult and so we evaluate that, but speed to market is important. And I'm not all that familiar, I presume some of your guys would be more familiar than I am with a lot of fintech firms looking at actually acquiring something that's going to get them nicely regulated to the degree that I don't think they can even possibly imagine. So that would be my way of looking at it. Well, thank you, Ash. Again, I want to thank everyone for joining us for this quarter. I'm particularly proud of the team this quarter and look forward to talking to you in a few months. Thank you. Good-bye.

2016_ETFC

2017

SWX

SWX #Thank you, Jonathan. Welcome to Southwest Gas Holdings, Inc. 2017 Third Quarter Earnings Conference Call. As Jonathan stated, my name is Ken <UNK>, and I'm the Vice President, Finance and Treasurer. Our conference call is being broadcast live over the Internet. For those of you who would like to access the webcast, please visit our website at www.swgasholdings.com and click on the Conference Call link. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. <UNK> <UNK> <UNK>, Southwest President and Chief Executive Officer; Mr. <UNK> <UNK> <UNK>, Senior Vice President and Chief Financial Officer; and Mr. <UNK> <UNK> <UNK>, Vice President, Regulation and Public Affairs; and other members of senior management to provide a brief overview of the company's operations and earnings ended September 30, 2017, and an outlook for the remainder of 2017. Our general practice is not to provide earnings projections. Therefore, no attempt will be made to project earnings for 2017. Rather, the company will address those factors that may impact this coming year's earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management's assumptions, which may or may not come true, and you should refer to the language on Slide 3 in the press release and also our SEC filings for a description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. With that said, I'd like to turn the time over to <UNK>. Thanks, Ken. Turning to Slide 4, looking at the third quarter, some of the highlights from a consolidated results perspective include recorded net income of $10.2 million for the quarter or $0.21 earnings per share, the elimination of cumulative voting at a special shareholder meeting we convened on October 17, an acquisition of the 3.4% noncontrolling interest in the Centuri Construction Group previously held by the prior owners of Link-Line. In the natural gas segment, highlights included an operating income increase of $15 million over last year's third quarter, with the addition of 32,000 customers for the year ended September 30. And as of earlier this week, we now serve over 2 million customers across Arizona, California and Nevada. Also, last week, we submitted an application to the Public Utility Commission of Nevada to expand our service territory to serve Mesquite, Nevada. And at our Centuri Construction Group this past quarter, we experienced solid third quarter financial results. We increased the capacity of our credit and term loan facility to $450 million. And again, just earlier this week, we completed our acquisition of utility infrastructure company called Neuco that does its business in New England. Moving to Slide 5. For today's call <UNK> <UNK> will provide an overview of third quarter consolidated earnings as well as segment details for our natural gas operations and construction services groups. <UNK> <UNK> will provide an overview of our various regulatory activities, and I will close with a report on regional economic conditions, our capital expenditure plans and our 2017 expectations. I will now turn the call over to <UNK>. Thank you, <UNK>. Today, I plan to cover our third quarter financial results and provide a little background on the Neuco acquisition, which was just completed. Let's start things on Slide 6 with a look at consolidated operating results. During the third quarter of 2017, we had consolidated net income of $10.2 million or $0.21 per basic share compared to $2.5 million or $0.05 per share earned in the third quarter last year. During the 12-month periods, our earnings improved from $153 million or $3.22 per basic share to $163 million or $3.42 per share. Next, we'll look at the relative contributions of each segment to change in earnings starting on Slide 7. The natural gas operations segment experienced a loss of $4 million this quarter, a marked improvement from the last year's third quarter loss of $12.4 million, principally as a result of impacts from our Arizona general rate case order, which became effective this past April. Construction services had strong quarterly results but experienced a slight decline in net income to $14.3 million from $14.9 million. The next slide breaks down the change in earnings between 12-month periods. Gas segment net income increased $14.5 million, while construction services experienced a net decrease of $4.1 million. We will now look at each segment starting with natural gas operations on Slide 9. This waterfall chart provides breakdown of the major components of the improved results. Operating margin increased $6.4 million, as a result of customer growth and rate relief in Arizona and California. We added 32,000 net new customers over the last 12 months, a growth rate of 1.6%. Depreciation and property tax expense declined $8.7 million between periods, primarily due to lower depreciation rates in Arizona. And O&M cost were flat between periods as decreases in employee-related benefit costs offset general cost increases. Moving to Slide 10. We summarize the gas operations segment change between 12-month periods. There were 2 principal reasons for the improvement. Operating margin increased $26 million primarily due to rate relief and customer growth. And depreciation and property taxes decreased $11.5 million, as lower depreciation expense in Arizona offset increases related to growth in gas plant service. These favorable items offset O&M cost increases which totaled $12.9 million or 3%. Let me also draw your attention to company-owned life insurance or COLI. The current period reflected income of $8.8 million and the prior period income of $7.5 million. We view both of these as very high, thanks to the strong stock market returns. Our expected range is generally between $3 million to $5 million. We will now review Centuri's third quarter operations starting at Slide 11. Revenue increased $40.3 million or 12% between quarterly periods, as pipe replacement work with existing customers picked up momentum, including bid jobs that are expected to be substantially complete by year-end. Construction expenses and depreciation on the other hand increased net $40.9 million or 13% between periods due to the greater workload as well as higher construction costs for a water pipe replacement project, for which Centuri has requested additional cost recovery. No new work orders are being accepted on this project until cost recovery issues are resolved, which we hope will be during the fourth quarter. The temporary work stoppage that occurred earlier in this year was not a factor during the third quarter as we had a full quarter of normal operations, albeit at a lower annual run rate than historically. Slide 12 rolls forward the contribution of net income for the 12-month period. Construction revenues grew by $45 million or 4%, due primarily to additional pipe replacement work across our service territories. However, construction expenses and depreciation increased to net $53 million or 5% between periods. Factors which influenced the disproportionate expense increase were mix of work, startup and construction costs associated with water pipe replacement project and logistics surrounding the timing and length of the temporary work stoppage from earlier this year. But overall Centuri continues to perform well in nearly all of their operating areas, and we expect another solid contribution from them for the full year. And let me next provide some additional information on Neuco starting at Slide 13. Neuco was acquired for $95 million just yesterday. They are headquartered in Lawrence, Massachusetts, and they have been in operations since 1972. Neuco specializes in underground utility construction and maintenance services for LDCs and municipalities. So it's really a natural fit with our existing operations. They have operations in Massachusetts, New Hampshire, Vermont and Maine, providing us with a bigger footprint in the Northeast United States. Turning to Slide 14, you'll see that Neuco employs over 300 nonunion personnel, who, in 2016, installed over 115 miles of gas distribution mains and thousands of services. Revenue for 2016 totaled $95 million and generated $11 million of operating income. Finally, their principal customers include National Grid, Unitil Electric & Gas and Liberty Gas Utilities. I'm very pleased to add this complementary seasoned business and workforce to our construction services segment. With that, I will now turn the time over to <UNK> <UNK> for regulatory update. Thanks, <UNK>. Turning to Slide 20. As I mentioned at the outset of the call, in the most recent 12-month period, we added 32,000 net new customers and just earlier this week reached the 2 million customer mark. Moving to Slide 21. Regional economic picture for our service territories continues to be strong. Unemployment rates declined across the board year-on-year, and we continue to see new job creation in our service territories. On slide 22. We continue to deploy a robust capital expenditure plan for the 3-year period. End of 2019, we expect to invest upwards of $1.8 billion to serve new growth and replace aging infrastructure. An important part of our capital expenditure plan is to support a regulatory climate we've seen in each of our states, as regulators look for us to continue investing in safety and reliability as well as fostering economic growth. Turning to Slide 23. Ultimately, the capital we invest in our gas transmission and distribution systems translates into new rate base through a variety of regulatory activities. With our planned capital expenditures, we project a compounded annual growth rate in rate phase for Southwest Gas of 9% over the next 3 years. Moving to Slide 24. We provide an update on our 2017 expectations for our natural gas operations. We expect operating margin to increase by nearly 3%. Operating income is expected to increase by 12% to 14%. Interest expense is expected to increase by $2 million to $3 million over 2016 levels, and our previously communicated expectations are reaffirmed. Finally, on Slide 25, refined expectations for Centuri Construction Group include an anticipated increase in revenues of 3% to 5%. Operating income equal to nearly 5% of revenues, net interest deductions of $7.5 million and note that our expectations generally exclude 2017 impacts from the Neuco acquisition, as fourth quarter earnings would be offset by acquisition costs. I will now return the call to Ken. Thanks, <UNK>. That concludes our prepared presentation. For those who have accessed our slides, we have also provided an appendix with slides that includes other pertinent information about Southwest Gas Holdings, Inc. and its subsidiaries and can be reviewed at your convenience. Our operator, Jonathan, will now explain the process for asking questions. Sure, Jeff. This is <UNK> <UNK>. As you know, the proposed bill keeps changing. So ---+ but based on the one that's floating around today, one of the things on the utility side is there is somewhat of a favorable carve out for our industry where we would be allowed to continue deducting interest expense provided that we use the more customary tax depreciation rates for capital expenditures. And so we think that's a pretty favorably outcome for the industry that would allow rate base to be at a little bit higher level than it would otherwise and have a positive impact on our earnings going forward. The lower tax rate would result in some excess deferred taxes, which we would flow back to customer ---+ we expect to flow back to customers over a lengthy period of time. So basically I view it on the utility side is neutral short run, positive long run. On the Centuri side of the business, we would be able to put the lower rates would result in a reduction in our deferred tax balance, which currently sits at about $30 million. It's sort of a onetime reset there, that would be favorable. And then going forward, well, it would have maybe a short run positive impact for contracts that are currently in existence. We would expect that, that would influence our pricing going forward, and we would, in a competitive environment, have to give most of that benefit to customers. Just for Neuco. The Neuco property in New England that we work ---+ customers that we work with there have a very strong growth opportunity, very similar to what we've seen in some of our other large service territories. Certainly, we would expect that, that business can grow similarly to what we've seen at Centuri, probably in the 8% to 10% range, if I had to put a number out there. At Centuri, because it's an nonregulated entity, they would get to reset their deferred tax balance. Currently, we have about $30 million of deferred taxes at Centuri. Those would reset to the new rates. So we would have sort of a onetime pay-per-gain, if you will, for that reset. And then going forward, the contracts that are currently in existence might have a bit of a short-term favorable impact until those have to be renegotiated. At which time, we would think, given the competitive environment we are in, most of those benefits would be at least shared with the customers, if not provided directly to them. Thank you, Jonathan. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings, Inc. Thank you. Have a good day now.

2017_SWX

2017

HR

HR #Sure. I think you'll see in our disclosures, we have some additional disclosure around FAD, funds available for distribution, which includes some of the maintenance CapEx items, second generation TI, commissions and so forth. If you look at our payout on that ratio, on that basis, we were at about 95% for 2016. So I think we're certainly moving in the right direction. Certainly, I think there's room to improve that, but I think being in the right direction certainly gives us an ability to consider that and look at that. But I think we've got a little ways here to be at the right level, if you look at comparable peers and so forth before we turn too strongly towards that. We used to break that out a little bit more between, the capital expenditures, between revenue enhancing and not. I think our view is that most people said, well, that's fine, but we're still going to subtract all of it and the growth will show up down the road in your income statement or your same-store. So I think we just took the view that we'll just consolidate that. So the answer is yes, there is revenue enhancing opportunity in there. We are specifically, in many cases, we were just looking at something in California recently where we've really spent $1 million or $2 million on a building to enhance the perception and quality of that building on-campus. And we can push rates and get great contractual bumps. So it's worthwhile to do that spend. But we do just lump it in there for that guidance. No, that's probably too much. I'd say more like 75% is recurring, versus the balance. And <UNK>, we look at the revenue enhancing more on the CapEx and the second generation TIs, that's normal course. So you get a little bit more just at the CapEx portion, as you start trying to break it into revenue enhancing and non-revenue enhancing. Well, thank you to everyone for listening this morning. We'll be available today for follow-up, if anybody has any additional questions. And everybody, have a great day. Thank you.

2017_HR

2015

SWK

SWK #This is <UNK>. I'll take that one. As <UNK> mentioned, we did have a large order in the second quarter associated with equipment, which does happen occasionally in this business. In particular, in the Far East, we do get an occasional situation, where there's a large pipeline being constructed, and we're just primarily selling equipment, and then training them on how to use the equipment effectively in the construction process. Those things range from occurrence, from anywhere, from six to 12 months on occasion they happen, but they are very sporadic and we don't tend to plan for those types of sales. And it just happened to occur in the month of June, which we were all very pleased to see. As far as our outlook of oil and gas, I mean our outlook continues to be similar to what we've been saying for the last almost year now, where the level of activity of construction of pipeline is really- onshore is really non-existent at this stage. There continues to be a lot of activity, within the industry, about a potential kind of ramp up of activity in 2016. We have not seen specific orders or quotes or things that are of that nature at this stage, that would give us a high level of confidence. But then we've also seen a downturn lately in oil prices as well. So there's still volatility in this space, but ultimately we do feel that we are going to see some type of ramp up in activity in the next 12 to 18 months of pipeline construction, because there's a great deal of pent-up volume that needs to be dealt in that particular space. We're also seeing, on the oil and gas onshore ---+ it's the onshore business that looks like it might get some legs next year, because we're doing a lot of prep work with specifications right now. Our concern is, and the reason <UNK> is very circumspect about it, is because there's a good chance that these types of projects will get delayed if the oil prices don't recover. And again, the gas prices are also a factor here, because the onshore market is about 70% gas. The offshore market, which is another big piece of our business, doesn't look to be too favorable any time soon. So it's kind of a mixed bag, and we expect probably double-digit declines in the oil and gas for the next couple of quarters, and then we'll see what happens when the comps get easier, and the activity picks up. The other thing I would want to, just go back to in the first part of the question, just to make sure people don't get a view that this order was a huge impact for the second quarter. The impact at margin, or at profit for EPS, was less than $0.02 of EPS in the quarter. Thank you. Well, when you say which market. I mean, generally ---+ Yes, geographically, okay. So ---+ we're generally outpacing light vehicle production wherever we're operating geographically. I will say, that I think the North America and European markets were a little stronger than the Asian markets in this particular quarter, but it's all over the map in terms of quarter to quarter. So I would say that our growth is less market related, and more just penetration of platform, auto platforms as we go here. But the overall production was about flat for the global light vehicle, so it wasn't a particularly strong quarter at all for the market. And our long term view of that business, in answer to the second half of your question, is we think it's a business that fits into our long term organic growth vision of 4% to 6%. And it's demonstrated a good track record to be within that range, and as it adopts more of the commercial excellence activities, and innovation activities of SFS2.0, we think that will only assist in that ability to continue that on a long term basis. I'll make it very clear. It was $7 million of revenue, and $3.5 million of operating margin. Which translates to less than $0.02 a share, due to the large, relatively large for oil and gas. It's less than a $300 million business. So when you get a $7 million order shipped in a quarter, that's large on a very small base. On our $2 billion-plus Industrial segment base or $1.7 billion engineered fastening base, however you want to look at it, but within oil and gas, it was large, within the segment it was tiny. And just for analytical purposes, we understand why you're trying to get to a run rate. But please don't think about it as a one-time item because it's part of the ongoing piece. As we said many times as it relates to oil and gas, it's one of our few businesses ---+ infrastructure in general, and oil and gas in particular, where it's a long cycle business with large lumpy orders, unlike our Global Tools & Storage business ---+ and even the Security business the way we install and recognize revenue, you get large orders, and depending on when they're fulfilled in a quarter has tremendous variation. So it's one of our few businesses where quarter to quarter, the numbers can vary dramatically due simply to timing. And as I said earlier, in answer to the first question, we've seen this ---+ roughly every six to nine months we have some type of large order like this. So it's not a one-time item. It's maybe one-time in a specific quarter. But when you look at a year, you can have one to two of these, and even occasionally three that happen every year. Well, the markets have generally been good. In terms of Mac tools end markets, as you looked at some of the numbers that come out, they've been very good. The statistics very recently published, in the last 10 years in the US, which is overwhelmingly where Mac tools is, of course, car ownership, the average age of cars on the road, has gone from slightly under 9 to slightly over 11 years, which means cars are being built better. But it also means they're on the road longer, so, there is a generally healthy environment for automotive repair and automotive after market. That's clearly helping Mac. But what's also helping Mac is just the benefit of it being part of our Global Tools & Storage business, with a great product development, product introduction, good sales rhythms, good forecasting. A lot of the newer cars, of course, require a lot of diagnostics. It's something where we're relatively underdeveloped, compared to some of the competition. But in general, <UNK>, those markets are healthy, and we've benefited from that, but we clearly believe we are growing faster than those end markets which implies share gain, of course. And then on the Industrial side, clearly, there is a big differentiation within the Industrial markets by segment, and so the oil and gas issues within the Industrial marketplace are weighing on growth. You've got Ag weighing on growth and mining as well, and hydraulics, so mixed bag in Industrial. I'd say the MRO channel is a little weaker than it has been, maybe inventories are a little higher. We aren't sure about that, but it feels that way. We don't have great data on the MRO channel. It seem like there might ---+ won't call it a correction, but sort of an inventory build may be going on there. So in general, the Industrial markets are a little weaker than they have been over the last year or so. I'll take that, this is <UNK>. I think the ---+ if I look at our organic growth, it was about 2 points better in the second quarter, versus our beginning of the quarter expectation. And most of that was driven as you might imagine in Tools & Storage, and a little bit in engineered fastening. At EPS level, what, how does it play out [$0.20] versus [$0.15]. The way, my view would be, Security was about $0.03 to $0.05 off expectation in the second quarter, and you can do the math the rest of the way. But clearly, Tools & Storage helped performance. If you ---+ depending on how you look at our outperformance as a Company, we look at vast majority of that $0.10 as operational outperformance, and a lot of that being driven by Tools & Storage. There is some pluses and minuses below operating margin, but the bulk of that nets to zero. And really what you're looking at is a $0.05 to $0.08 operational outperformance, that if you factor that $0.03 to $0.05 in, then Tools & Storage was somewhere around $0.08 to $0.10, a $0.12 outperformance. Tools & Storage, plus Industrial. Plus Industrial, thank you, <UNK>. This is <UNK>. I'll take that one. We actually, when you look at the second quarter, we saw a pretty balanced level of growth across the quarter, especially in tools, actually in all our business. If you look at all our businesses, you saw relatively healthy growth in all our businesses in each one of the months across the quarter. And so, we didn't see an accelerating trend or a decelerating trend in the month of June. Our guidance is reflective, obviously, we feel good with what we've experienced in the first half of the year and the momentum as we exited the first half of the year, which allowed us to increase our organic growth assumption from 5% to 6%. So we're clearly seeing trends that make us feel at least reasonably good about the markets. Now we will be the first ones to admit there's a lot of conflicting data and information out there, across the construction and industrial space, as to what might happen in the back half of the year. And as a result we've evaluated that, combined with a very healthy organic growth performance in the first half, and think we put forth a very balanced view of the full year. Yes, and just to add briefly to that, I think as <UNK> pointed out in his piece of the presentation, our largest business obviously, is GT&S, Global Tools & Storage, where we have the best data. Inventories are at or slightly below normal levels. That bodes well for the future. That's partially offset by relatively weak industrial markets, compared to what we would like to see. But simply said, a very smooth quarter, and a very good position in terms of inventories at the customer level, which has led to our guiding the second half of the year the way we have, versus importantly, if you look at the details, some very very steep and difficult comps. So keep that in mind as you look forward. So as far as Europe goes as <UNK> mentioned at a nice level of detail, the business continues to progress forward. It\u010f\u017c\u02dds turned the corner in the sense of organic growth over the last two or three quarters. We're starting to demonstrate a modest level of 3% in the second quarter, which we were pleased with. The profitability continues to improve. It's still in the range of mid to high single-digits. And as it exits this year, it will certainly be at the high single-digit level as it continues to progress in the back half of the year through its transformation. So we really- and that's really what we've communicated in the past. So it's consistently performing with our expectations. As far as our view, as to our decision associated with the fit in the portfolio, it will be a combination of factors to evaluate. And certainly, the one that probably drives the most ---+ the largest part of the decision will be valuation. As the valuation improves, based on a certain outcome that we make related to that decision, and ultimately, we believe we're here to drive shareholder value over the long term. And if we think ---+ whatever decision we make is going to achieve that result, that will be the big driver of the decision. Certainly, evaluating how it's performing is a factor, but I don't think it's the primary factor. Yes, this is <UNK>. Let me just add to that. I certainly agree with everything <UNK> said, but as we've had a lot of focus again, on the 15% of our business that's performing slightly below our line average specifically, I think <UNK> pointed out European Security and North American convergent. We're focused on improving the performance, but I think it's fairly important just to note that while it's ---+ that subsegment of that segment are performing at a level slightly below our OM average, they're performing right in the middle of the fairway, relative to their peers. This is not a broken business. It's a business that's performing not as well as it has in the past. There is some industry trends, as well as some internal executional issues that <UNK> spoke about I think in great detail. I guess, I just, we need to be on record, this is not a broken business. It's a good business. It\u010f\u017c\u02dds been better and it will be better going forward, and our assessment of it will be based on both the trends. And as <UNK> said, we're here to create shareholder value. That's ultimately going to be driver this time next year, as we zero in on its fit in our portfolio relative to elsewhere. Amanda, thanks. We'd like to thank everyone again for calling in this morning, and for your participation on the call. Obviously, please contact me, if you have any further questions. Thank you.

2015_SWK

2017

KR

KR #The promotions by category, we would use our 84.51 insights for that. And it would really be different by customer. Some of it would be things that you would do personalized one on one. So, it actually ---+ if you go into the store from checking the retail price, you wouldn't see it, because it's offers that are made directly to customers. Some is via coupons. It's all of the above, because different customers react different ways to different promotions. So, it's becoming increasingly personalized offers based on what that particular customer wants and desires are. And it would be a mix of national brand, corporate brands, and fresh product, and others, so it's really a mix. On the comp by quarter, <UNK>, I'll let you. If you'd repeat your question. I want to make sure I'm answering the question you asked and not what I have in my head. Well, the comment about we expect the first quarter to look a lot like the first quarter, I guess would be a little bit of code for ID sales continue to be a little bit negative right now, which means we expect ID sales to recover as we go throughout the year, and that's going back to the questions that we've gotten on the cadence of how we expect to see the underlying EPS, is that is predicated on an improvement in ID sales throughout the year. Sure. Bo and his team out there in Colorado continue to do some exciting things inside their stores. Some of the new stores they've opened, we're pretty excited about the sales levels they've been able to generate. Bo continues to look at his book of business and his stores. They're a very new Company. He's learning as he goes, and he continues to make tweaks to this model and stop doing some things that aren't working and try some new things that seem to have ---+ to be bearing fruit. We're very pleased with what we see out of Bo and his team, and continue to be enthusiastic about that kind of a format. Thank you. It's not something we've talked about a whole lot, and it's one of those things when you ---+ if you have 3% or 4% IDs and you have a strong capital program, and it's 30 basis points or 40 basis points or 50 basis points of headwinds from sister-store impacts, the effect of that isn't as dramatic as it is when you're close to a zero ID sales negative. So, we haven't really talked about it. We did in the third quarter. What did I say. 20 basis points to 30 basis points. Is what it typically is. Is what it typically is. So, it is a bit higher today, because we have been doing more stores. A couple, three years ago, we were under $3 billion in capital, and we were above $3.5 billion in capital this year. So, we have ramped up our capital spend. We are touching more stores. We're opening more new stores, which cause a sister-store impact and expanding and relocating some very strong stores, which continue to perform very well, but haven't been grand reopened long enough to be into our identical store base yet. When you look at the number of stores we did over the last year, compared to two or three years ago, it's about double major store projects. As those stores are open long enough, they will flip back into our ID store base, and we would hope they continue to perform the way they are and be a tailwind to ID sales. As I said in the prepared comments, we are taking capital down from what we would originally plan to spend in 2017, because we've been guiding folks to think about 2017, and even 2018 to be a similar spend level that we did in 2016. And most of that will come out of new store, and we'll continue a strong remodel program. When we remodel a store, it does not come of out IDs. It's only an expansion or a relocation or a net new that winds up affecting it. I think it will continue for a while, but it will decline over time, as those stores become identical again. Thanks, <UNK>. If you look at during the quarter, it started out slow when we had the earnings call. It actually during the holidays improved, and then January it slowed down again. So, if you look at during the quarter, that's kind of the cadence within the quarter. I always hate to use weather as an excuse, but we had absolutely no weather benefits this year. The negative of that is we had no weather benefits. The positive is, next year, if we have any weather at all, we cycle that. If you look at the prior year, we didn't have much weather either, and in fact the only one big weather event we had was the last weekend of the year in last year's numbers. So, our year ended against the only weather event we had in the prior year, with no weather this year. Tonnage growth cadence remained positive, but it's because of the deflation, but obviously, around the holidays was stronger than two sides of the holiday. They were very broad-based, and anything like ---+ anything that we would do, we would use our insights to decide what our approach is. I wouldn't say changes since the quarter ended. I would say that definitely are seeing some pricing in certain pockets. I never tried to calculate on a percentage basis, but at any point in time, you will always have competitors doing things from a pricing standpoint. It's a pretty small test. We're early in the process. And it would ---+ the same comment that I made earlier about ---+ on ClickList, it's a headwind but you can see as they mature, it becomes where we're neutral in terms of how a customer engages with us. In terms of specific numbers that we would expect for this year, we're not to the point where we'd be willing to share it, other than obviously we're working hard to scale it if it makes sense, in ways that it makes sense. We would look at all the delivery options together and really leaving it up to customer how they want to engage with us. We'll continue to add items to Vitacost that make sense, and the Simple Truth product is obviously the initial part of that. Thanks, <UNK>. On the delayed tax refunds, I don't know, <UNK>, I really don't have very much insight into it. If you look, most of our products aren't as discretionary as some of the other retailers that have talked about it. <UNK>, I would be in <UNK>'s boat from an insight standpoint. My conclusion, without meeting with some other folks and having conversation, would be that the timing of those doesn't affect us in a big way like it does other folks, because over my time here at Kroger, I've never heard anybody talk about I can't wait until tax refunds drop so we can get a boost in sales. So, it just doesn't ---+ I agree with what <UNK>'s conclusion is based on most of what we sell. The only exception would be like in Alaska, where you get paid to live in Alaska, and it's based on the size of the check, based on fuel profits or gasoline profits for the state. Pipeline. From the pipeline. And that you can clearly see when the checks go out, and the size of the checks from year to year. But those were all great big Fred Meyer stores with a lot of general merchandise. If you look at Roundy's overall, we continue to be very happy with what Michael Marx and team are doing in Wisconsin, as well as Don Rosanova and team in Chicagoland, with the two banners. <UNK> and team have cycled through the first set of store remodels and offerings to the customers, who are now in the second market getting remodels completed, and then we'll put a full campaign into that market, and then if we continue to see the positive reaction from the customers from ID sales dollars and units, we would expect to continue to roll that out throughout the state. From an ID sales standpoint, it really didn't affect it very much in the quarter, certainly not as much as it did early in the year. Thanks, <UNK>. Good morning. Well, I'll answer the question a little broader than just one specific competitor. But with the comment that I made earlier, there is no doubt several competitors are improving and running better stores. So, that is really clear when you go into their stores, and it's much broader than just Walmart. In terms of the things we're doing, we're really doubling down on the customer experience. We're getting even more aggressive on process change and taking costs out where it makes sense to take costs out, and improving the competitiveness of our model. So, in terms of what are we doing about it, those would be the things that we're doing about it, because what we find is certain customers are interested in price, but all they want is a fair price. They're really, really interested in having fresh produce, fresh meat, and a great experience, and those are things that we have competitive advantages on, and we'll continue to focus on that in our store teams and our folks, and Kroger associates across the whole Company will continue to focus on those. Well, if you look, we would ---+ I've been around for 30 some years, and I always would tell you that we've always felt that the next five years are going to be more competitive than the last five. I would definitely agree with that comment today. We definitely believe the next five will be more competitive than the last five. Because only the strong survive. If you look at in terms of ---+ we feel very excited about the opportunities that we have to continue to grow our Business, and I put it in two buckets. Some of it is operational driven, where if you look at the historical business that we're in, getting better at that, but if you think about the comments that you hear us increasingly talk about, looking at the opportunity in the $1.5 trillion total food business, we continue to get more and more aggressive in terms of fresh food, fresh food prepared, what's for dinner and picking things up, and that continues to grow well for us. So, we really see that continues to be a large growth opportunity, and I would say at the moment we can see the opportunity more than the things that we're doing. When you were out for our investor meeting, you saw some of the things we're testing, but we really continue to improve and get better and better about that part of the Business, and one of the things that we've been very pleasantly surprised is the willingness that our customers are to eat in one of our stores. And we believe that will be an opportunity to grow the Business and create a new leg, a platform for growth. So, it's really both of those things together. I would say it's kind of the same. If the right opportunity became available, we would be very interested. But we don't ---+ we haven't changed in terms of we design a model where M&A is not required, and if the right opportunity becomes available, we would sit down and talk to somebody. But it's not something that we're out proactively trying to change that. Thanks. We have time for one more question. We continue to see very much where people are increasingly spending money in the fresh departments. So, there is no doubt there's a shift in tonnage from the center store to the perimeter of the store, and that's been a long-term shift, and that hasn't changed. If you look at the center store, we would still see tonnage growth there, but remember, natural and organic is part of what's driving that growth. Natural and organic is not ---+ there's very few public companies where you can just see that by itself. If you look at even for us, <UNK> talked about our total natural and organic business at about $16 billion. Our Simple Truth brand by itself is $1.7 billion of that. So, over 10%. And those are things that you really don't see in some of the other measures. So, the center store has been soft for a long period of time, but we've continued to gain share in the center store, and we also have continued to change the mix of what's inside the center store. And different category reinventions with coffee and pet and baby, where we've totally redone the look and feel of those departments for our customer. We announced earlier in the year a new relationship with IRI that we didn't talk about a whole lot, and it's really just furthering that relationship with them. They have a few nuggets of data that Nielsen may not have that we think is going to be helpful to us overall as we look at our volume in the overall food industry, not just the grocery store industry. Thanks, <UNK>. Before we end today's call, I'd like to share some additional thoughts with our associates listening in today. Thank you for continuing to connect with our customers every day. They are rewarding us with their business. With your help, we gained more of the market and improved our customer satisfaction scores in 2016. Thank you for your hard work. For those associates who are choosing to accept the voluntary retirement offer, thank you for your contributions to Kroger. I know for some the decision to retire was not an easy one. You should know, Kroger would not be the company it is today without your years of dedicated service. Each of you has made a difference in the lives of our customers, our communities, and each other. And we are very grateful for all of your contributions. Thank you. That completes our call today. Thanks for joining.

2017_KR

2018

ASIX

ASIX #Thanks, <UNK>, and good morning, everyone. Thank you for joining us and for your continued interest in AdvanSix. It was a dynamic first quarter to kick off 2018. As you saw in our press release, AdvanSix especially navigated through the previously disclosed weather-related production issue at our Hopewell, Virginia facility; captured the benefits of improved market pricing; and delivered higher free cash flow. Mike will detail the full results in a moment, though I'd like to highlight the following. Sales were $359 million with higher pricing more than offset by volume declines related to the weather event. And EBITDA was $31 million, which included a roughly $30 million unfavorable impact from the unplanned interruption. We also generated over $13 million of free cash flow in the quarter, an increase of roughly $15 million over the prior year. These results continue to demonstrate the resiliency of our organization and the value proposition of our global cost advantage. I would like to once again expressly thank our employees who worked diligently to safely return our operations to standard as well as a tremendous collaboration and partnership our customers and suppliers offer during the quarter. We were successful in driving best possible outcome, as we navigated to an unprecedented weather event that resulted in the disruption to our operation. Although this event represented a significant financial consideration in the first quarter, the underlying business performance remain strong and our outlook intact. This quarter, we continue to see favorable supply and demand environment for our product lines overall. As this is supported, it improves market-based pricing, particularly in our nylon and chemical intermediate businesses. In the fertilizer side of the business, we're seeing industry pricing seasonally firm through the quarter. However, the cold and wet weather across key growing regions in North America has driven a later start to the planting season, impacting the timing of fertilizer application. We'll share more detail of outlook in a moment, but in general, we continue to anticipate a similar supply and demand environment as we progress through the year. Our operational excellence and safe and stable production discipline are critical to our performance. We've been discussing the importance in output of our mechanical integrity and maintenance excellence programs for several quarters now. This approach and the investments we've made are paying off. Taking the weather-related headwind into consideration, plant production and cost to our sites would have increased 1% versus the prior year, through a continuation of steady improvement we've seen in plant output. We've just begun our plant spring plant turnaround and the full year schedule we represented previously remains intact. As a reminder, we continue to expect a $30 million to $35 million impact to pretax income across all of our manufacturing sites in total or in line with what we incurred in 2017 and consistent with historical levels. As we think about the evolution of our company as a stand-alone organization, we remain focused on building upon our core operational excellence with key growth-oriented investments, targeting higher-value products and application development. We're also continuing to mature our capital deployment strategy. We announced in February that we amended our credit facility to an all-revolver structure at lower borrowing costs, and we're maintaining a capital structure that enables financial flexibility and optionality to drive further value for our shareholders. We're deploying an incremental $20 million to $30 million of CapEx this year toward a high-return growth and cost-savings project pipeline, that will drive benefit starting in the second half of 2019. Importantly, we have a healthy pipeline of investments that extend above and beyond these projects, which will position the company to drive incremental value over the long term. Further, as you saw in the release this morning, our Board of Directors has authorized a $75 million share repurchase program. Our first share repurchase authorization reflects confidence in our continued cash flow generation. All of this, coupled with a significant benefit we expect from the recent passage of tax reform, further position us well. With our plants running at planned rates, we're excited about the prospects for the remainder of 2018 and beyond. Our vertical integration and cost advantage position give us the confidence and flexibility to perform through dynamic market environment and continued to provide a sound foundation for operational and financial improvement over the long term. So with that, I'll turn it over to Mike to discuss the details of the quarter. Thanks, <UNK>, and good morning, everyone. I'm now on Slide 4 where I'll cover the first quarter financial results. Sales came in at $359 million, that's down 5% compared to last year. Volume was down 8% driven by a 9% unfavorable impact from the weather-related event in January, due to record low temperatures at our sites in Virginia. Pricing was favorable by 3% overall, and that included a 2% favorable impact for market-based pricing and a 1% benefit from the pass-through of higher raw material costs. We saw favorable industry supply and demand conditions in our nylon and chemical intermediates product lines. As for raw materials pass-through pricing, benzene and propylene increased modestly year-over-year, and as a reminder, both are oil derivatives and key inputs to our feedstock humin. EBITDA of $31 million decreased $26 million versus the prior year, driven primarily by the weather event, partially offset by the favorable impact of market-based pricing. As we had previously communicated, the unplanned interruption reduced pretax income in the first quarter of 2018 by approximately $30 million. That impact includes fixed cost absorption, repair and maintenance expenses, additional raw material costs in addition to lost sales. Due to the impact of the weather event, net income and EPS also decreased on a year-over-year basis. Interest expense increased $1.6 million versus the prior year, driven by a onetime write-off of financing fees associated with our lending credit facility, which was announced in February. The effective tax rate in the quarter was 23.5%, primarily reflecting the benefits of the Tax Cuts and Jobs Act. In addition, tax benefits associated with divesting of restricted stock units in the quarter drove a roughly 1 point benefit in the tax rate. We expect to see more modest benefits associated with divesting of RSUs for the remainder ---+ for the remaining quarters in 2018. Finally, the trend in free cash flow generation continue to improve. We generated approximately $30 million of free cash flow in the quarter, that's up about $15 million from the prior year period. The increase year-over-year was primarily due to the favorable impact of changes in working capital and lower capital expenditures, partially offset by lower net income and a reduction in deferred taxes. Now let me turn the call back over to <UNK> to discuss what we're seeing in each of our product lines. Thanks, Mike. I'm now on Slide 5 to discuss our nylon product line, which includes our caprolactam, resin and films products, and represented over 45% of our sales in the first quarter. By prior presentations, the chart on the right side of the page depicts the Asia benzene to caprolactam spreads and caprolactam to resin spreads, with the caprolactam price reflecting the Asia import contract in Taiwan and South Korea. We've also shown a global composite index, again, which encompasses benzene to caprolactam spreads across 4 regions: the U.S., Europe, China and the rest of Asia, and provides a weighted average view based on each region's percentage of global caprolactam demand. As you're going to see, we continue to see generally balanced to tighter supply conditions across North America and Europe. As we previously discussed, there were several planned and unplanned outages globally at the start of 2018, including our own, which kept industry supply tighter, overall. In China, government-imposed environmental constraints remain in place and have resulted in lower utilization, increased cost and further plant downtime. Availability of key feedstock materials have also been a challenge in this quarter. So despite the market being structurally long, overall global nylon industry spreads have held up and continue to firm. In Asia, we have seen caprolactam pricing firm on balance demand and supply. However, the sharp benzene swings in the prior year period have impacted year-over-year spread comparatives you may see on the right-hand side. As we look forward to the second quarter, we expect global supply to remain snug, supporting industry spreads. There are, once again, a number of industry turnaround scheduled globally. In particular, it is expected that roughly 50% of the total capacity in China will be affected in some manner by plant turnarounds in the quarter. And while we continue to track potential capacity additions in the region, the timing remains uncertain for some of these projects and our balance against the continued lower utilization we continue to see. Overall, the current favorable nylon industry conditions are expected to continue. Industry spreads have fluctuated near levels. We will continue to associate with marginal producer costs, and we continue to see steady nylon end market demand growth across the various applications we serve. Let's turn to Slide 6. Moving to ammonium sulfate, which represented nearly 20% of our total sales in the quarter, we saw seasonal firming of nitrogen prices in the early part of 2018. The graph on the right-hand side plots urea and ammonium sulfate industry retail pricing on a nutrient basis. It's always important to normalize pricing as urea contains 46% nitrogen, whereas ammonium sulfate contains 21%. As a reminder, our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. Based on third-party data, we saw Corn Belt granular ammonium sulfate prices in the industry increase 5% on a year-over-year basis, while increasing 8% sequentially from the fourth quarter 2017. As for Corn Belt urea, industry prices in the first quarter saw a mid-single-digit improvement on both a year-over-year and sequential basis. As a reminder, urea is the largest nitrogen fertilizer by total consumption and tends to have an underlying influence in all of the nitrogen nutrient products. As a result of the same environmental policy considerations we've discussed impacting the nylon chain, we're seeing continuing reductions in China urea utilization, which most importantly, has impacted urea exports. The reduction into these Chinese exports works to balance out supply additions elsewhere, especially in the U.S., and has supported firmer global pricing. Another phenomenon we're seeing play out in the early part of 2018 is the late start to the North America planting season due to the cold and wet weather in key regions. These delays have impacted the timing of fertilizer application. However, we believe we're well positioned to execute on spring demand, and we'll remain agile as we move through the second quarter and the balance of the spring season. Lastly, we're monitoring key indicators ahead of the fall season, including crop prices, supply and demand fundamentals and global trade flows to name a few. The ag market environment remains dynamic, and we'll continue to stay focused on sustaining our ammonium sulfate value proposition on proper nutrition. Let's turn to Slide 7 for an update on chemical intermediate. Our chemical intermediates business, which represented about 35% of our total sales in the quarter, provides revenue diversification from the variety of coproducts we sell. As we've done in the past, we've shown prices on the right-hand side of the page for refinery-grade propylene and acetone based on third-party data. Prices for acetone, which represents roughly half of our chemical intermediates' portfolio, will move with its own supply and demand dynamics that can also be influenced by underlying moves in propylene prices. In the quarter, we've seen phenol demand continue to strengthen globally, particularly in end use, such as building and construction, driving strong global operating rates and a resulting production of additional coproduct acetone. While we did see phenol and acetone industry supply rationalization in the U.S. near the end of the first quarter, we're still seeing increased levels of acetone imports impacting regional pricing. Looking forward, we expect global markets for phenol and acetone to rebound with a shift in trade flows and expect end market demand overall to remain favorable. With our vertical integration, we continue to fully utilize each unit operation of our broader supply chain, where you're seeing demand remain relatively robust. As a reminder, our intermediate products are used as key inputs for a variety of end products, including construction materials, paints and coatings and other industrial and consumer applications. Let me turn the call back over to Mike now to discuss cash flow. Thanks, <UNK>. I'm now on Slide 8. As we've previously shown, the chart on the left-hand side of the page shows our cash flow from operations and also capital expenditures on a trailing 12-month basis through the first quarter of 2018. And as you can see, we've maintained an improving trend in cash generation, while capital investments have remained relatively steady. Improved free cash flow generation is expected to continue, and we do have several levers to drive that performance, such as improving earnings, efficient working capital performance and also higher-value product mix. As our cash flow generation continues to improve, our capital deployment strategies continue to mature. We prioritize organic reinvestments in the business in the form of high return growth and cost savings CapEx and as a healthy pipeline of investment opportunities. In total, we've developed a pipeline of over 15 projects with potential spend in the $150 million to $200 million (sic) [$110 to $120 million]. This pipeline consists of projects focused on cost savings, asset flexibility and improving plant buffers amongst other benefits. We also have larger potential projects in our pipeline that we're evaluating, whether as more significant engineering to be had. Not all of these will come to fruition, but plenty of opportunity to generate incremental value for the company. As we've discussed previously, we plan to invest in incremental $20 million to $30 million towards high-return CapEx in 2018 that will bottleneck specific areas of our operations, optimize quality and improve our mix and cost position, overall. The 2 projects we're approving this year have capital appropriations north of $50 million. So we'll see additional cash outflows in 2019, as these assets are placed into service. As <UNK> mentioned earlier, we'll begin to see returns on these specific projects in the second half of next year. In addition, as <UNK> shared, we are very excited to announce this morning that our Board of Directors has authorized the company to repurchase up to $75 million of its common stock. That's just another step to deliver value to our shareholders, as we execute a disciplined capital deployment approach. Now let's turn to Slide 9 for a quick recap of our outlook for 2018. Our outlook generally ---+ remains generally intact from what we shared with you last quarter. From a commercial perspective, we anticipate industry conditions to continue as we progress through the year, overall. Operationally, we've discussed the impact from the weather-related production issue in the first quarter. As it relates to our planned turnaround schedule for 2018, we continue to expect a $30 million to $35 million impact to pretax income across all of our manufacturing sites in total. Given the circumstances of the unplanned downtime, we were fortunate that we're able to pull forward a modest amount of that work into the first quarter with the remainder of the turnaround schedule intact for the remainder of the year. Roughly, 2/3 of the full year impact is expected to be incurred in the third quarter with about 30% in the second quarter. Now this translates to a $9 million to $10 million impact from planned turnaround in 2Q, following approximately a $2 million impact in the first quarter. As we look forward to the rest of 2018, we expect robust operational performance. Lastly, cash generation continues to be a key focus area for us in 2018. And as I just discussed, with the expectation of ongoing strong working capital performance and tax reform continuing to have a favorable impact on net income and cash flow. We continue to expect our full year estimated effective tax rate to be approximately 25%, and the cash tax rate to be approximately 15% with the adoption of full expensing of CapEx following tax reform. We're also executing on our pipeline of high return growth and cost savings CapEx projects that will drive future earnings and cash flow, while further expanding our capital deployment with the authorization of our new share repurchase program. So overall, a lot to be excited about in the quarter and as we move forward through the rest of the year and beyond. Now let me turn the call back to <UNK> before we move to Q&A. Great. Before moving to Q&A, I just wanted to take the opportunity to address the events that occurred at our Hopewell facility back in mid-March. As you are aware, on March 13, a federal search warrant was executed at our Hopewell plant. On the same day, the company was served with a grand jury subpoena issued by the U.S. District Court of the Eastern District of Virginia, which requested documents related to the Hopewell facility's environmental air emissions and it's compliance under the previously disclosed 2013 consent decree. While we're still working to determine the exact reason and nature of these actions, we continue to cooperate fully with the authorities and are providing information and response to the subpoena. We do not have any further updates to provide at this time, but I would like to reiterate that our plant production and cost to our sites was not affected by these events, and we continue to expect to operate safely plant going forward. So with that <UNK>, let's move to Q&A. Sure, Chris. What I would share ---+ maybe just to reiterate to start that we do believe that the share authorization or the repurchase authorization truly reflects our confidence in continued cash flow generation and our commitment to continue to deliver value to our shareholders. What I would share that specific repurchases will be made time-to-time on the open market, including through the use of a 10b5-1 trading plan. Of course, the size and timing of these repurchases will depend on a number of factors, including price, market and economic conditions, legal considerations and other factors. So I think we're in a good position, and we look forward and are pleased to have this lever available to the company. Yes. When we look at the North American demand side, right, we continue to see robust consideration through the market, building construction is doing well. Carpet has been robust for us through the start of the year and that we expect will at least continue for the foreseeable future, as we continue to talk with our customers there. Packaging is still growing as well. Engineering plastics, I think there are some things happening through automotive, although we do believe that lightweighting continues to be a positive trend. I think that when you look at the supply side, there is the consideration that with the exit of Fibrant, right, that has taken 25% of the capacity out of North America, it has brought the market into balance. And certainly, we saw snugness in Q1 at both we and other participants did have challenges. So I think that always be ---+ could potentially be a wildcard transparently. But again, we expect that the work that we have been doing over a number of years continues to support our ability to soundly and safely and stably run our plants at continued higher output. And so that's what we will be focused on. Yes. So Chris, as you know, we ---+ over 50% of our contracts are a form of a base. So we do a really nice job passing through changes of raw materials and we've shown that and demonstrated that normally in Q1, but all of last year. It's difficult to predict where raw materials are going to go going forward. A lot of it will depend on the price of oil and other factors as it relates to benzene and propylene overall. So ---+ but as you look at Q1, the nice thing to see is that we did see not only that raw material pass-through. We also saw the market-based pricing, which is again evidence of favorable industry supply-demand conditions, particularly for nylon and capro. Sure. There is quite a range inside that. Ranging from the ability to look at improving our buffers, right. So we've said we'll commence our operational events to growth, right, which is if you think about the full spectrum here. So in many cases, as we look through ---+ where our production ends up being caught and if had improved buffers, right, we can release more output. So there's projects that we're looking at in those realms. There are a number of projects that relate to direct material yield, which again are great cost savings oriented projects, as we continue to benchmark across all of our operations how we're operating against new builds and/or entitlement and looking at the opportunities to continue to push ourselves in that positive direction. So there are number of projects, both at Frankfurt and Hopewell, that we'll continue to look at there. As well as growth-oriented projects and expansion of new platform, so we've talked about EZ-BLOX in our (inaudible) platform. So we'll continue to look at the need to expand there as well as with the other NPI projects that we have, how do we continue to support those as we progress through their commercial launches and buildouts. No. Charlie, that's actually separate from the $30 million. So that would be related ---+ that's within the $30 million to $35 million of 2018 turnaround costs. Yes ---+ no, no. Great question. And it's our intent that they will not be adding to the projected turnaround schedule for 2019, that they will be worked on along side, but then tie-ins would be available to us during those outages. No. I think we'll just reiterate that, again. We were able to, in the quarter, capture the benefit of the overall market-based pricing. Certainly, as we navigated through the event ---+ I mean, the force majeure event, that would have limited our liability to capture a spot-oriented sales during that time. But we're pleased that even through the challenges that we had that we were able to deliver a fairly robust performance here in the quarter and to capture the market pricing that was available. No, no, fair question. Thank you, Debbie. And thank you all again for your time and interest this morning. Our results this quarter, again, demonstrated our ability to navigate a dynamic environment and highlighted the resiliency of our organization. We have a focused strategy that we're executing against, built in our rigorous commitments, operational excellence, continuous enhancement of research and development capabilities and emphasis on longer-term growth-oriented investments. We have created a foundation that will position the company for strong and operational ---+ strong operational and financial performance for years to come. We'll look forward to speaking with you again next quarter. Have a great day.

2018_ASIX

2015

EHTH

EHTH #<UNK>, could you repeat that question. The only thing that we've revamped is Medicare.com, which is a property that we purchased, gosh, I don't know, year-and-a-half, two years ago. But our traffic, our volumes everything continued to increase. I mean, my gosh, if you look at Medicare advantage applications growth of 140% there is evidence of it right there. So we're seeing it increase because of our own efforts, both internally as well as through partners, and probably most importantly you've just got organic growth happening in the marketplaces as more and more Americans are turning 65 years of age so the demographics are very favorable there as well. Well it's a mix. Certainly having United back into the business ---+ in the first open enrollment period United essentially didn't participate. Then they came into more stakes last year and more this year, that's good. United has got good products. We've always been a big seller of United products, so that's good for us. Right across the market premiums continue to increase. We see it in the survey, work that we do with our own member base and the applications that we get. We see it in an independent study work that's done outside and that's published. And it's good and it's not good. I mean you could ---+ the economics maybe are good for us because what we are paid is a percentage of premiums. As those premiums go up, the absolute dollars we earn are more. But that's very much offset by the fact that if these premiums continue to go up, these products become less and less affordable to people and we don't like that. We want these products to be affordable and attainable for people to be able to get to them and to want them to enroll in them. And there has been a lot written about this recently that even with subsidies this is getting to be very expensive for people. Eye for one hope that the pricing inflation stabilizes. Well, it's an interesting question. If fact there was an article about this in the Wall Street Journal yesterday on the ---+ actual just on the inside of the cover of the second page. I can't say we've had a lot of experience with that at this point. We're certainly very focused on retention with all of the individuals and members that we have on our base. That's one of the things that we're looking at. Because we didn't have a lot of good connectivity early on, we still don't have a large portion of our member base being subsidy eligible although that portion is certainly growing. But we're going to have to see what it looks like in this open enrollment period with retention and different reasons why people may be switching plans or reaffirming their subsidy eligibility and so on and these are all questions that remain to be addressed and answered. We think we've got a pretty good handle on all of this, but we'll see once we get into this. So, yes, I think you do raise an interesting point there, which is many people who may have the subsidy eligible but for various reasons can't keep the subsidy. <UNK>, do you have that handy. Let's see. I don't have it right at my finger tips. Give me just one sec. You may just dump this on this one. I think it was close to 50% growth in Q2, if I remember correctly, yes. Yes, Q1 was about 35% and then it stepped up to about 50% last quarter. So, yes, we have seen some acceleration there. Well, we think that we're just a blip in the market right now in terms of what's available. You've got about 47 million Medicare beneficiaries across the country today. As to me, that's going to grow to 65 million to 70 million over the next several years as people ageing and life expectancies are longer. You've got some place around 20% of these beneficiaries are Medicare advantaged, but that number is growing. So we feel really optimistic about what we can do here. We think that the market opportunity is very, very large. We're a small piece of it right now, very small, but growing very fast into it. We're just 4% or 5% of this market, which we have been in the individual business. This Medicare business is a very, very significant business for us, multi ---+ hundreds of million dollars of revenue and really good EBITDA at some point if all of that continues and that's what we're focused on. So it's one of the reasons why we are investing in this ---+ the way we have been over the last several years. We've seen what the market demographics look like. We've seen ---+ we see what the retention is on these products, what the unit economics are, it's just very, very compelling to us. Go ahead please. Yes, actually I want to clarify that, about a third of our applications in the third quarter were QHPs and they don't all necessarily matriculate into being members, about a third of the applications. And <UNK> ---+ certainly a year ago it was less, I don't have that handy. Yes, I mean, if you go back to ---+ I mean, Q3 a year ago was just a trace. I think it was just a very small percentage. We really didn't step up to these higher percentages until about last OEP. Yes, we really didn't have connectivity that worked effectively till the end of this last open enrollment period. So when you look back a year, two years ago there wasn't much opportunity to enroll subsidy-eligible individuals unfortunately. We were very vocal about that but here we are today now at least to this moment we are able to. <UNK> <UNK>, Jefferies. You've really asked the $64,000 question which none of us have the answer to. We like the others were surprised to see the projections from the Federal Government being as well as they are for enrollment in this upcoming open enrollment period. What they are projecting is having a year for now about 1 million more lives than that exist today through the government exchanges. If you would have asked us a year ago, we will be thinking a lot more than that. So sure that influences us. No, this is not a run-down or a run-out business at all. What we've decided to do because of the competitive nature of all the government spending, at least what we've seen, that the economics didn't make a whole lot of sense for us to chase that market the way that we have. It's a very profitable business for us. We want to do everything we can to maintain that profitability. You've just seen that in this quarter right here. And the final point which this is a really good stable business, but I think it's probably very clear at this point, the growth driver in our Company is we're moving right now is Medicare, and that's a very exciting place for us to be. The individual business is a great business for us, it's just a much different dynamic in this market today than it was a few years ago before the Affordable Care Act really kicked in the gear. What it looks like a year or two from now, your guess is probably as good as ours. So we're just trying to be very, very careful and thoughtful about how we go about business in that part of the market. And we are all in on Medicare. I mean, we are pushing Medicare as fast and as hard as we can. I think I'd just add a little color on that. You mentioned churn at the outset. These are always estimates because we're always looking back on a lag on these numbers, but they have been so far this year in line with what we were expecting and we had been expecting basically what we saw a year ago. So we're not seeing acceleration of churn, we're seeing things kind of in line with what we saw a year ago. No, I think it's hard to predict. As we're talking about here on this call there's a lot of uncertainty about how many shoppers are going to be out into the marketplace in this upcoming season. So, I think it would be tougher for me to tell you exactly what we're thinking. We certainly scale back our customer care center year over year versus a year ago where we were and so far we've been spending a little less from a budget standpoint. And so we're kind of commenting based on sort of our initial view coming into it in terms of marketing budgets and customer care resources. But as you know in that business we can scale up very rapidly if the cost of acquisition is favorable. We can ---+ more than 80% of customers come through the website without assistance and so that's something we can rapidly shift if we need to. And let me give you a little more insight into how we're looking at this part of the business. We're looking at ---+ we're really looking at the Company holistically and we're thinking about revenue in total and EBITDA and cash flow generation and so on. And today the Medicare business is not a profitable business because we're investing so heavily and so aggressively on it, and we are really good with that because we've still got a lot of really good profit coming out of the individual business that allows us to do that and we think it still delivers some pretty good financial results as we saw in this quarter. One of the things that's happening in this individual business and we've noted this is that our estimates of the commissions that we're earning are up and they went up fairly significantly. And so what we look at here is not so much even applications in the member base but the revenue and the profit that falls out of that. So you've got the commissions up fairly significantly. You can afford to have the applications and the membership down and you can absorb a lot of that. And frankly that's what we've been doing and that's what we're looking at in this open enrollment period into the next year as well and that's allowing us to just really go in the way we are at Medicare And also just to further comment on the churn, as <UNK> said, those churn numbers or the attrition are pretty much in line with what we expected. Remember because we're outside of the open enrollment period, you're going to have natural attrition. It's happening on the government exchanges, it happens with us. And there's really no means to replace them because you can't go out and get the kind of application flow that we used to be able to do historically before you had these open enrollment periods. Yes, absolutely. We're finding that search engine marketing which we pay for is working for us. And when I say working, the economics are favorable. We've a cost of acquisition that's acceptable. We've got a number of partnerships. CVS, the retail pharmacy chain for example and others that generate demand for us and those are a bit more mature than they were previously. We've got a full slate of products now from all the major brand name carriers. So that makes it a more attractive place for a consumer to come and help through improved conversions. We're doing some work in broadcast media that's been very interesting for us and we're really enthused about what we're seeing there. There is word of mouth, we know that, because we hear about it anecdotally. Our property Medicare.com is a place that people just ---+ individuals naturally just key in and come to us. So it's a combination of all of those things. And this is not unlike how we grew our individual business several years ago, except the growth rates we're seeing here are ---+ frankly are bigger than we had during that individual business. We know a lot about online marketing to do this and we've got some really good technology assets that help with conversion. I think the other thing we should point out is, one of the reasons that our cost of acquisition continues to be so favorable is that we're converting at a really good rate. So we've done a lot of work there as well. So it's all of those things. I'll take a crack at it and <UNK> maybe wants to comment as well. Historically we've been, I think, fairly aggressive about returning some of this to shareholders through share repurchase. In fact we've repurchased $250 million worth of our stock over the last several years. We don't have a stock repurchase program in place today but that's one thing that we could do. As we look at the Medicare business, frankly we'd like to be acquisitive at places where it would really make sense where we could generate even more demand and have more conversion and fulfillment. So we think about all of those things. We like the cash position we're in. Frankly it's a better cash position than we thought we'd be in at this point and we'll be reviewing and thinking about all those things. Hey, <UNK>, let me qualify ---+ so thank you for the questions. Let me qualify my blip comment. I should have been more specific. We are a blip in terms of market share right now. I don't think we're a blip in terms of our presence in the market. And I think that our growth rates are telling us that, especially what we're seeing coming to us organically word of mouth. And I like the fact that we're a blip from a market share standpoint because that indicates we have so much runway that we think in front of us right now that is so attractive to us. And you're right, there aren't a whole lot out there doing what we do. It's highly regulated by CMS. You've got to gain the trust and the confidence of the carriers. There's a lot of compliance all of it should be because it's a very important market and a lot of money is spent on it by government. So we understand all of that. We're very attentive to it. But we think that the limitations for us are probably more execution oriented than anything else. How much can we spend, how can we continue to spend effectively, how can we ensure that we've got the right resources in place to convert the demand as we bring it in and so far so good on that. But you can probably sense we are really excited about this marketplace and what we see here is one of the better-looking market opportunities I have ever seen. It's hard for me to comment on their marketing strategy and so on. They've always sold directly into the markets, in both the individual market and the Medicare market. I'm sure they will continue to do that. It's not unusual to see some of the brand name carriers with the television commercials and so on and that's all fine. That may work for them. We've got activities and strategies and we think some really good knowledge inside the Company that works really well for us in terms of very efficient marketing that can scale. And this business at this point for us is all about scale, it's about volume and getting as much of leverage on that as we possibly can and we think we've got some pretty efficient ways to go about that. Well, we would hope so. I think we've made that comment in the last earnings call if my memory is right. And again we want to get through this annual enrollment period and the open enrollment period. We need to have some stability, we want to ---+ we provide guidance it's been always done historically, we've done it the way that we understood the market projections and we would like to think our guidance was pretty accurate and we need to have kind of a basis from which we can do that and that's what we're ---+ we'll see if we have that after these enrollment periods that we're in. Thank you. I'd just like to thank everybody for your time and look forward to talking with many of you as well. Thanks again.

2015_EHTH

2017

UFS

UFS #Thank you.

2017_UFS

2016

ANSS

ANSS #Well, okay, in general, I would say that you might get into some of the commodity based, the mining stocks, in addition to that, that are a little bit relatively suppressed. The one thing I would say, I wasn't trying to infer that I felt that the semiconductor market was turning the corner and was coming around. I am just saying that our relative positioning in it, as a result of both chip package system, and the SeaScape kind of platform type of thing has put us in a much better competitive situation which, in turn, has led to accelerating growth. While it is all time-based and you have a long pipeline of things, the pipeline is building nicely and as we mentioned, the growth is accelerating which kind of turned ---+ reversed the trends that we might have been seeing last year. So, I still think, I don't know, <UNK>, if you have different comments on this. I still think the headwinds are still kind of there, but our relative stead in there is actually improved. Okay. Yes. Absolutely. The first part is long term, no, it is nothing but a plus. Short term, I mean, anything that causes people to spend more cycles comparing and deciding, yes, it is going to slow things down along that standpoint. You talked about an effective pricing model. I think you brought up that term. I would say to that, luckily we have been able to look at this in two different steps. First of all, people can host existing licenses on a cloud and therefore pay on a basis of that versus actually acquiring hardware on premise and all that type of thing. So that actually zeros out, if you will, it makes it a one-to-one on the software pricing. That being said, they are still right now comparing what does it means to turn loose that amount of computing, you know, pay for it through a service versus not having to maintain an IT staff and all the different things that are associated with that. And that really is what has been the major things that people have been doing. It's almost the comparative of the cost of the infrastructure, control of the infrastructure, things like that. That being said, there will be an additional layer there. What is the advantages of actually doing flexible licensing versus actually hosting owned licenses, be they time based or perpetual. And that is one that people will only be starting to dig into now, but it is really kind of the age old question on anything. Do you buy something. Do you lease something. Or do you just rent it for the weekend that you need it if you are getting access to yard equipment, things like that. So that is part given the elastic pricing hasn't been out that long, and given the fact that people are still trying to single out, if you will, the infrastructural costs, we are still at the early stages of that, but we have time to adjust. I agree with you there is interest. There's maybe a little bit of a gap between interest and ultimate adoption, but that ultimate adoption will come. Thank you. First of all, I think the first way I view that is a lot of other companies are now validating the path that we took years ago when people were saying, why are they doing that. They are, if they will, they are validating that, you know, in the form of imitation. More importantly is, it's not just adding a bigger grab bag of products. You have to have a comprehensive set that actually allows those to do a complete virtual prototype. And of the various situations that are out there right now, really nobody runs the gamut like we do. There are barriers to being able to do that. That being said, I would say, if you will, our independence has actually made us attractive in mixed vendor environments and mix supply chains to being able to do that. So, it really ---+ we really haven't seen a lot of change. I mean, other than the fact that ---+ I'd say the one change we have seen which usually happens when a CAD/CAM company buys a simulation product, is people that were on a different platform now are strongly looking at moving into that environment with us. So, really it is ---+ I guess we really don't see any directional change or we are not really surprised by too many things. Now, to answer the first part of your question, or at least one of the parts of the question is, oh yes, we would still like some of the larger ones, but you said which parts of the ---+ we have the basic families of physics all covered. Have had that for a while and the only ones who do. However, every one of those continue to need to be continued to be developed. So, even though our home PC was around for many years, the processors need to get faster, the graphics need to get better, the connectivity needs to get better. Likewise, even though we have industry-leading capabilities and have had, we need to continue to progress those further in addition to meeting the evolving and emerging new trends that are pretty much in the news today, like the Internet of Things, like autonomously driven cars, as getting into additive manufacturing, all those things that put new twists, if you will, on building virtual prototypes. Well, let's put it this way. We do have an assumption on productivity of the newer hires which tend to be more in the territory alignment one. We do have ---+ but we also have fairly ---+ we haven't made, based on our historical observation of the last few quarters as we have been ramping up on here, we do see a progression. Of course, it maps very well into data as we have shown at previous meetings where it shows that, if you will, the salesforce productivity is a function of maturity of the sales person, year one, year two, year three, year four. So we expect that kind of ramp up to come forward, but it is not ---+ we are not relying on any kind of herculean effort. We are relying on continued progression along that path. So, that is definitely is part of it. Thank you. I would like to thank all of you for your participation in our call today and for the ongoing support of ANSYS. We are really encouraged by what we accomplished in the first half of 2016, but, again, as we discussed on this call and thanks to your questions, we have a lot of work ahead to deliver on our goals for the full year and the years beyond. Nevertheless, I would still like to thank our entire ANSYS team as we've mentioned some of our key partners for their commitment to driving results. All I will say is, I think in general, the general tenor here, is it is a really exciting time to be in the simulation market. We have seen a lot of trends that are driving that. We see other companies that are now interested in entering it. It is really exciting in terms of the product advancements, things that we didn't even envision a few years ago, like additive manufacturing, like the autonomously driven cars, like this whole concept of a digital twin for industrial use for prescriptive analytics, just to name some of the opportunities. So it just continues to grow from this point and it tends to be pretty exciting and we're happy to be in the position we are to be able to embark upon that. So basically, as the simulation markets propose to enter what we feel is a new era, we are proactively evolving our ANSYS teams. I know some of your questions brought that. But this is in terms of technology, infrastructure, the actual ANSYS and sales teams and even the partner ecosystems to take advantage of what we see as really a tremendous opportunity over the next few years. Basically, unimpeachably, we have a proven product strategy, one that other people are trying to emulate. We have a progressing go-to-market plan, and on top of all, we have a solid financial foundation that enables us to continue to invest in our business. Over the decades we have built, I think, unparalleled product offerings. We have longevity with our customers, at very high reoccurring revenues, and the opportunity to augment growth through new features and exciting technology. So the bottom line is, we are continuing to expand our direct salesforce. We have a renewed focus on the indirect channel and we are basically committed to driving those solid financial results we have been talking about and generating long term value for our shareholders and everyone else involved. With that, I will thank you very much and we will catch you on the next call, if not sooner.

2016_ANSS

2017

SBSI

SBSI #Thank you, Glinda. Good morning, everyone. Thank you for joining Southside Bancshares first-quarter 2017 earnings call. The purpose for this call is to discuss the Company's results for the quarter and our outlook for upcoming quarters. A transcript of today's call will be posted on Southside.com under Investor Relations. During today's call, and in other disclosures and presentations, I will remind you that any forward-looking statements made are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described in our earnings release and in our Form 10-K. Joining me today to review Southside Bancshares' first-quarter 2017 results are: <UNK> <UNK>, our President and CEO, and <UNK> <UNK>, EVP and CFO. Our agenda today is as follows. First you will hear <UNK> discuss an overview of financial results for the first quarter of 2017, including loan activity, asset quality, oil and gas exposure in our loan portfolio, cost containment and an update on our securities portfolio. Then <UNK> will share his comments on the quarter. I'll now turn the call over to <UNK>. Thank you, <UNK>. Good morning, everyone. Welcome to Southside Bancshares' 2017 first-quarter earnings call. We reported first-quarter net income of $15 million compared to first-quarter 2016 net income of $13.5 million, a 10.9% increase (technical difficulty) on sales of securities from both quarters, net income during the first quarter 2017 increased $2.9 million or 23.9% compared to the same period in 2016. Our diluted earnings per share for the first quarter ended March 31, 2017 were $0.52 per share, an increase of $0.01 or 2%, compared to $0.51 per share for the same period last year. During the first quarter, our level of pay offs outpaced our new loans resulting in a decrease in total loans of $17.6 million on a linked-quarter basis. For the quarter ended March 31, 2017 total loans increased by $95.7 million or 3.9% when compared to March 31 of 2016. The growth primarily resulted from an increase in our commercial real estate loan portfolio and, to a lesser extent, we increased the municipal loan portfolio. We continue to see roll-off in the indirect consumer portfolio, approximately $8 million during the first quarter of 2017. The indirect portfolio decreased to $27.8 million at the end of the current quarter. As we stated in our earnings release today, our loan pipeline remains healthy and we expect consistent loan growth throughout 2017. At March 31, 2017, our loans with oil and gas industry exposure remained minimal at 1.1% of our total loan portfolio. We recorded loan-loss provision expense during the first quarter of 2017 of $1.1 million, a decrease from $2.1 million in the fourth quarter. The higher fourth-quarter provision expense was related to loan growth and additional reserve on a few classified loans. Nonperforming assets decreased further during the quarter ended March 31, 2017 by $1 million or 6.8% to $14.1 million, or 0.25% of total assets compared to 0.27% of total assets at December 31, 2016 and 0.68% at March 31, 2016. Next, I'll give an update on our securities portfolio. At March 31, 2017, we had a net unrealized loss in the securities portfolio of $20.8 million. The duration of the securities portfolio at March 31, 2017 increased slightly to 5.2 years compared to 5.1 years at December 31, 2016. On a linked-quarter basis, the size of the securities portfolio decreased $43.3 million during the first quarter. As we experience growth in the loan portfolio we will gradually adjust the securities portfolio. We expect to continue with the barbell approach for our security purchases as market conditions dictate using US agency CMOs for the short end and treasury notes, agencies, commercial mortgage-backed and municipal securities for the longer end. During the first quarter, we reported our net interest margin at 3.08% and our net interest spread at 2.93%, increases of 5 and 3 basis points, respectively, on a linked-quarter basis. The increase in both the net interest margin and yield were a direct result of the increase in our average loan balance and yield as well as the increase in the average yield on our securities portfolio. During the three months ended March 31, 2017, our noninterest expense decreased $3.5 million or 12.1% when compared to first quarter of 2016, primarily due to cost containment in almost all of our noninterest expense categories. We are also pleased to report that our noninterest expense decreased slightly from the fourth quarter of 2016 and our efficiency ratio decreased to 51.60% for the first quarter of 2017. We expect our noninterest expense to remain consistent and to further reduce our efficiency ratio in the upcoming quarters of 2017. Thank you and I will now turn the call to <UNK>. Thank you, <UNK>. The exceptional financial results for the first quarter provide Southside a tremendous start for 2017. Record first-quarter net income, increases in our net interest margin and net interest income on a linked-quarter basis, a decrease in the efficiency ratio and solid credit quality are but some of the highlights. We have started our project to resize and further automate our branches, commensurate with the delivery channels our customers utilize with seven branches slated for completion by the end of the summer. Cost containment efforts to automate and streamline processes are continuing. We expect to introduce 20 ITMs over the next 12 months providing further cost containment opportunities in that area. All three of the markets we serve remain healthy. The DFW and Austin economies continue to perform exceptionally well, fueled primarily by job growth and company relocations. The Tyler economy reflects a slower but steady growth pattern. While loan payoffs in the first quarter outpaced fundings, our pipeline is healthy and we anticipate loan growth will occur during the balance of 2017. Given our solid capital position, balance sheet, credit quality and currency value, we remain open to attractive opportunities to expand our franchise in selected areas. At this time we will conclude our prepared remarks and open the lines for your questions. I don't know that there is really a pivot in one market to another. We're just seeing certain projects where they are being sold and people are getting really attractive prices. And they'll sell the project and they'll pay at off and. And like all bankers, we agonize whether the loan is going to pay off when we make it and then we're upset when it does pay off, so ---+ (laughter). Sure, on the rebranding, I think most of the major expenses on the rebranding are going to be in signage and a lot of that is going to be ---+ capital. It will be depreciated over a number of years, so we really don't expect the expenses to move up dramatically in that that will all be capitalized. So while there will be some expense associated with that, we just don't see that that's going to be a major drag on expenses. And with some of the other initiatives we have going on, we feel like that that's going to probably offset that. Correct, and revamping those branches the way we're revamping those, we're actually, in a lot of cases, reducing the size, providing more automation and through attrition we're going to be able to run those branches with less people. Correct. I mean ongoing, it ---+ we should ---+ costs should be flat to down associated with that. And then with the rollout of all these ITMs, ultimately, that's going to have a nice reduction in expense there. The accretion on loans was $480,000 this month ---+ I mean this quarter, excuse me. I think we're still budgeting for that, the ---+ that 7; 9 would be a stretch number. I think we've talked about that being our stretch number. 7 is a number we're continuing to budget towards. We're not ---+ in terms of retail deposits, we're just ---+ we're not seeing a lot of pressure on the retail side, CDs, you always have some pressure, but on the non-maturity deposits, we're just not really seeing much pressure at all there. Yes, a lot of that was related to the public funds and it ---+ the public funds are much more interest rate sensitive than the retail deposits. And, I'm sorry, what was the last (multiple speakers) what was the last part of your question. Well, as the loans grow, we'll gradually decrease the securities portfolio and probably what we'll look for are some of the lower yielding securities. Potentially we may let some of these higher cost public funds roll off and look for different, different sources of funding. And if we don't have the bonds, obviously, we don't need those public funds. So, we'll ---+ the NIM with the loans should go up. Yes, and I mean with our models, as the interest rates ---+ as the Fed moves up ---+ moves the Fed funds rate up and prime goes up, with the way our loans are priced right now, most of our loans that go on right now are floating-rate loans and most of those are tied to LIBOR at this point in time. Every time the Fed talks about it, LIBOR tends to move long before the Fed actually moves, so we get the benefit of that. Yes, and in our securities portfolio, we're seeing ---+ with the higher rates, we are seeing the premium amortization decline quite a bit. And so we're seeing a pretty nice increase in the yields on the mortgage-backed securities portfolio. And that's what caused that slight increase in the duration was some of the shorter-term CMOs. The yield moved up very nicely on those, and so income moved up significantly on those and that is occurring. So, all in all, our models show that as rates move up, we do very nicely. Yes, that is still the case. We have ---+ we're actually estimating a 17.4%, but we have the new accounting standard and we realized about $126,000 in a discreet reduction. So that drove our rate down about 0.07. So notwithstanding those discrete items, and there's no way to predict how those are going to roll in throughout the year, I would expect about a 17.5%. But again, it reduced it this quarter a little bit, so that's kind of where we are at the moment. Good, <UNK>. How are you doing. We've not been able to explain why the loan growth has occurred in the last half of the year, the last two years, so I'm not expecting that to occur this year, but it may occur again. We have a lot of construction loans that are starting to fund and we have a lot of things that we have approved that we're expecting to fund. We have some full funders that we're expecting to fund. You just never know when some of those pay downs are going to come to fruition; they just come out of the blue. So we do expect some to occur. We just don't know when they are going to occur and what the dollar amounts are going to be. So, we do ---+ we are able to kind of gauge what the construction dollars are going to be that are going to go on the books and we're able to gauge what those full funders are going to be. The pay downs are what are difficult to gauge. We know we're going to have some, we just don't know how much they're going to be and who they are going to be. So, that's the difficulty. And, I mean (multiple speakers) and the good thing is that's a sign of a very healthy economy in the areas we're in in that these people are ---+ they do something, they put it on the ground, and then they are able to sell it at a very nice profit. I think ---+ we're seeing more opportunities there in the target area we're interested in. There is ---+ and our target area is East Texas over to Austin up to Fort Worth and back over to East Texas. And so, there are just more opportunities that are coming to our attention. So I would say that the likelihood of something potentially coming to fruition in 2017 is much greater than it was in the last couple of years. I think so, and I think the rest of the country has been able to see that Texas is ---+ while oil and gas is very important to Texas, Texas is no longer a one trick pony and the economy is tied to a lot of different things now in Texas. And even with oil half of what it was three or four years ago, the economy is going very well and is extremely healthy right now. So I think a lot of the concerns have dissipated for a number of reasons. All right. Thank you. As you've heard this morning, Southside's first-quarter results were outstanding by virtually every measure. We look forward to building on these first-quarter results and reporting those results to you at future calls. Thank you for joining us on this call this morning. At this time we will conclude this call.

2017_SBSI

2017

LFUS

LFUS #Thank you, and good morning. Welcome to the Littelfuse First Quarter 2017 Conference Call. Here with me today is <UNK> <UNK>, our Chief Financial Officer. We're off to a strong start in 2017 with strength in our electronics segment driving both sales and adjusted earnings per share to the high end of our guidance range. As expected, the strong first quarter for electronics was partially offset by lower organic sales in the automotive and industrial segments. We were encouraged by the sequential sales growth in the commercial vehicle products business and the industrial segment as certainty key end markets began to stabilize. With that introduction, I will turn the call over to <UNK>, who will give us a brief summary of our first quarter results. <UNK>. Thanks, Dave. Before we proceed, let me remind everyone that certain comments we make on this call contain forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties. We refer you to the company's Form 10-K and 10-Q as well as other SEC filings for more detail about important risks that could cause actual results to differ materially from our expectations. In addition, our remarks today refer to the non-GAAP financial measures, adjusted earnings per share and adjusted tax rate. These non-GAAP measures are intended to supplement, but not substitute for the most directly comparable GAAP measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our first quarter earnings release filed on Form 8-K today and available on our website. Now some highlights from our first quarter of 2017. Sales for the first quarter were $285 million, up 30% year-over-year. Organic sales growth was 5%, excluding acquisition revenue, the e-house divestiture and currency effects. You can find sales growth by segment in the press release we issued this morning. GAAP diluted EPS was $1.69. Adjusted EPS was also $1.69, which increased 22% year-over-year. Strong sales in electronics drove our EPS finish at the high end of our guidance. Commodities had about a 100 basis point unfavorable impact to our company margins this quarter compared to last year, as prices for copper were up 30% and zinc was up 75%. We expect commodities to remain a headwind for us based on current prices. The adjusted effective tax rate for the quarter was 18%, a 400 basis point reduction versus last year. Cash provided by operating activities was $23 million for the first quarter of 2017, which was an increase versus last year. Capital expenditures were $12 million, and free cash flow finished at $11 million for the quarter. Also as noted in this morning's press release, our Board of Directors authorized a new stock repurchase program of 1 million shares, which was effective May 1. This replaces our prior program that expired on April 30. In summary, strength in our electronics business drove performance above expectations for the quarter. Now I'll turn it over to Dave for more color on business performance and market trends. Thanks, <UNK>. Starting with the electronics segment. First quarter sales of $154 million increased 56% and grew 15% organically. Our strong fourth quarter performance continued into the first quarter despite the typical impacts of the Chinese New Year. Sales were strong in Europe and Asia and picked up in North America towards the end of the quarter. All of our product lines showed strong growth. First quarter margins remain strong due to leverage from the higher revenues as well as favorable mix. Sell-through by our distributors and electronics channel inventories both increased about 10% year-over-year. At this point, we believe inventory levels are in line with market conditions. As we have been in a robust electronics cycle for 2 quarters now, we continue to keep a close eye on distributor ordering patterns and inventory levels as there is a risk of inventory pullback late in the cycle. As part of our updated strategy, each business is focusing on several end markets that offer exceptional growth opportunities. I\ Thanks, Dave. As we look ahead to the second quarter of 2017, we expect a continuation of the strong demand across our electronics segment. With stabilizing trends in some of our heavy industrial markets, we also expect stronger revenue contributions from our businesses that sell into those markets. In the auto segment, we expect stronger organic revenue growth in the second quarter. This will be tempered by a decline in automotive sensors due to the legacy product exit and related Last-Time-Buys from last year impacting our year-over-year growth. As I mentioned earlier, we expect commodities to remain a headwind for us, which has the greatest impact to margins within our automotive segment. Based on the current economic environment and foreign exchange rates, we expect the following for the second quarter of 2017: Sales are expected to be in the range of $301 million to $311 million. The midpoint of the guidance reflects a 13% total sales growth rate over the prior year. This equates to a 10% organic growth rate, excluding the ON product portfolio acquisition, the e-house divestiture and currency effects. Adjusted earnings per diluted share are expected to be in the range of $1.83 to $1.97. Similar to prior years, the second quarter also assumes about $2 million of additional stock compensation expense due to accelerated expensing of equity granted in the quarter for all those of retirement age. And as a reminder, our financial results now include Monolith Semiconductor. Our earnings-per-share forecast includes about $0.04 of expense to fund development activity with Monolith. This concludes our prepared remarks. Now I would like to open it up for questions. Eric. Yes. Chris, good question. And certainly, commodities are bit more of a headwind than they've been in the last year. In the automotive side, in most cases, we have long-term contracts that really preclude us from making major changes in pricing during the period of the contract. However, in some of our higher-current products, where we have a high copper content, in most of those cases, we'll have a copper clause that will allow us to adjust pricing to ---+ for increases or decreases in the copper costs. But as a company, that only impacts a portion of the exposure. No, that's reflected in there. There's a relatively short lag in the contractual agreements we have with our customers. Yes. Chris, we'd expect a little bit of improvement this year in the automotive margin. I think there's a couple of puts and takes that are the bigger ones. One, we've been talking about the sensor product exit. And while these low-margin businesses, still we're absorbing some overhead, so that's depressed or I'd say slowed down our margin improvement trajectory that we're working on with the sensor business. So that's one. And then secondly, we just talked about commodities, and that's also ---+ the biggest impact across the company is really due to the automotive business. It's got somewhere around a 200 basis point impact to margins right now on a year-over-year basis. Based on ---+ for the automotive segment. As Dave mentioned ---+ so I mentioned in my comments about 100 basis point impact to the total company. But the bulk of that is within automotive. And that has about a 200 basis point impact to the margins there. Yes, I think it's a bit of a mixed bag. Because the custom portion of our industrial business, it's very much aligned with mining, and specifically, potash mining in Canada. So that has kind of an unusual effect that's even greater than maybe the impact of mining to the overall market, because potash mining in Canada is very depressed, and the level of investment is quite low there. So that ---+ if we set that aside, I would say that the remainder of our industrial products are selling into fairly broad-based industrial, but a meaningful exposure to oil and gas and mining. And clearly, when you look at the data, market data in the last year, you're correct. Our business did not decline at the same rate that those end markets declined. But we do see that ---+ it feels like we're kind of bouncing along the bottom now and kind of bottomed now. We're not seeing further decline, and saw nice sequential growth in the industrial side in those spaces from fourth quarter to first quarter. So we're encouraged that we're not going to see further downward pressure at this stage, is our current view. It's a little challenging to define it in that way because even when you think about oil and gas, if you ---+ our exposure was actually higher than we thought it was to oil and gas. When you realize how many customers we're selling to who are selling equipment to equipment manufacturers, it's 2 or 3 steps down the chain, so it's a little challenging to kind of pull that out. Certainly. And actually, although overall growth in automotive as a whole was a little depressed in the first quarter because of some of the reasons we talked about, it was a very active quarter in bidding and winning new business in our automotive applications, both in our traditional passenger car fuse world, automotive electronics and certainly, in the sensor side as well. So we see ---+ continue to see very robust quoting activity and winning of new programs. So we do expect to continue to have the opportunity to outgrow car build. So certainly, as car build is kind of flattening out or the growth is slowing on car build, we do expect to continue to see content increases for our products. Sure. If we look ---+ and we talked about this before. If we look at a mild hybrid like a 48-volt system, for us and our traditional circuit protection content, that's about a 30%, 35% step-up in content for a 48-volt system. We think 48-volt systems may be the volume drivers for us in the nearer term. If you go to a hybrid and full EV, it is multiples of our current opportunity. So certainly, although they're low numbers, it's a meaningful increase in content opportunity for us in hybrid and full EVs. Sure. It's a good question, and we spend a lot of time looking at that ourselves. And certainly, as we ended last year and coming into the first quarter, now heading into the second quarter, our book-to-bill numbers are quite strong. So those are always concerns for us. That ---+ how long is the cycle. What's the point in which the momentum begins to change and perhaps there's an inventory pullback. Watching very closely. With the data we've got now in the first quarter, we don't see a problem yet in the inventory position of our key distributors globally. However, we continue to watch. And certainly, for our own products, our lead times have not extended dramatically. However, we certainly see others in the industry, in particular spaces, extended dramatically. And so we're always concerned, are distributors reacting to other components extending in lead time. Worrying that ours might or our categories might and begin to double order or increase their inventory position. So we're watching very carefully. We have some of the same concerns that you have. We haven't seen it yet, but we'll continue to watch. Sometimes in the past, you would understand or see that there were particular applications that were really driving in a lot of the growth, but it seems to be pretty broad-based from the end customer and end markets it's serving. So we're continuing to watch. Yes. I think when we look at the full year car build projection, we don't see it dramatically different than what we saw coming into the year. First quarter was maybe a little stronger in car build than maybe we would have modeled and so, therefore, it flattens out the back end of the year a bit more. In North America, where you talked about it being a little weaker, I think some of our Tier 1 customers, as they saw car builds beginning to soften, made sure their inventories were pretty lean. And that probably had a little bit of an impact on our numbers during the first quarter. But we aren't seeing kind of warning signs that there's significant changes to expectations yet. Sure. So maybe to simplify it on Monolith, it's basically being treated as an acquisition for us. So it's basically showing up in ---+ or it would show up in every single line of the P&L, is how it is. Because we now have a majority ownership and there's other accounting aspects to it. So it's mainly in OpEx right now, R&D and a little bit of SG&A expense. Just some general spend controls. Usually, in the fourth quarter, we tend to see maybe a little higher spend. There's some more trade shows, some other activities that are going on in the fourth quarter. And then you see, especially with the Chinese New Year, you see maybe a little bit less travel going on at certain times and things like that. So just a little bit of normal seasonality for us. Nothing out of the ordinary. Sure. So let me start on the sales side a little bit. Clearly, we talked about, with the strength that we've seen in electronics, both from the fourth quarter [appearing] on the first quarter, and even as we've looked into April, we've gone through April, the strength of the organic for the quarter is being led by electronics. I'd say the other thing organically is automotive will be better. We're expecting it to be better from what we're seeing today versus what it was like in the first quarter. But I would say, tempering that is still ---+ we had ---+ we'll have another difficult comp year-over-year because in the sensor, the automotive sensor side, we had some Last-Time-Buys, pretty significant Last-Time-Buys last year in the second quarter as well. So that growth rate is a difficult comp for us there. And then overall, from an overall margin perspective, I'd say the big puts and takes are really the higher electronics volume is helping some overall volume leverage that we're [seeing]. And even with a little bit more in automotive, et cetera, we're just going to get a little bit more favorable leverage. That's one. And then we talked about commodities going a little bit the other way from a year-over-year perspective. Based on where the prices are now, that's going to be a drag for us right now. Yes. I would say, for the first and second quarter, we have some fairly difficult comps because of heavy Last-Time-Buys. I'd say it was less heavier in the third quarter, but that one is going to be tough as well. So I think, really, as we get through the full year, for the most part, it's going to be a decline year-over-year. And so we'd expect probably, for 2018, that things would get back to a more normal run rate. What really ended up happening last year was the exit process just took a lot longer than we were expecting with our customers. And they did a lot more Last-Time-Buying and they stayed in with us for a little longer than we were expecting. Yes. We haven't given a specific guidance and breaking it out that way. Certainly, we, in the past, we've seen that multiple percentage points of content increase. It's a little messy in the first quarter because of some of the pullback in inventory in North America from some of our customers. So maybe the content growth that showed up and ran through our numbers in the first quarter was a little less than we've seen in the last year. We expect that to kind of bounce right back and ---+ as that correction's kind of done. So yes, it's a few percentage points of content increase. I would say kind of across the businesses, it varies whether we're talking about our commercial vehicle product or passenger car fuse or PolySwitch products selling in. The commercial vehicle business, while we're certainly focused on growing it in Europe, North America's still the biggest driver for us there. So the good news is kind of heavy truck is stabilized a bit now. And in the con/ag side, we're beginning to see a little bit of growth globally. But ---+ so I wouldn't say there's a particular region we're expecting that. We have pretty strong market shares across the ---+ across all 3 regions. Yes, Dave, you're off to a nice start as CEO for the company. I just wanted to dig in on the book-to-bill of 1.2 on the electronics segment again. So there was nothing inorganic. That was purely an organic build in the book there of 1.2. That's correct. That's an organic view. Outstanding. And then on ---+ did you ---+ I didn't hear anything about CapEx plans for the year. Can you remind me what they're going to be. Sure. We had touched on it as part of our fourth quarter call in early February. But we talked about a capital plan of $70 million or so, higher than normal, than we would typically spend, mainly because of the ON product portfolio acquisition that we made back in August. And we are moving all the manufacturing out of ON's facilities and their foundry partners into our footprint. And so that's about $20 million of the spend, is what we're expecting this year of that $70 million. Understood. Okay. And then I heard what you said about the SG&A here in Q1, down several hundred basis points from the compare a year ago. And then even below, if we go back to 2 years ago, just 16.4% on the revenue. That seems outstanding. There was nothing unusual. I'm guessing the headcount had to higher than it was in comparable periods, but nothing specific that pushed that to such a low rate one way or the other. I ---+ probably, 2 other things. One of the things, when <UNK> asked the question, we were still going through the integration process for PolySwitch in the fourth quarter, so we still had more spend going on, just a lot of activity as we were going through a lot of the last system integrations as well as just other synergy activities that were going on. And so a lot of that was done in the fourth quarter. So that's another part of the expense decline. And then, if you go back a couple of years versus now, we acquired $250 million of annualized revenues last year with the acquisitions we did. And so appropriately so, we're getting better leverage from that perspective, from an SG&A perspective, as we've grown. Thank you for joining us on our call today. 2017's off to a great start. We look forward to talking with you again next quarter. Have a great day.

2017_LFUS

2015

DVN

DVN #Jeff, we've had a lot of questions on the capacity, the reason we put that in there, not to signal anything else. Just a matter of what <UNK> said around commodity price and whether we add additional capital in there, that there is no bottleneck other than commodity price and our activity levels. Thank you, Tiffany and we appreciate everyone's attention and investment in Devon Energy. We hope you have a wonderful day and we'll see you on the road soon. Thanks so much.

2015_DVN

2015

GME

GME #That's a great question. First question, hardware strength and how long ---+ it's an interesting question, right, because we obviously accelerated and brought forward a bunch of demand. The question he's got is how long will this last. I would say number one, we're still pretty early in the cycle. The last one isn't gone in, what, seven years in most cases, and we're barely two years into it. I think we're seeing an acceleration on the software side in terms of the installed base is growing. You've seen more and more new IP coming out. And then on the PowerUp side, one of the things we continue to track is PowerUp members' interest in purchasing new hardware. And those numbers are still very strong and similar to what we've reported in the past. So all of our indicators are positive that consumers are still very excited about these products. And there's a ton of consumers out there who still want these new consoles who haven't bought them or haven't been able to afford them yet. I haven't checked ---+ the goal, <UNK>, of the value, if you remember, the value introduction, I think it was in the March call last year, the goal of the value product was to increase our market share in titles below $20. That's our traditional weakness on the new software side. I think we did that in the first quarter. Second quarter, I'm ashamed to say I haven't checked. But I suspect we probably increased that. It has not been as fast as we had hoped, and that's partly because we're just struggling to get to some of those publishers. On the other hand, there's a lot of activity in that space by us intent on purchasing more value products. I think you'll see more on that. Thank you, <UNK>. Guys, what can we disclose on that. We have to be careful here. In terms of the revenue performance on a per store basis, <UNK>, it is not included in our comp number. And the reason for that is because historically, the wireless retail business is subject to a lot of volatility that's driven by changes in the commission and compensation structures that the carriers put in. We did a little bit of research, as we've said before, in terms of what companies were public in this space. I think there aren't any left. They've been acquired. And the practice is to not disclose those comps, rather to talk in terms of, for us, the growth in profitability and growth in the store base, I think, is a significant thing. Not sure we disclosed the operating earnings number for the quarter, and I don't have that immediately in front of me. So we'll have to get back to you on that one. I think the thing you've got to understand is we've got partners there who have rules about what they want to disclose. The mobile segment, though, I think it's a good proxy for ---+ of course, we don't have operating earnings (Inaudible). That will be in our 10-Q, <UNK>. I apologize for not having that. Well, as <UNK> and I both mentioned in slightly different ways in our scripts, we expect the third quarter profit to be comparable to last year's operating earnings for Tech Brands. We will continue, as we're opening 90 to 100 stores this quarter, to incur some of those infrastructure costs to prepare for those openings. But in the fourth quarter, we think we're going to be largely past that and we expect that the profit will grow significantly from last year. I think <UNK> said ex- those infrastructure investments, we would expect the Tech Brands profit for the year to be 40% to 50% up from last year. Yes, that is ---+ I don't have that slide in front of me, but if I remember correctly, it was approximately $170 million in operating earnings against a revenue base of about $1.5 billion. So in excess of 10% operating margin in that space. Which would be accretive to us. Obviously, yes. On traditional operating margins. Sure. There's a slide on this one, by the way, <UNK>. Did you take it down. Sure it is. I think <UNK> had in his script, our inventory level in trades has gone up. The issue is, the debate here around here, if you were in our offices every day, the constant debate is trade values versus new launches that drive trades versus marketing, kind of the big three. And what we've found ---+ and we can get proven wrong ---+ what we've found is big launches and in-store execution drives trades more than trade value. <UNK>. I would just add to that, from a consumer standpoint, it's value and awareness. We made a huge step last year with our simplified trade pricing. What we found is that consumers responded extremely well to that. And with a lesser mix of promotion and a greater mix of everyday value, people really responded well to that. And then the other thing we find is that trade awareness is still always an opportunity. And every time we have an opportunity, we want to communicate that, and every time we communicate that, we bring new people in. And all the evidence we have suggests that when we make people aware of the trade values and what they can get, they respond very positively to it. So we'll continue to work on awareness. Yes. Hello, <UNK>. This is <UNK> <UNK>. I think that what we'll see, because it's a broader range of IP, we will see it to be smoother. So you're consistently having new movies, new television shows and video game launches throughout the year. And so for example, the movie launches in the summer, there's frequently not a lot of new releases on video games, but there's a lot of loot you can sell with that new IP. So it seems like it will be more consistently strong. I think the fact that you're seeing us outperform in the second quarter indicates how the loot is really contributing to balancing our demand flow. And as <UNK> says, there's a lot of IP that's not video games. So it should. Absolutely. We hope so. I'm looking at <UNK>. He's shaking his head. (Laughter) I'm nodding. He doesn't have a big checkbook, but he's nodding. Want to take that, <UNK>. Sure, just a second. I'll go ahead and give the comps. The Canadian comp was 8.5% and we were down in comp in Europe 3.8%. As far as color, I'll turn it over to <UNK>. The color would be our two strongest markets have been Australia and Canada. In Europe last year, we had very good hardware allocations and Europe really exceeded the rest of the international markets in terms of hardware sales. This year we're back to our normal ---+ closer to our normal market size in hardware, and so that was a little bit of headwind for them. One thing to add, <UNK>, maybe might be that the concept of loot appears to be more of an Anglo, maybe Northern European concept. Southern Europe, we haven't seen the kind of results we've seen maybe in some of the Northern European markets. That's true. The growth of loot in Australia, Canada, the United States, Northern Europe, the Nordics and Ireland have been consistently ahead of what we've seen in Southern Europe. So that's something we continue to have to explore. We may not have the right assortment yet. That's one possibility. But we certainly have work to do. For video games or loot or ---+ . I'll let these guys add their comments. We've been watching all of these players around the world for a long time, and I can't say I've seen much diminishing of anything they're doing. They're all running their play. Best Buy did have a good number yesterday, it appears. I haven't seen the video game comp. <UNK>. I'd be surprised if they really gained a ton of share. But we don't see a huge amount of activity. Our competitor base is so broad now, too. Used to be we'd get on a call and we'd talk about Walmart and Best Buy, Media Mart and [Satur] and JB Hi-Fi, Amazon. Today we talk about lots and lots of other people, digital players, publishers who are trying to go direct versus through retail. And so I have not seen a ton of activity here that's new, other than the players. I don't see a lot of change in activity. I think that there is a ---+ we continue to gain market share. And so like we say quarter in and quarter out, we're selling over 50% of the games. We have made a very distinct effort to try and win this console launch. We've been very clear about that for the last two years, and I think we've been effective in that. So I'm sure that there are people at some of those other locations that <UNK> mentioned that are seeing a significant reduction. The whole category is not ---+ has not tripled the sale of PS3s, and the whole category has not nearly doubled Xbox One. So clearly, we've taken a lot of share from a lot of those other people. I don't think that they're trying less. I just think we're running our play and it seems to be working. Guys, we should talk about, on the mobile loot side, there's a whole new cast of characters. We are a committed AT&T partner, so we are in partnership with them. We compete directly with Verizon, Sprint and T-Mobile. And we sort of live and die by those fortunes. On the loot side, there's probably a lot of players on the loot side. Don't have share data on loot, unfortunately. But I suspect we're growing very, very fast on the share data on loot. Yes, yes, I think that's accurate. I think that's accurate. And there's just a lot going on under one roof. Don't forget, we also offer Cricket in 2,000 stores or so. So 2,000 GameStop stores, we will sell you a Cricket prepaid phone and a contract. So when you can do prepaid phones in a store, you can probably do some other prepaid things. So we're exploring that very aggressively. There's just a lot ---+ as I said in my notes, there's just a lot going on here, and we don't have the luxury of slowing down. Maybe today it feels less scary, but there was a time here where we were coming in every day, figuring out how we're going to get through the day and so forth. Today, fortunately, I think we're past that. But we can't slow down, so ---+ All right. Well, thank you for your support of GameStop and we'll look forward to talking to everyone. If you're coming to our show next week, we'll see you there; and if not, we'll talk to you during the quarter. Thank you.

2015_GME

2016

ESRX

ESRX #Well, unfortunately, the situation has evolved into a lawsuit. And, like I said in my prepared comments, that's really, we did not want to see it get here. We believe we've lived up to our contractual obligations. We offered the best levels of service to the patients. And we do everything we can to help drive their economics in the right direction. At the end of the day, a lawsuit was filed. We countered. And now it's in that process. So this is probably going to be quite a long, drawn out situation. The reality is, at any point, we're always open to conversations. If they want to come in and have a conversation that's reasonable in nature, nothing to do with $3 billion, that's pretty ludicrous. You've heard me say that before. We're open to that. Going forward, obviously this isn't just ---+ this really has the totally undivided attention of our entire Board. I will continue on as Chairman of the Board. And so all of us on the Board will continue to be involved. This will really be up to <UNK> and his team to position the Company, while the pledge is to continue to service the members, to continue to service the client with information, and the data they need to do their job. We'll continue to bring them cost-saving opportunities to them. And as they look forward to the future, hopefully they'll continue to implement those ideas, and we'll try to come to a resolution. But at the end of the day, we're in a legal process now. Sure it does. I wouldn't say it comes up in the majority of the cases. It probably comes up in what I'll call a small to medium minority of the cases, and we have taken great pains to make sure that our account teams understand why we're here. Because, our core is around aligning around clients and patients. So this is the sort of thing that really, as you can imagine, as a leader, helping our folks understand that we're going to service the heck out of Anthem. We have nothing but intention to continue to do a great job for them, to position ourselves well to be a choice that they want to make at some period of time in the future, when we get this behind us. So what we've done is made it very, very clear to our team how to keep this isolated. How to focus on things that actually our clients need is to focus on. At the bottom line is, while it has been a minority of conversations, it's been a very short conversation, and folks pretty quickly move on. But there's also a difference. When you're dealing with ---+ our account teams are dealing with the pharmacy management teams at our clients, this may come up. But it's really one of questions and trying to understand, it gets press, there's a lot written about it, and what have you. So there's always going to be conversation. I don't think it's really a distraction, though. Because it's what we deliver. It's what we do. But if you go to the other side of that, I've been CEO here for quite some time. CFO before that. I have been in this business for a long time. I was in other businesses before this one. What you don't typically see is public airing of a situation, and I think that's what really strikes most of you all. I still have a lot of conversations with CEOs. <UNK> has taken over those relationships, and he's building on it. <UNK> and I have been out to a lot of clients over the last several months. When you do that, obviously when you're sitting with another CEO, that often has disputes with their partners and vendors, it never gets to this level. And so I think there's an inquisitive mind at the other end of the table, that says, what is going on. And unfortunately for us, we scratch our heads with that, because we would have liked to have all of this done in the back room and figured out how to solve these things, and how to go forward on a mutually agreeable basis. Unfortunately, it didn't come out that way. So at the CEO level, those conversations are ---+ do take place. But not from a, it hurt the business or puts us at risk, or hurts our ability to sell. But, instead, it's really just a little bit of head-scratching going on in the conversation. Sure. Thanks for the question. I'll take it. So let me be really clear. We've said this, I know, are very actively and will continue to be very active in looking at all sorts of things. As you can appreciate, given our size and where we sit in the marketplace, we have an awful lot of stuff that we get to take a look at. But let me be clear. Anything that we think can help our clients or help our patients can drive better outcomes, can expand or extend our model, or otherwise be complementary, we're interested in, if it adds shareholder value. If it makes sense from both a financial standpoint and a strategic standpoint. It also has to compete against what could we do without the asset. And so we've looked at any number of things. I'm not going to go into any specific examples. I'm familiar with obviously some of what has traded, and some what will, and I understand why those who bought it, bought it. But let me be clear, we will be aggressive where we can draw a line to those three things. Shareholder value, helping our clients and helping our patients. We'll not be aggressive where it doesn't make sense, where we see other ways to achieve a similar result, using our capital more efficiently. So the last thing I'd say is I wouldn't want you to think it's either/or. I would not want you to think that because we are buying stock back, we therefore were not strongly and deeply looking at any number of opportunities that are in the marketplace. We are big enough and hopefully disciplined enough, I believe disciplined enough, we certainly have had a history of it, and I intend to carry that forward, to be able to do both of those things really, really well. Sure. As you can imagine, you would love to, at one level, think everybody loves you and would never leave you. The flip side is, if we price to keep 100% of everything, we've always said we don't want 100% retention, because there's sometimes you're just not going to get it exactly right, and somebody is going to come in and be a little more aggressive than us, and that level of sensitivity at the client level would be something that causes them to move. What I'd say is, our book of business, and I've looked at this over about five, six years ago, the Express Scripts book of business in particular has a nice middle market element to it. There's a more natural churn there with brokers and so forth. So some of that, when you look at the churn, it's not any one reason. You've got a couple different market segments. Typically the other thing that happens is, if we drop the ball on service, it goes into play. And now we really have to chase our tail, and thankfully we're strong on service right now. We saw two or three years ago, what it looks like when, in fact, we're trying to catch up on service. And so what I would tell you is there is no one thing that drives it. 95% to 98% is something we feel good about. We target the high end of that range, as you can appreciate. I've told people, I won't be very satisfied with the low end of that range. And that suggests to me that it's a pretty minor amount of churn in the grand scheme of things. Thank you. Yes. So, <UNK>, this is <UNK>. More specifically, we're very focused on our fulfillment process, constantly looking at ways to improve that, and bring costs down in that process. And no different than past years. We have some initiatives we're putting in place to improve and reduce those costs, that are more oriented to the second half of this year. The other thing, we're looking at call volumes and with our digital transformation, we're seeing reductions in those call volumes. And so we're going to continue to invest in that. And as a result, bring down the costs we incur around call volumes. Again, a lot of those initiatives are in process, and will have an impact now, but a much greater impact as we significantly take those down in the last half of the year. And then no different than we've had SG&A reduction initiatives going on throughout our business. It's something we have focused on in past years. I've been heavily focused on it, since I got here. So every day we're looking at how we are more efficient across this whole business. Those just happen to be two of the bigger initiatives that are going to drive the second half. No. We're not going to get into that specific of details. It's so hard to pick one example and extrapolate from it, <UNK>. As you can appreciate, because the dynamics in the therapeutic class, the number of additional manufacturers already there, the number of things in the pipeline in front of it, the inflation over the last two years in that class. All of these things come to bear as the manufacturers make their decision. What I would say is we've been very pleased to see an increasing number of manufacturers looking to be what I would call creative and responsible on pricing. And you've heard several of them say that the missing piece for them has been what we can bring to the table, which is the capture of data, and the use of data, in such a way to help them be confident that the way that they're pricing the product is actually finding its way into the hands of patients, and into the support of clients. So we've been encouraged by it. I don't know that any one drug is a harbinger of things to come. I think it's a harbinger, though, at a macro level, that we have changed the dialogue with pharma over the last two to three years. And we will continue to work very hard to create access for their products at fair prices, for the patients who should be on them. And the pharma companies that want to work with us on that basis are coming to the table and making great choices, and we hope that continues. Sure. Well, all I'd say at this point is, there is nothing more important than retention in any year. And that includes this year. Obviously, we love to win new cases. We love the fact we've got a large number of prospects this week joining us in Orlando. But I will tell you that at the end of the day, we hold ourselves to a high standard. We have a lot of work to do this year. But it starts with retention, <UNK>. I'll start, and then <UNK> can certainly chime in. Having a lot of years of experience, first of all, pharma typically raised prices. And so the question is how much worse would that be if you didn't have an independent PBM. And I think what actually ---+ our mission is not to be constrained by any other ideas, except to work in the best interests of our patients and our clients to control costs while improving health outcomes. And without the tools we bring to the market, I'm not ---+ in my opinion, you would see much higher costs, much higher run rates. And it goes back to the conversation we had earlier about net and gross. And the reason those spreads continue to open and widen is because of the tools we have put in place to help our clients control costs. <UNK>. I completely agree. The thing I love about this business, and why I'm so excited about it when I go forward is, one, we have got really robust competitors. It forces us to stay innovative and smart. In our case, I believe that our differentiating story resonates strongly. It lets us focus 100% of our resources on solving the challenges that patients and clients face today. And I cannot imagine a better place to be. Yes. We're not going to quantify. We quantified at the beginning of the year the impacts from, overall, from the loss of Catamaran and Coventry. But I don't want to get into any further specific impacts around Catamaran. We typically don't talk about client specifics. We only did in this instance because it was such a large impact from those two, which were a result of acquisitions. Not as a result of losing a client, per se. But beyond that, we just don't want to get into any further specifics around that. But when you look at the data, you have to always remember that every year, if you take out our two biggest clients roughly, just speaking in generalities, roughly a third of the business comes due every year. A third of that book reprices every year. So what you're facing is the challenge of that. When you look at this year in particular, we had our second largest client reprice in May. We said that in our prepared comments. So when you're lapping the year, you're facing the impact of your second largest client having repriced, plus you're looking at the impact of the normal trends that occur, and you build up a lot of cost. Think about all of the plan designs. Which plans don't change, co-pays don't change, formulary management don't change. Every plan we have has numerous changes, plus the impact of Medicare changes that come in. Medicaid changes that occur. You've got millions of changes that come into ---+ that all get initiated on January 1. Our call center people have to be prepared for that, our account management teams have to work with our clients on it. The ramp up in costs attributable to January 1 is always a big factor for us. So the first quarter run rate is a lot higher in both DPC and SG&A, and through the course of the year we get those monies back as we ---+ things become normalized again. That's a cycle that we visit every year. And if you look at our trends over the last years, you'll see that the profitability ramps up in the back half of the year, and that's not going to change. We've never disclosed that. And we feel comfortable that should still run its course. There's always a little bit of an issue. We hedge a little because it could fall back to the third quarter. And so that's the only softness. If it doesn't occur in the second quarter, would it occur in the third quarter. But historically, it's happened in the second quarter. And we don't get into specifics around it. I appreciate your comments as well. Thank you very much. Boy, I tell you, that's the magic question of the day, isn't it. We believe, there was a lot of conversation for some period, and you've heard them all, about $500 million to $700 million. And we feel like we need them to grow as well, and be competitive. And we stepped up and met that. Now, we also know there was a lot they were leaving on the table, just purely by plan design and opportunities. We also believe that it wasn't that if we do it right, if we could, in fact, better help them manage their formularies and their networks and plan designs, and go into market, helping them grow their business, our economies of scale grows, their economies of scale grow, and we're willing to share that. So it wasn't just the money we're putting on the table, some of which we're hopeful we get back with scale and size. But in addition, it's really aligning their products with the marketplace. And that could have been worth billions of dollars. So when you put those two together, we think we've been more than fair in offering a very good offering. And, again, we'll see how this all plays out. But it is a head scratcher. Why don't we just take one more. I believe it's the last question in the queue. Well, thanks for calling it out. We obviously ---+ it's another explanation as it relates to how our EBITDA sequentially grows, because these core set of businesses which aren't small, but which aren't huge, but they are mighty in terms of it, and they don't create any scripts for all practical purposes, have continued to grow at very, very nice rates, and solve problems for other sorts of clients that they serve. We've had some new client growth. We've had some new products come to market. And so all of those fuel both our specialty distribution business, as well as our UBC business, as it relates to that. I will also call out our Canadian business is really doing a great job, and continues to grow clients as well, and has moved into new product lines, including specialty. And so when you take a look at that collection of businesses, again, with the exception of Canada that doesn't produce scripts, we like a lot. That becomes an area of us for focus to potentially do M&A, as well as just organically right now, the leadership of those businesses are doing a terrific job addressing their client's challenges. As it relates to Part B, I think it's a little early to call. And so I really don't have a lot of great depth of commentary for you there, other than to say obviously for us, we see a lot of opportunity on the medical side generally across a number of ways to get at that spend and manage it, as well as supplying some of the folks that are actually delivering care. And so end-to-end, it's something we're deeply looking at and thinking through. But in the short-term, our assets are really, really good. I want to take this time to thank all of you for joining us on this call today. We appreciate your investment in Express Scripts. I think we are better positioned than ever. The marketplace continues to evolve. Our challenges are mighty, and our solutions are great, and I think we've got a great leadership team to take us to that whole next level of performance, and meeting your needs as investors. So thank you very much. We look forward to talking to you in a future date. Thank you. Bye bye.

2016_ESRX

2016

CTLT

CTLT #Thank you. So when we think about that, <UNK>, we would generally target approximately 70% to 80% of our adjusted net income figure resulting in free cash flow. No, it should be consistent. Well, it's the underlying reorganization of how we manage the business internally that prompted it. And so, during the course of the year, the businesses that now report in the DDS segment are under one business leader within Catalent ---+ that's Barry Littlejohns is the President of the DDS division. And during the course of the year, he has been afforded more responsibility for those units. So it just makes complete sense, that we would then reorganize the reporting structure that way. I actually think this is a very nice improvement ---+ not just because it's the way we manage the business, but because now we have more evenly sized segments. You'll recall the prior structure had one relatively large segment and two pretty small ones. Now we've got two segments that are approximately the same size, and the clinical services segment being a service-oriented short-cycle segment on its own, that's now easy to see. So I think that it's a good development, not just because it's how we manage the business, but I think it provides better insight for people that are following the Company, or trying to follow the Company. Sure, <UNK>. So we talked about the capital expenditure project to expand our capacity in biologics. We put, just under $30 million into the Madison facility just a couple of years ago. That capacity is more or less already called for. And the investment that we'll make, will enable us to continue to accommodate the strong organic growth that we see within the biologic business, so that's good. I expect to see increasing asset utilization in the DDS segment, specifically within the MRT business. The Winchester expansion which we made over the last couple of years, we will be able to grow into that over the next ---+ probably the next three to five years. So we should see good margin expansion opportunity because of that. And then, I think the rest of the network is pretty, pretty balanced. Thanks, <UNK>. So I'll start with the first part, <UNK>. So for the first three quarters of the year, you're quite correct, that we saw volume declines in some of our higher margin product in the controlled release segment. That started to turn around in the fourth quarter, and more normal order patterns returned for those products during the quarter, that gave us confidence when we were putting together the FY17 guidance, that we would see order patterns FY17, that more paralleled FY15 and years prior, and patient consumption for those medications. Because part of ---+ a significant part of the reasons why we were seeing lower volume in the first three quarters of FY16 were supply chain issues, and our customers had sufficient inventory of the products we were making. Those inventory stores have been worked down, and we expect in FY17, that our manufactured volumes will more closely parallel patient consumption of the product. And we started to see ---+ and the confidence that we have that will be the case, is the actual volumes that we manufactured in Q4. And in terms of the growth rate year-on-year, across the entire MRT portfolio was down about 5% to 7% year-on-year, and we expect in 2017, that growth will rebound in the MRT business. It will look more like our long-term expectation of 4% to 6%. What's good about that is, once again, these are relatively higher margin products in the controlled release segment, so the bottom line impact should be good. That's correct. That should be towards the higher end of our 4% to 6% expectation, maybe even a little bit beyond the high end. Thanks, <UNK>. Thank you, operator. In conclusion, we're pleased with the favorable trends in our base business, and a return to year-over-year growth in revenue and EBITDA in the fourth quarter. We look forward to carrying this momentum into FY17, as we turn the page on Beinheim, and remain well-positioned to capitalize on our industry-leading partnerships. Thank you.

2016_CTLT

2016

MSI

MSI #Good evening. It's <UNK>. I guess a couple of comments. When you think about Q1, we had both product and services growth in North America. I think that's an important point. We also grew the managed and support services 9%. As you alluded to, our backlog was up $575 million, again primarily driven by managed and support services, but we grew both segments. If you think about 2016 in total as we said, we'll grow the North American business. It continues to be a good environment for both the state ---+ both state and local and the federal business for us. Couple of things to think about is we've improved sales coverage so we're starting to see some return on that. And then, we're also ---+ we've gone into better data analytics in terms of our ability to target and capture additional software features on the equipment that we sell, the products that we sell. Again, as we said, we expect to grow in North American 2016. So, <UNK>, our backlog as we see it today has trended more towards devices. We've certainly seen, particularly in Q1 and the back half of 2015, our mix has really gone to devices over infrastructure. But, I will add that we've obviously seen with the backlog growth we've seen, the return of some large scale projects. State of Iowa and those kind of deals. It's a pretty good mix. As we said, big growth in services. Some growth in devices as well. <UNK>, do you have anything to add. The only thing I'll add, <UNK>, is from a duration perspective, clearly the managed and support services is a longer duration, multi-year contracts. Product is typically a shorter duration, although in products we could have system deployments that would extend several quarters. Next question, please. Okay. <UNK>, it's <UNK>. So, I guess in regards to EMEA first, obviously Q1 was up 4% ex-currency. But, when you look at the business organically, obviously we were down 26% in EMEA. And, a large part of that is due to the fact of our Norway, the integration runoff and the comps there. We also saw a decline in devices. The other piece of it is if you think about EMEA, we've had some pockets of weakness in the channel at the low end, particularly in Europe. But, again, we continue to see ---+ when you start to think about the region in 2016, we'll see continued pressure in the first half with the runoff of Norway, as well as FX. <UNK>, I don't know if you have anything you want to add as it relates to the second part of the question. Well, the second part of the question being confidence in the full year. So, if we look at our backlog aged into the second half, it's comparable to what it was last year, <UNK>. And, clearly in the first half, the first half Latin America, specifically, Q1 and Q2 have been hit hard from a year-over-year perspective. If we look at what happened last year in Latin America, Q1 and Q2 were reasonable quarters and really the fall-off happened in Q3 and Q4. So, combination of order activity, increasing backlog, and visibility that we have into the second half give us confidence for ---+ the expectation isn't for significant growth rates in the second half, but certainly better than performance in the first half. Yes, a couple things to think about, <UNK>. Q1 2015 was abnormally high. As you know, Q1 is typically our smallest quarter due to timing of some of the receivables. If you look at our trailing 12-month, we're ahead of where we were the prior year. So really, we were expecting cash flow to be lower in Q1. It was driven by higher incentive payments for 2015 performance versus 2014, variable pay payments, the majority of which are paid out in Q1, and higher tax payments. And, working capital, working capital was a source of cash in Q1 2016, just not as large of a source as it was in Q1 of 2015. As a matter of fact, from a cash conversion cycle, we improved four days in the quarter. So, we still expect operating cash flow of approximately $1.1 billion to $1.2 billion for the full year and free cash flow per share at $4.75 to $5. So, if we look at services, as you mentioned, the services gross margin were up year-over-year based on the Norway roll-off. We talked about services gross margin getting back to that mid-30% as our run rate, and that did happen. What happened in Q1 were really three things. There was an FX impact, a volume impact on the product side, and a mix shift from product to services. As services grew 6%, products contracted 7%. Those are really the three items that impacted Q1 margin. For the full year, we continue to expect full-year gross margin to be comparable to last year. You mentioned Airwave. Airwave does have a little bit lower gross margin than our base business. But, again, our expectation for the full year are gross margins comparable to what they were in 2015. We remain committed to return of capital. There is no change to the model. There is no change to the assumption of how much cash we need on the balance sheet to run the business. So, for planning purposes, the expectation of $750 million to $1 billion of share buyback is still a valid ---+ valid for planning purposes. Thanks, <UNK>. This is <UNK> <UNK>. We've seen an increase in the managed services business, primarily driven by a couple of things. Number one, the smoothing of cash flows ---+ spend from our customers' perspective. Second, and maybe more importantly, is the complexity of the networks are increasing on an ongoing basis. Our customers don't have the resources or the capabilities to manage a lot of those. So, we've seen both an increase in what we would consider support and managed, so long software upgrade agreements and multi-year support plans. And, that's driven largely by North America, but also seen around the entire globe. Yes, on the first one, you're right. I think that we overperformed in Q1 against our original expectations. That was largely driven by North America. So, in Q2, our guidance, we think is prudent. Obviously, we're holding the full year. In Q2, specifically, we have pressure from Latin America, up probably about another $40 million. The roll-off of Norway of about $30 million. And, to your point, probably some revenue that we would have originally thought would have appeared in Q2 slid to Q1. When you net all of those ingredients, it's entirely first half and full-year as we expected. Backlog. Yes, with respect to the backlog question, as I mentioned earlier, we're approximately at the same position we were comparable to last year, aged in the year from a backlog perspective. And, with respect to Airwave, the incremental $1.8 billion, we've talked about a $450 million Airwave number. So, clearly, that $450 million would come out of the $1.8 billion of Airwave backlog. No. I'll let <UNK> <UNK> expand. But, we haven't. As we've mentioned with LTE in the four largest engagements that have been awarded in the world so far, we've won all four. Los Angeles, two countries in the Middle East, and the UK. But, simultaneously, we see continued investment in LMR, even with those LTE awards. We think that LTE is additive to LMR. We're seeing increased interest between the interoperability between LMR and LTE, hence the award I mentioned from the UK home office in Q1. So, no, we don't see any chilling effect on TETRA infrastructure in international markets as a result of LTE consideration. The one thing that I would add to that is the situation in the UK was unique in that they did not own either their spectrum or their network. So, they have a different decision than really every other customer we have or we serve around the globe. To the best of my knowledge, they are the only customer in the world that didn't own spectrum or network and, again, had a different set of options presented to them than any other customer we have with the TETRA network. Specifically to Airwave, <UNK>. Minimal CapEx in that business, <UNK>. Next question. In terms of China, first of all, we had one of our strongest years ever that I can remember in China last year. But, China was down about 25% in Q1, off of a high compare and some lumpiness in strong order activity. I think it will be down probably 20% or 25% for the full year, so we are not expecting any growth in China. Instead, we are expecting contraction of about 25% this year for the remainder. <UNK>, I guess maybe a couple comments on LatAm. I think the first point that I think is important, if you think about LatAm as a region, it's 5% of MSI's total revenues. The second thing I would say is to your point, when we think about the first half of the year, we were down 42% in Q1. Most of the pressure from a comparables perspective does reside and is the challenge for us in the first half of 2016, but I would really say, having obviously spent a good portion of time in the region that the situation remains fluid. Both from, I think, a natural commodities perspective and a macroeconomic perspective. Some countries are faring better than others, but it remains a challenge. I will say the one bright spot is we remained, and we will sustain our investment in the region, both from a go-to-market and from a technical resource because we do believe the market will rebound again. It's just tough to really put your finger on exactly when that will happen right now. So, <UNK>, I guess a comment. No, we don't necessarily see anything with the federal elections that will impact our business in the federal market. <UNK>mand really post-2013 has been pretty stable, pretty solid in our business, and really that's across the continuum for both product and services. So, no, we don't anticipate any impact or any slowdown as it relates to the upcoming election in our business in the federal market. <UNK>, we said $120 million total reduction year-over-year, and we did $43 million in Q1. So, the modeling for the back half of the year, the first half will be a little bit more from a reduction perspective than the second half. And, remember, the $120 million is a $120 million reduction year-over-year after the addition of approximately $30 million of Airwave OpEx. Really the reduction in the base business is approximately $150 million year-over-year. Just for second half. So, it really depends on the awards. They are different. Certainly, the services award would be aged over several years. They are multi-year awards. System deployments would likely be aged over several quarters. And then, there was some APX subscriber backlog that would be realized as revenue in 2016. Sure. Thanks. We appreciate everybody joining us today, and we look forward to speaking with all of you soon.

2016_MSI

2018

CHCT

CHCT #Thank you. Good morning, everyone. We appreciate you all joining us today for the 2017 fourth quarter and year-end conference call. With me on the call today is <UNK> <UNK>, our Executive Vice President and Chief Financial Officer; and Leigh Ann Stach, our Chief Accounting Officer. As is our normal process, our earnings announcement and supplemental data report were released last night and filed with an 8-K, and our annual report on Form 10-K was also filed last night. We were extremely busy during the fourth quarter. We acquired 6 properties in 4 states during the quarter with a total of approximately 153,000 square feet for a purchase price of approximately $40.2 million. These properties were 100% leased with leases running through 2032 and anticipated annual returns of 9% to 10.5%. As it relates to our pipeline, we have 3 properties with fully negotiated purchase and sale agreements for an aggregate expected investment of $16.8 million. The expected return on these investments should range from approximately 9% to 9.6%, and we anticipate that these will close during the first quarter. As I will discuss in more detail later, we're also anticipating net new investment of about $12.5 million into the exit financing for our bankrupt borrower that's calculated as $23 million commitment, less the $10.5 million mortgage investment we have had for some time. The majority of the net new investment has already been made. In addition, as we previously disclosed, we have 3 additional properties under definitive purchase and sale agreements to be acquired after completion and occupancy that's for an aggregate expected investment of $40.4 million. The expected return on these investments should range up to approximately 11%. And we anticipate that one of these will close during the first half of 2018 and the other 2 should close in the second half of 2018. These represent 2 of our client relationships that you heard me talk about developing from the beginning. Our properties under review continue to go up. We currently have term sheets outstanding from multiple potential properties with anticipated returns of 9% to 11%. We anticipate having immense availability on our undrawn term loans and revolver to fund these acquisitions through late 2018. I think, as everyone is aware, we have been working through our first bankruptcy. The borrower has filed an amended bankruptcy plan, whereby we will provide financing to a newly formed company that will acquire certain assets and liabilities of the borrower and other entities. We believe this plan will be confirmed by the court later this month. Assuming the plan is confirmed by the court, we will enter into a new note and provide up to $23 million in funding to the newly established company. This will be secured by the ownership interest, cash, accounts receivable, other assets and cash flows of 9 long-term acute care or rehabilitation hospitals. This includes 2 specialty hospitals that were not a party to the bankruptcy, but are being contributed to and will be owned and operated by the new company. On December 28, in anticipation of the plan, we purchased $11.45 million face value of certain promissory notes secured by cash and accounts receivable of the borrower for $8.75 million from a syndicate of banks. That's a $2.7 million discount to face value. Subsequent to December 31, we acquired $2.2 million of promissory notes secured by the operations of the 2 specialty hospitals that were not included in the bankruptcy, but will be owned and operated by the new entity. Under the terms of the plan, we will receive the real estate currently secured by the mortgage note receivable through a deed in lieu of foreclosure with a valuation of approximately $4.5 million. We will receive $6.7 million related to the mortgage note and $10.95 million related to the other promissory notes. An additional amount of approximately $5.35 million will be utilized to complete the contemplated transactions. When everything is said and done, we are anticipating having up to approximately $23 million loan to the new entity, secured by all the ownership interests, cash, accounts receivable and other assets of the 9 hospitals. We anticipate earning approximately 9% interest on the loan. However, based on the terms of the loan, anticipated cash flows and potential for refinancing by the new company, we are anticipating a significant amount of this will be repaid relatively quickly. As I have said before, we view this as just part of real estate, and we have been working to resolve the situation as favorably as possible. On another front, we declared our dividend for the fourth quarter and raised it to $0.3975 per common share. This equates to an annualized dividend of $1.59 per share, and I continue to be proud to say we have raised our dividend every quarter since our IPO. During the fourth quarter, I've purchased 45,178 shares of the company's common stock at weighted average daily prices ranging from $0.2668 to $0.2760 pursuant to my 10b5 buying plan. The plan expired on December 31, 2017, and I have not decided yet if I'm going to put another plan in place for this year. Also, since the company's initial public offering, our named executive officers, Leigh Ann, <UNK> and myself, along with other members of management have elected to utilize all of our compensation to purchase restricted stock. In January, Leigh Ann, <UNK> and myself purchased an aggregate of 35,195 shares of common stock in lieu of cash salary and received an aggregate reward from the company of an additional 35,194 shares for electing 8-year cliff vesting on that stock. I believe that takes care of all the items I wanted to cover. So I will hand things off to <UNK> to cover the numbers. Thanks, Tim. I am pleased to review the company's financial performance for the fourth quarter and year ended December 31, 2017. Total revenues for the fourth quarter of 2017 were slightly less than $11 million versus almost $7.4 million for the same period in 2016. Total revenues for the year 2017 were $37.3 million versus $25.2 million for 2016. Rental and investment interest revenues were $9.5 million and $32.3 million for the quarter and year, respectively, versus $6.1 million and $20.6 million for the same periods 2016. The real estate portfolio was 91.7% leased at quarter-end. On a pro forma basis, if all 2017 fourth quarter acquisitions had occurred on the first day of the fourth quarter, rental and interest revenues would have increased by an additional $420,000 to a pro forma total of $9.9 million for the quarter. Total expenses for the fourth quarter of 2017 were approximately $8.4 million versus $6 million for the same period 2016. Total expenses for the year 2017 were just under $30 million versus $21.3 million for 2016. General and administrative expenses for the fourth quarter were $801,000. Depreciation and amortization expense were just under $5 million for the quarter. On a pro forma basis, if all the 2017 fourth quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expenses would have increased by $192,000 to a pro forma total of approximately $5.2 million. The company reported net income of $1,552,000 for the fourth quarter versus $1,033,000 for the same period 2016. For the year 2017, net income was $3.5 million versus $2.7 million for the year 2016. Funds from operations, FFO, for the fourth quarter of 2017 consisted of net income plus $5 million in depreciation and amortization for a total of $6.6 million. AFFO adjusted for straight line rents and deferred compensation which had minimum impact, the total remaining at $6.6 million or $0.37 per share diluted versus $4.8 million or $0.38 per share for the same period 2016. Again, on a pro forma basis, adjusting for the debt outstanding for the entire quarter, if all of the 2017 fourth quarter acquisitions occurred on the first day of the fourth quarter, AFFO would have increased by approximately $248,000 to a pro forma total of just under $6.9 million and increasing AFFO by $0.02 to $0.39 per share. That's all I have from the numbers standpoint. Operator, I believe, we're ready to start the Q&A session. Well, one of the things I've been involved in real estate for a long time and before that I was involved in real estate from the public accounting standpoint. And one of the things that I've known for a long time that is, if something goes to bankruptcy, it gets cleaned up a lot of times. It's in so much better shape than it was when it went in that it's essentially better credit. And if you look at what we're doing, we had $10.5 million basically secured by the real estate of one hospital, and we're going to end up with $23 million secured by all the assets of 9 different hospitals. And the company has been able through the bankruptcy process, to shed a lot of debt, it's rid itself of assets that had been lumped, so it's coming out significantly cleaner. It's coming out with cash flows that should be very sustainable and very good. So we feel very good about the position that we are doing. And as I have said from the beginning, we were going to take a very aggressive approach to solving this, and we have, and we feel like we've done it in such a way that our shareholders will not have lost money and will actually be in a position to benefit from it. From a modeling standpoint, the $10.5 million mortgage goes away. It's basically being replaced with the $23 million loan. And the $23 million loan is at 9%. As I said, it equates to basically about $12.5 million of net new investment for the quarter. So that along with the $16.8 million gets us up to the $28 million, $29 million range that is our normal investment for the quarter. Does that cover what you want to cover. We are anticipating that the EBITDA to interest coverage will be something in the 4 to 5x range. So we think it should be very well covered. It can be out for, I think, 10 years, but we're anticipating that probably in the next year to 2 years, they're going to pay down a majority of it and that would anticipate probably being out of it in 5 years. <UNK>, would you disagree with that. No, I agree with that. <UNK>, we are going to have some additional amortization hit for another year as deferred comp. So the number is definitely going to go up for that. And as it relates to the bankruptcy issue, I mean, our ---+ we actually anticipate that the cost-related debt to that will go down because one of the things we have negotiated was coverage of some of our mortgage fees in the final go-round. So obviously, as we grow, we're going to add people. So G&A will naturally go up, but if you did a steady state, it was probably a good quarter. But they said amortization is going to go up, and we're going to ---+ as we add properties, we're going to add people. So it will go up some this year. We're still going to have to work through the numbers, but to the best we could, Alex. We took into consideration the accrued interest when we were negotiating the settlement. I think there might be a little follow-up one way or the other, but we're not anticipating any significant fallout in the first quarter relative to actually getting it settled. Again, you may have something go $100,000 one way or the other, but we don't think there's going to be anything significant. The discount is the new par. Basically, we're funding the new company up to $23 million and they're utilizing that to pay off the bankrupt bidders' liabilities. And what we agreed to accept related to that was the investment that we had made into it. So when everything is said and done, that'll just go away. There won't be any accretion. It won't be ---+ we'll get paid out the $8.75 million investment. Right. But in essence, all that just goes away, and we'll have a $23 million note. The confirmation hearing is currently set for the 27th of February. Obviously, it won't all happen on the 27th of February, but that's when the judge's gavel hits and says, all right, get it done. They're spread across the Southeast, Midwest, I mean, Oklahoma, North Alabama, Louisiana, Vegas, Albuquerque, I mean, it's ---+ again, it's kind of like the Southeast, Midwest. No, no, no. I think you'll see that the acquisitions ramp up a little bit. I mean, I don't think ---+ by doing this, I don't see us as being significantly different than the $120 million to $130 million, $140 million in that range for a year on a net basis. So I mean, we may get paid back $10 million of this over the next 2 years, but it's like $5 million a year, spread over 8 quarters. I mean, it's kind of like or it's $10 million spread over 8 quarters, so it's almost, not a ---+ it's a blip. So my belief is it will still be $125 million, $130 million on a net basis for the next year or 2. We've already got a significant amount of the 2018 and actually some of the 2019 stuff already released. We don't ---+ we see ---+ the 91% to 94% range on a going forward basis. If you recall, Rob, when we did the IPO, I think in the next year or 2, there was close to 50% rolls and now it's down to 20%, and a very large amount of our rolls is now out past the 5-year range. So we feel very good. We've been able to increase the weighted average remaining lease term on the portfolio from a little over 4% when we did the IPO to right at 7% now. So we feel very good about that. And we understand everybody was hypersensitive about it when it was 25%, 26% a year at 8% to 10% that's kind of like a normal roll. So we're not at all concerned about it. Thanks, everyone, for coming, getting on the call today, spending the time with us. As usual, we truly appreciate your support and your interest. I think we had a fairly decent 2017, and we're looking forward to a great 2018. So we'll be back and talk to you all in 3 months. Thanks.

2018_CHCT

2017

VAR

VAR #Good afternoon everyone Our company began 2017 with strong performance in oncology systems, continuing growth momentum in Imaging Components, and a $76 million GAAP charge related almost exclusively to the California Proton Treatment Center or CPTC in San Diego without which we would have handily beaten the high end of our earnings guidance range for the quarter To summarize, our first quarter results we are reporting, strong oncology global order growth of 10% together with a four point improvement in its gross margin rate Imaging Components gains in both orders and revenues, company-wide revenues of $763 million up 1% in both dollars and constant currency GAAP net earnings of $0.22 per diluted share, after reporting $0.64 per diluted share in charges related almost exclusively to CPTC Non-GAAP net earnings of $0.75 per diluted share, after recording $0.34 per diluted share in charges related almost exclusively to an accounts receivable reserve for CPTC and Board approval of the spinoff of Imaging Components into a new public company Varex Imaging in the next few days Focusing first on Oncology Systems, orders totaled $586 million for the first quarter up 10% in both dollars and in constant currency Broad-based demand for new equipment as well as software and services drove strong order growth across all geographies during the quarter First quarter orders in the Americas grew by 5% in dollars and constant currency, orders in North America grew by 7% growth in both dollars and constant currency The trailing 12 month order growth rate in North America is 6% First quarter oncology orders in APAC rose by 29% in dollars and 24% in constant currency while EMEA grew orders by 8% in dollars and 10% in constant currency In India we booked $18 million for a multi-linac project with a customer that will total $35 million over the next 10 years This is our first combined hardware and software as a service deal in the region and it demonstrates our ability to meet the growing need from customers for a cloud hosted software solutions Elsewhere in EMEA we continue to perform strongly in Poland As you will recall we acquired our distributor there last year During the quarter we won the majority of tenders and booked more than $20 million The highlight in our APAC region was China, where we achieved 25% order growth during the quarter with sizable gains in both equipment and services It appears that competitor protests to tender wins in this market are diminishing and are being resolved more rapidly We grew orders in Japan where we're seeing positive signs of a market recovery We supported an SBRT focused luncheon seminar at Jastrow [ph] the Japanese radiation oncology show, where TrueBeam and HyperArc created a real buzz Several hundred people attended our sessions on SBRT and TrueBeam Emerging markets in Asia were also active with good orders performance in South Korea, Indonesia, Vietnam and the Philippines Turning to North America our order growth was driven mainly by healthy software and service gains as we expected potential changes to the Affordable Care Act did not appear to impact market performance in the quarter Touching on our service business, global orders and revenues rose by about 7% in dollars in constant currency with gains in all territories On the software side we saw growing interest in our newly introduced 360 oncology software platform particularly from customers in Western Europe You may recall this offering which was introduced at the ESTRO show in October is a first of a kind software tool that enables clinicians on Tumor Boards to more effectively coordinate patient care among the numerous specialties involved in cancer treatment We have also continued to have a very positive market response to our RapidPlan and InSightive Analytics software products that help improve the speed, quality, and cost efficiency of treatments We have now taken more than 700 orders to RapidPlan since its launch and 380 systems are installed at customer sites around the world Sales of our InSightive product are also ramping up nicely During the quarter we received our 100th order for the VitalBeam treatment system Half of these orders have come from customers in North America which demonstrates the appeal of this scalable solution even in developed markets Comparing revenues on a trailing 12 month basis we believe we gained market share Margins which <UNK> will discuss in a few moments also benefited from ongoing efforts to reduce product cost I will now turn to our particle therapy business which recorded first quarter revenues of $30 million As I mentioned at the outset of the call, Varian took a $76 million GAAP charge in the first quarter in response to certain actions in January by CPTC and its loan agent or its capital markets to address liquidity issues caused by lower than expected patient volumes that are insufficient to support CPTC’s capital structure This led us to reserve $38 million in accounts receivable and to impair $38 million of our $98 million loans to CPTC of which $29 million was accrued interest These charges and the associated limited tax deductibility reduced our earnings in the first quarter by $0.64 per diluted share on a GAAP basis and by $0.34 per diluted share on a non-GAAP basis We are reporting additional information on this matter today in the Form 8-K filing with the Securities and Exchange Commission We believe this center can get on a more solid financial footing by serving a broader patient population with additional health care providers both locally and regionally We remain confident and committed to supporting all of our customers and to building a profitable proton business based on leading technology that is treating many patients and performing at a high level Of Varian's 15 proton projects we participated in the financing of only three As of today our outstanding proton loan balance totals $131 million for CPTC and two other large regional centers in the U.S Stepping back from the financing issues, we are generating revenues and are continuing to make good progress on 13 installations Our sales funnel continues to look promising Now I'll turn it over to <UNK> for his discussion of the Imaging Components business Thank you Beginning with our fiscal second quarter Imaging Components will be reflected as a discontinued operation for the first four months of fiscal year 2017. The company is guiding for continuing operations for the second through the fourth quarters of the fiscal year 2017. For the balance of the fiscal year we believe Varian revenues from continuing operations will grow in the range of 4% to 5% bringing revenue growth for the full year to 3% to 4% Non-GAAP earnings per diluted share from continuing operations for the second through fourth quarters of the fiscal year will be in the range of $2.94 to $3.06. For the second quarter we believe Varian revenues from continuing operations will grow in the range of 4% to 5% and non-GAAP earnings per diluted share will be in the range of $0.84 to $0.90. To summarize the first quarter, we have demonstrated strength in our oncology business with strong orders that will support future revenue growth We have successfully set up Imaging Components for continued expansion with an important acquisition in life as a new public company Varex Imaging And while it was painful, our exposure to particle therapy financing has now been significantly reduced We are continuing our drive for profitability with over a dozen projects and a healthy sales funnel Varian is poised now to focus exclusively on providing the world with the technology it needs to beat cancer and our product pipeline has never looked better We're very much looking forward to the rest of fiscal year 2017. We're now ready for your questions Question-and-Answer Session Hi <UNK> You know on the quarter we had good product mix, good geographic mix, and then something we've been talking about last four to five quarters, we've had very good cost performance and variable cost performance on the product cost and installation warranty <UNK> can walk us through some of the guidance impact but those are the big drivers on the quarter Well we unfortunately have not seen any new incremental government stimulus spending That's what really drove this market three to four years ago So, we haven't seen that but we have seen kind of a stabilization of the market with a little bit of growth So, and that's two quarters in a row now So we connected the dots I mean I think it's still early but our funnel looks pretty good and that market has come down pretty substantially from where it was two to three years ago But we're starting to see some turnaround Our shares have been good there too You know the protests piece was anniversary and so in fact what you're really looking at is growth So we feel good about that The market is strong and funnel remains good, the team is executing very well I'd say that we continue to do very well especially at the high end of that market and get orders ---+ good orders there so, good execution in a good market Hi, <UNK> Great questions So the total exposure as I said is $130 million We've got $60 million remaining to CPTC in San Diego We've got $50 million outstanding sub debt to Maryland and we've got $20 million of sub debt to New York So those are the three that we have outstanding I'd say feel very good about New York and Maryland and where they are Large centers, Maryland is coming up to speed very, very quickly, fastest ramp We believe in Proton Therapy, they're now doing 60 to 70 patients They've got one more BeamLine coming on next month which should reduce the patient volume again a little bit more In terms of appetite for more of these, these are all very large centers I'd say that we don't have much appetite for large centers but we still look to use the balance sheet where there is a lower breakeven point, a smaller center, where we're a partner with reputable financing partners, where we're not the largest lender and where we're working with clinical partners who are leaders in their markets So, for example in the case of both New York and Baltimore we are working with local leaders in their markets and that makes a big difference And then of course we want I think the deal structure on this one was a little bit unique We did it in 2011. So our first probing, show site, and in any case I think we want to make sure that we've got a local partner with some skin in the game <UNK> you have anything to add there Sure Yeah, I mean I think when we look into the funnel we still have a good funnel Indiana was a very specific case with some extremely old technology that's been a little blown out of proportion But that center was 20 to 30 years installed and installed as frankly as kind of a research center with a little bit of clinical lad on So I think its failure has been a little overstated in the marketplace There were some procure issues in the market a couple years ago Now San Diego I think the transition from these really, really large centers to small center, something we've been talking about on our call is very much going on in the marketplace I mean this center would be very viable as a two or three room center financially and so it's got a tough capital structure It maybe a little bit over built for the market in the market position We do think that as it regionalizes and has opportunity to bring some more customers in especially in the San Diego area, that it can be viable So I think there are some very specific things about San Diego that made it that way We're still, of our 15 customers, 12 are cash paying So we've got the three that I talked about and we feel very good about where two of those are And clearly nobody is proud about this but we feel pretty good about where things are headed You know everybody is watching what happens in Washington but I'd say at this point in time we're not seeing a change in our funnel shape or size And as I said in the call our ---+ in the script our rolling 12 month performance in North America is 6% I would say that's pretty good for 12 months and from a funnel point of view we're not seeing that change Clearly who knows what's going to happen in Washington and everybody is watching But it's not changing behavior in the short-term Yes I'd say this is very much an issue in San Diego So, first of all about 15 orders I have top ---+ count off top of my head but at least 10 of them are outside of the U.S So there tends to be, it's not true in every case but it tends to be sovereign government purchases So those are in pretty good shape You know one or two of them are not, one or two of them are private but the vast majority of them are sovereign government purchases, backstop that way So should be very good from a credit point of view In the U.S , I mean New York the lead customer there is the top cancer center in New York City They're already sending very significant numbers of patients to other centers So as they build their own center they'll pull that volume back to this center So we feel very good about the viability of New York Baltimore is ramping very nicely Little bit of a slow start but they've gotten to 60 to 70 patients and now they open in February last year So just in a year they've ramped up very nicely Good reimbursement environment there and I think this is really kind of about some of the very specific contractual things and market conditions that were in San Diego I mean, it is not even clear how we've built the guidance on the revenue side is when you look at our last two or three quarters in oncology they've all been very good So we have certainly had the orders I mean just in this quarter alone the oncology backlog was up 6% or 7% So we've got a very good backlog there and the margin position in the backlog as we've talked about looks very good Q - <UNK> <UNK> But you know ---+ yeah, go ahead Thank you and thank you all for participating A replay of this call can be heard on the Varian investor website at www com/investor where it will be archived for a year To hear a telephone replay dial 1-877-660-6653 from inside the U.S or 1-201-612-7415 from outside the U.S and enter confirmation code number 1365-1576. The telephone replay will be available through 5PM this Friday January 27, 2017. Thank you

2017_VAR

2018

PRFT

PRFT #Thank you. This is Jeff <UNK>. With me on the call today is <UNK> <UNK>, our CFO. I'd like to thank you for your time this morning. As is typical, we've got 10 to 15 minutes of prepared comments, after which we'll open the call up for questions. But before we proceed, <UNK>, would you please read the safe harbor statement. Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion. At times during this call, we will refer to adjusted EP<UNK> Our earnings press release, including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, or GAAP, is posted on our website at www.perficient.com. We've also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations. Jeff. Thanks, <UNK>. Good morning, again, and thank you all for joining. We're excited to be with you to hear our first quarter results and update you with the revised outlook for the full year that underscores our optimism and confidence. As indicated in our press release this morning, the first quarter results were very strong. And as we mentioned on the fourth quarter call, a couple of months ago, we're really firing on all cylinders right now. We've previously guided to double-digit services revenue and earnings growth in 2018, and we're pleased this morning to further increase each of those projections. We realized positive year-over-year momentum across all key performance indicators. ADR was up, utilization was up, headcount up, billable hours were up, EBITDA, net of stock comp was up, services gross margin was up, revenue contributions from our global delivery centers in both China and India were also up. And of course, all that translated into material revenue and earnings increases, and perhaps the strongest overall quarter in our history. Certainly, the most impressive first quarter that we've ever realized. It's clear that the strategic and structural investments we've made in recent years combined with our unique and truly differentiated market positioning as well as the unparalleled breadth and depth of our portfolio is driving this performance improvements and enabling us to gain share. We're adding and growing relationships that are leading to larger and longer-term deals. And enterprises across industries are increasingly trusting Perficient to play a significant and central role in their digital transformations. As I also mentioned on our Q4 call, more and more our customers are realizing that we are big and strong enough to deliver the same work the majors do but at higher quality, more efficiently and with quicker time to value. We are as good as and most times better than the biggest names, and our approach is not only one of more ---+ that is more thoughtful and collaborative but also more comprehensive. That growing awareness is leading to a consistently strong pipeline translating more regularly into wins, which builds our backlog and an incrementally strengthening foundation will continue to build on. On the heels of strong Q4, bookings, we had a solid first quarter of bookings. And we had an exceptional April to get Q2 off to a nice start as well. In fact, last week, we closed our single largest win of the year-to-date. On top of all that is the second quarter got underway. We announced the acquisition of Southport Services Group, which brought great MicroStrategy business intelligence expertise to our portfolio, expanded our presence in the D. C. metro area, added a location in the southwest and also brought us some nearshore development capabilities based in Mexico City that we're excited about. And with that, I'll turn the call back over to <UNK> to cover the financial results before I touch on a few additional items of note and our outlook for the second quarter and updated guidance for the full year. <UNK>. Thanks, Jeff. Total revenues for the first quarter of 2018 were $120.9 million, a 9% increase over the prior year quarter. Services revenues were $120.2 million for the first quarter of 2018, an increase of 16% over the prior year quarter. Services gross margin for the 3 months ended March 31, 2018, excluding stock comp and reimbursable expenses increased to 36.3% from 36.1% in the prior year quarter. SG&A expenses, excluding stock compensation, increased to $26.4 million in the first quarter of 2018 from $23.4 million in the comparable prior year quarter. SG&A, excluding stock compensation, as a percentage of revenue increased to 21.8% from 21% in the first quarter of 2017. EBITDAS in the first quarter of 2018 was $16.9 million or 14% of revenues compared to $14.1 million or 12.7% of revenues in the first quarter of 2017. First quarter included amortization expense of $3.9 million compared to $3.6 million in the prior year. An adjustment of $1 million was recorded during the 3 months ended March 31, 2018, which represents the impact of the additional fair market value adjustment to the Clarity revenue and earnings-based contingent consideration liabilities to reflect Clarity's performance in excess of previous estimates. Our effective tax rate for the first quarter of 2018 was 23.2% compared to 40.2% in the first quarter of 2017. The lower effective rate for the 3 months ended March 31, 2018, was primarily due to lowering the U.<UNK> tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017. Net income increased 82% to $4.9 million for the first quarter 2018 from $2.7 million in 2017. Diluted GAAP earnings per share increased to $0.15 a share in the first quarter of 2018 from $0.08 in the first quarter of 2017. Adjusted GAAP earnings per share increased to $0.35 a share for the first quarter of 2018 from $0.24 a share in 2017. See the press release for the full reconciliation to GAAP earnings. And adjusted GAAP EPS is defined as GAAP earnings per share plus the amortization expense, noncash stock compensation transaction costs and the fair value of contingent consideration adjustments and the impact of other infrequent or unusual transactions not related to taxes, divided by average fully diluted shares outstanding for the relative period. Our earning billable headcount at March 31, 2017, was 2,653, including 2,429 billable consultants and 224 subcontractors. Ending SG&A headcount was 442. We ended the fourth quarter of 2017 with $56 million in outstanding debt, an increase of $1 million from year-end. Our balance sheet continues to leave us very well positioned to execute on our strategic plan. Our days sales outstanding on accounts receivable were 75 days at the end of March compared to 76 at the end of December. I'll now turn the call back over to Jeff for a little more commentary. Jeff. Thanks, <UNK>. So we sold the company record number of large deals in the quarter. 54 deals over $0.5 million that averaged $1.1 million apiece. And that compares to 48 in the fourth quarter that averaged $1.3 million and 49 in the first quarter of 2017 that averaged $1.4 million. So nice growth in large deal volumes, sequentially as well as year-over-year, where we realized strong bookings as well. So top comp there. During the quarter, the health sciences, financial services, automotive and retail/consumer goods verticals combined to represent 60% of revenue with health care ---+ health sciences at 26%; financial services at 14%; and automotive and retail/consumer goods each representing 10%. Health sciences and retail consumer goods revenue were each up 21% over the prior year quarter. From a platform perspective, Microsoft and Adobe were particularly strong in the quarter, both up substantially year-over-year. And sticking to platforms, we're very bullish on Pivotal. As our news release yesterday indicated we're making meaningful investments not only in anticipation of demand in the future but for opportunities we have right now. Google, as they more aggressively go after the enterprise cloud market is also a partnership we're optimistic about. The breadth, depth and strength of our partnerships is a real competitive advantage for us. We've mutually beneficial relationships with virtually all the major players, and they continue to recognize our work with awards and accolades, and reward our commitment and contributions. Just last week, Magento recognized Perficient Digital with a couple of high-profile awards. And during the first quarter, IBM named Perficient its 2018 Watson Customer Engagement Partner of the Year for Commerce. So as we mentioned in the release, our momentum is continuing into the second quarter. We expected 2018 to be a very strong year. And today, we are optimistic as we've ever been. We're pleased today be able to raise both our revenue and earnings guidance ranges for the year. Perficient expects its second quarter 2018 revenues to be in the range of $123 million to $127 million. Second quarter adjusted earnings per share is expected to be in the range of $0.36 to $0.39. Company is raising its previously provided full year 2018 revenue guidance range to $485 million to $510 million and nearing its 2018 GAAP earnings per share guidance range to $0.67 to $0.79, and raising its 2018 adjusted earnings per share guidance range to $1.44 to $1.54. So with that, Operator, we can open the call up for questions. I'd say that we're seeing generally positive demand across verticals. However, as I mentioned, health sciences continues to be a strong spot for us. We're well positioned there. So we're bullish on that space, and retail consumer goods is rebounding nicely as well. So again, I think kind of a tide lifting all boats. The only weakness I see out there right now is sort of in the oil and gas and energy sector, which we really don't participate in very much. I think it's about 3% of sales. Yes. We've added quite a bit of management consulting capability, both organically and through acquisition over the last couple or 3 years. And the intent there was to get more on the front of these relationships with clients and help them drive strategy and obviously, back that up then with delivery. So that's resonating very well. We're getting good transaction with the management consulting capability, and that's where I see it coming from, I think, that's going to continue. Again, that was our intent, and that's being well positioned right now. I think right now, literally I have to say, they're fully utilized, last I heard. Yes. A great question. I would say the general hiring point has not changed dramatically. It's probably a little tighter. I always answer this question with this fact, it's always hard to find good people. I don't care what the macro situation is. But I'd say, we're successfully recruiting the folks we need, but specifically Pivotal, I'm glad you asked that. The reality is we're hiring people for that skill set or for that position that have solid Java development skills, and actually doing our own training. So one of the things we mentioned in the press release yesterday, we've been certified as a Train-the-Trainer partner with Pivotal. So we're actually running our folks through our own training sessions that get them certified on the platform. Yes. We don't typically provide those specifics, but I will tell you that the growth rate is at or better than the companies. I want to say, they're probably low double-digits, somewhere in that range and margins likewise. The margins that they brought on table are slightly accretive to ours. So they are a little bit ---+ I think we're running at about 36% , 37%. They're going to a tick, 50 or 100 bps above that. Good question. It was about 7%, 7.5% for the quarter, and that was on the heels of a similar result in Q4. I want to say, it was also about 6.5% or 7%. And for the year, the midpoint of our guidance is about 7% organic, which I think is a solid projection. And I would attribute a couple of things to that acceleration. One is the investments that we made over the last 2 to 3 years really in a number of areas of the business, but in particular, I've spoken about this before is within the sales group, both the organization structure as well as compensation structure and actually adding significant capacity in sales. And I think we're starting to see some dividends from. As I mentioned earlier, the macro environment, I think, is helping as well. We are seeing, again, a generally positive environment across most sectors, most industries. And so I think that's helping also. But I do attribute the majority of it to those investments that we made earlier, which I think signals sustainability. Yes. Good question. So utilization was about 78% North American in the quarter. I expect that, that level will continue, if not higher. Our target across the year is about 80%. So we're working to get there. That's a little bit aggressive, but we're working on it. However, again, 78%-plus is solid as well. So we're ---+ I expect that, that will continue throughout the year. As well as ---+ yes, the competitive environment. We're definitely seeing competition on rates as we moved up market into these larger deals, however. Our ABR for the quarter was up about 1.5% year-over-year. And again, our goal for the year will be to push it 2% to 3%. I believe that's doable, in spite of the fact that we do see some competition. In fact, the matter is a lot of our portfolio is so unique that we've got still some pricing power. And I think we're still well below the kind of major firms, the big brands. Yes. The training is about a 2-week program. So we're able to roll them out after that 2 weeks. So the bench time isn't too great. We're anticipating demand, we'll move them off the bench right after they're out actually. So I don't think there'll be too much of a debt, still at 78%-plus range, I think, is what we can do. The SG&A impact over the training, et cetera, in those investments is pretty well baked into our Q2 guidance. I think that only improves beyond Q2. As we kind of tip the scales towards incremental revenue and incremental margin from those different resources. And right now, we've got 60 people deployed in Pivotal delivery. Yes, slightly. Yes. Yes. I'd say it's for health sciences, it really continues to be primarily digital transformation. It is the paradigm shift that's occurring and it's still occurring, I think, with a long tail of ---+ a focus on patient is consumer and consumerism in health care, both on the payer and the provider side. We've positioned ourselves right in the middle of that. And I would argue we're the leader in that industry in terms of helping our clients adapt to that new environment. And again that's a lot of patient-consumer facing applications, mobility, web, enrollment, service, et cetera, as well as digital marketing. We're actually managing digital marketing spend for a few of our health sciences customers. And that's where that demand is coming from. I think it'll be sustainable indefinitely honestly. Retail consumer, yes, it's more commerce. We're seeing a lot of commerce order management. But also, again, I'll come back to agency, mobility, consumer-facing applications that are leveraging our digital agency capability under Perficient Digital. So I think, that's going to continue as the brick-and-mortar continue to fall away. You see the continued rise of online retail. Many of whom may be niche, competing with Amazon in that fashion, but again we seek a demand there and expect that to continue. Yes, absolutely. The short answer is more digital. And by that, I think, software was a great example. And it was a good size, $15 million to $20 million is a good size. I would love to see us finding businesses that are $25 million to $40 million. Of course, the scarcity increases as you move up those numbers. So ---+ and what they brought to the table absolutely was more data and more data capabilities, in this case, MicroStrategy. We certainly saw a demand within our existing customer portfolio and of course, they brought great demand as well. So the acquisition pipeline is strong. We've got deals in various stages of analysis that are in the works. And the size of those, again, probably in that same range $15 million to $40 million, I think, is doable. We've got some at the higher end of that. We've got more at the lower end. Yes. I think, more jobs are going to stay with the greenfield organic approach. The thing is, your first question is, there really aren't very many pivotal shops as you might imagine. It's more or less in the earlier stages of its adoption. So by the way, I think our timing is quite good. And to your point, we've made these investments and worked out a plan here and a strategy to do this completely greenfield organically, and that's our plan. I don't see us doing any acquisitions on the Pivotal space, at least, not in the near future. All right. Well, thank you all for your time today, and we look forward to talking about our excellent Q2 in 90 days. Thank you.

2018_PRFT

2016

LYV

LYV #<UNK>, as we talked this philosophically, I mean, again, when we took Ticketmaster over, it had been losing customers, renewal rate was down to 70%. Its EBITDA had declined 20% a year for the five years before that. So now you sit here with Ticketmaster where EBITDA has grown. We've had record ---+ a record ticket selling month and our renewal rates are over 100%. So I believe that if you ask our clients, the number one reason they will tell you that the business, why they've renewed, why they've signed up, why they have a new appreciation for Ticketmaster is that, over the last few years, we, for the first time in 20 years, were the management team that looks serious about investing and upgrading the tools that would help them sell more tickets. So for a venue, we've shown you in the past the green screen they had, but today they have an iPad app, an iPad with an app that lets them price their own tickets, publish their own shows, instant ticket sales delivery. There's multiple ways it's been enhanced and elevated. So absolutely I would not be sitting here years later with a green screen telling you just because we have a few concerts at Live Nation we were able to fix the business. But the new platform, all the new tools we've been developing, and modularly delivering to our client over the last year I think is the fundamental reason that the business is now excelling. And a lot of that development also gets shipped internationally. The reason we are able to scale faster there and grow our businesses, we're going to be, again, able to use the learning in some product development from America on our international expansion, which, again, never happened in the old TM. They were very separate, 14 separate platforms that shared no product development. We are not really in their business. I know they have a few sales guys trying to sell some IP, but at the core are, again, going back to our priority, our focus, the reason we have 900 sponsors, if we surveyed them tomorrow, 899 of them would tell you because we have incredible on-site customer reach. We are the [60 million customers] (corrected by company after the call). We are bigger than the NFL, NBA. So most of our advertising always has been driven by we have an incredible ability to reach, on a Thursday night in seat 7, a customer specific. When you add it on Ticketmaster and we started to get really rich in data about that customer, our business started to grow. When you then added on a digital platform and ability to say to a sponsor, "we can deliver you on-site and we can amplify that connection digitally," our business grew. So our core business, the customers, the brands that are looking to partner with us, that\ Obviously, the cash is paid for contracts that are generally three to five years, and at this point, with that history, cash is basically equivalent to expense. Yes. It's essentially steady-state by this point in the history. Thank you everybody. We'll talk to you in Q2.

2016_LYV

2018

INVA

INVA #Good afternoon, everyone, and thank you for joining us. On today's call, we will review the highlights and financial results from the fourth quarter and full year of 2017. Following our comments, we will open up the call for questions. Earlier today, Innoviva issued a press release announcing recent corporate developments and financial results for the fourth quarter and full year of 2017. A copy of the press release can be found on our website. Before we get started, I would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Innoviva. Forward-looking statements include anticipated results and other statements regarding Innoviva's goals, plans, objectives, expectations, strategies and beliefs. These statements are based upon the information available to the company today, and Innoviva assumes no obligation to update these statements as circumstances change. Future events and actual results could differ materially from those projected in the company's forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater details in the company's press release and the company's filings with the SEC. Additionally, adjusted EBITDA and adjusted earnings per share to non-GAAP financial measures will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measures can also be found in our press release. Also yesterday, we announced the departure of Michael Aguiar, who has resigned as President and CEO of the company, and want to advise you that we don't intend to discuss this matter in today's call. Innoviva had a very successful fourth quarter of 2017, driven by record high TRx market share in the U.S. for RELVAR/BREO and ANORO and strong financial results. We remain confident that Innoviva is well positioned to deliver value to our shareholders through continuing profitability and cash generation. Our partnerships with GSK continues to make significant progress towards our goal of building BREO, ANORO and TRELEGY into leading global medicines for the treatment of patients suffering from asthma and COPD. In the U.S., BREO and ANORO both continue to significantly outperform the market in prescription volume growth, 77% year-over-year growth for BREO versus 4% for the ICS/LABA market and 69% for ANORO versus 4% for the maintenance bronchodilator market, resulting in new all-time high TRx market share for both products. During Q4 2017, BREO script volume grew by 10.4% versus the third quarter of 2017. This compares favorably to the total LABA/ICS market, which grew by 4.9% during that period. We saw the same trends for ANORO, which adds Q4 script growth of 11.3% over the prior quarter versus 3% for the market. According to the most recent weekly data compiled by IQVA (sic) [IQVIA], formerly IMS, TRx market share for BREO was 19.5% and ANORO reached 16%. In the week ending January 26, 2018, ANORO new-to-brand market share was approximately 21.2% overall and was approximately 23.7% for pulmonologists. Of note though, IQVIA that also shows that BREO new-to-brand market share remained flat during the fourth quarter at 23.2% overall for the week ending December 29 compared to the week ending September 29, but BREO remains the leading ICS/LABA among pulmonologists with a 41.4% share for the last reported week of the year. We believe these NBRx market share dynamics during the last quarter have been a result of recent competitive pressures, and we plan to continue to work very closely with our partner, GSK, to maximize market share for our joint products and remain confident that both BREO and ANORO will maintain their strong market position. In addition, our portfolio of commercialized products continued to grow in 2017 with the U.S. commercial launch of TRELEGY ELLIPTA, the new ICS/LABA/LAMA triple therapy in November. TRELEGY ended 2017 with over 3,000 TRxs in the U.S. As we've mentioned on prior calls, reported net sales by GSK traditionally experienced quarter-over-quarter volatility that has not been related to underlying prescription trends. While during the third quarter of 2017, GSK had reported that net sales for BREO were affected by unfavorable payer rebate adjustments related to prior periods, in the fourth quarter of 2017, as is traditionally the case, reported net sales for BREO and ANORO benefited from stronger winter market demand. RELVAR/BREO recorded total net sales during the fourth quarter 2017 of $405.3 million, up 48% from the fourth quarter of last year. Net sales in the U.S. were $241.6 million, up 53% compared to Q4 of last year, while outside the U.S., net sales were $163.7 million in the fourth quarter of 2017, an increase of 42%. For ANORO, Q4 net sales were $147.3 million, a 62% increase from the fourth quarter of 2016. GSK initiated the commercialization of TRELEGY ELLIPTA in the U.S. markets during the fourth quarter of 2017 with reported net sales of $2.8 million. Overall in the U.S. market, BREO TRx in the fourth quarter of 2017 reached close to 1.4 million scripts, an approximately 61% increase compared to the fourth quarter of 2016. ANORO TRx in the fourth quarter of 2017 grew by approximately 64% during the same period. With strong underlying demand trends, favorable 2018 reimbursement status and an effective collaboration with GSK, we remain optimistic about the potential for our products. In November, we announced positive data from a study comparing ANORO ELLIPTA and STIOLTO RESPIMAT for symptomatic patients with COPD. We view this study as an additional complement to support the commercialization effort of ANORO in a competitive market. In addition, in November 2017, we announced the filing of a supplemental new drug application with the U.S. Food and Drug Administration for an expanded indication for the use of TRELEGY ELLIPTA in COPD. Turning to our financial results. We are very pleased with our strong financial performance during 2017. In total, we generated more than $227.9 million in royalties earned in 2017, which translated into more than $183.6 million in income from operations and $207.5 million in adjusted EBITDA for the year, achieving a 91% EBITDA margin. Looking at the progress we've seen over the last year, we remain confident in our financial performance. Our royalties earned in the fourth quarter of 2017 were 17 ---+ 70, 7-0, $70.5 million, a 51% increase over the fourth quarter of 2016, offset by $3.5 million of net noncash amortization expense. Royalty revenues earned for the fourth quarter of 2017 included $60.8 million for BREO, $9.5 million for ANORO and $0.2 million for TRELEGY. Total operating expenses in the fourth quarter of 2017 were $3.1 million. This includes $3.4 million in operating expenses, $2.4 million in noncash stock compensation expenses and a $2.7 million D&O insurance recovery for litigation costs resulting from proxy contest. Year-to-date, total operating expenses were $33.6 million, which includes $8.1 million in net proxy contest and related litigation costs, and $9.8 million of noncash stock-based compensation expenses. We continued to generate strong cash flow from our operations in the fourth quarter of 2017. Income from operation was $66.4 million, a 76% increase compared to $37.7 billion in the fourth quarter of 2016. Adjusted EBITDA was $72.3 million in the fourth quarter of 2017, a 65% increase compared to $43.7 million in the fourth quarter of 2016. Net income attributable to Innoviva stockholders for the fourth quarter of 2017 was $58.4 million or $0.50 basic EPS, a 129% increase compared to $25.5 million in the fourth quarter of 2016 or $0.24 basic EPS. For the full year 2017, our income from operation was $183.6 million, an increase of 68% compared to 2016. In spite of incurring costs associated with the proxy contest litigations, which reduced basic EPS by approximately $0.08 per share in 2017, our basic EPS was $1.25 per share for the full year 2017, up 131% compared with basic EPS of $0.54 in 2016. This strong annual increase in the result ---+ is the result of the steady growth in our profitability and a gradual reduction in share count resulting from the execution of our 2017 capital return program. We completed in December '17 the $80 million ASR program by purchasing 6.1 million shares of our common stock at an average price of $13.09 per share, bringing our total stock repurchases for the year to $97.5 million for a total of 7.4 million shares or 7% of outstanding shares at the beginning of the year. We also repaid $85.9 million of our long-term debt during 2017. Over the last 12 months, we generated approximately $207.5 million in adjusted EBITDA, and with the continued reduction of our debt level, our total net debt balance was reduced to $548.2 million at the end of 2017, resulting in a leverage ratio of 2.6x net debt to last 12 months adjusted EBITDA as of that date. Cash, cash equivalents, short-term investments and marketable securities totaled $129.1 million as of December 31, 2017, and we had $70.5 million of royalty receivables from GSK at the end of the fourth quarter. With a more optimized capital structure, substantially reduced cash interest costs and continued strong cash-generating capacity, we believe we are in a strong financial position for 2018. Finally, I'd like to mention our preliminary assessment of the effects of the December 2017 U.S. tax reform. Although a review is ongoing, we currently expect to see a positive impact from the new tax regime for Innoviva, mainly due to the reduction in the corporate tax rate from 35% to 21%. Assuming the rates remain as they are now, this should lead to lower cash taxes to be paid by the company once our NOLs are fully utilized. In summary, we remain optimistic about our future prospects based upon gains in prescription volumes and market share for our products and the strong financial profile of the business. Our primary focus in 2018 will remain the optimization of the commercial success and global rollout of our products, and we remain optimistic about the outlook of the company. And now, I'd like to ask the conference facilitator to open the call for questions. Yes. So the recovery was for prior quarters. So basically, the way it works is that you have the total legal fees, and you have certain recovery mechanisms under the D&O policy and the $2.7 million is for the whole year. No, not really. We had just very minor spending. All the costs were basically over by September, I think, if I recall. So I think what we've said in the past are really 2 main things. First off, we think it's important to have TRELEGY as part of the ELLIPTA portfolio. And the reason for this ---+ or the ---+ one of the main benefit is for patient that goes ---+ comes to the doctor from first to last visit, they can have a progression of different medicines using the same device. We think this is a strategic advantage compared to all the other products that are out there because it makes life easier for both the doctors, the nurses and the patients to ---+ as they evolve through their disease to just ---+ adjust the compounds that are prescribed without regard to the device itself. So that's one thing that I ---+ that we think is extremely useful. There is no change, as far as we understand, in the commercial strategy that we've presented in the past for the products. The COPD is a very diverse ---+ it's a disease where you have a very diverse set of symptoms and each patients have then the ability to have their appropriate treatment based on their symptoms, specifically. So we think it's a great addition to the portfolio, and the commercial strategy has always planned for this and is being implemented accordingly. So we usually don't give the detail of the couponing level. However, what we've said in the past, and we remain ---+ we have the same view today. Couponing is essential as part of the different tool set that is available to GSK for the commercialization of their products. This is a ---+ respiratory is a very mature and very competitive market, and couponing is an essential tool that is available. So we're very supportive of it. The couponing usually tends to decrease over time as coverage increases because you need less and less couponing as your coverage increases. And frankly, the coverage for our product ---+ for BREO and ANORO ---+ is excellent. It's not a differentiating factor anymore as it was several years ago. It's really good. So the ---+ I would say, the couponing level is way less than it was before, but it's an important tool for GSK. So it's, I think, too early to really have any real statement. As I mentioned, I think this was 3,000 scripts in the U.S. during the quarter. I think we'll have to wait a little bit over time to see what the response is. But for sure, you have a lot of triple therapy in the markets today. I think, historically, what we've explained is that of the COPD portion of the ICS/LABA class, about 40% of that segment tends to be in triple therapy. So there's definitely a market opportunity there, and it's being used. So our hope is that it's going to be very well received by patients who really need that triple therapy. But for having conclusions on the reception so far, we'll just have to wait a little bit, if we can. Thank you, operator. As we conclude our call today, I'd like to provide a couple of final thoughts. First, we have to recognize our strong financial performance in 2017, and we remain committed to our goal of maximizing stockholder value. The second is our teams' continuing efforts to actively manage our GSK collaboration. We believe this commitment is key to maximizing the potential value of our respiratory assets. Thank you very much for joining us today. We appreciate your continued support.

2018_INVA

2018

HAFC

HAFC #Thank you, Dana, and thank you all for joining us today. With me to discuss Hanmi Financial's first quarter 2018 earnings are <UNK> <UNK> <UNK>, our President and Chief Executive Officer; <UNK> <UNK>, Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer. Mr. <UNK> will then provide more details on our operating performance. At the conclusion of the prepared remarks, we will open the session for questions. In today's call, we may include comments and forward-looking statements based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position. Our actual results could be different from those expressed or implied by our forward-looking statements, which involve risks and uncertainties. The speakers on this call claim the protection of the safe harbor provisions contained in the Securities Litigation Reform Act of 1995. For some factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and 10-Q. In particular, we direct you to the discussion in our 10-K of certain risk factors affecting our business. This afternoon, Hanmi Financial issued a news release outlining our financial results for the first quarter of 2018, which can be found on our website at hanmi.com. <UNK>. Thank you, <UNK>. Good afternoon, everyone. Thank you for joining us today to discuss Hanmi's 2018 first quarter results. Hanmi continues to deliver strong financial performance even in today's highly competitive banking environment. Let me take a moment to briefly summarize the key highlights from the first quarter. Net income expanded nicely on both a sequential quarter and year-over-year basis. Loans and leases receivable increased 2.5% on a linked-quarter basis, which represented 10% increase on an annualized basis and were up 12% from a year ago. Importantly, we have been able to achieve this solid growth in loans and leases while maintaining our disciplined underwriting standards and excellent asset quality. Net interest margin of 3.7% in the first quarter held relatively steady after adjusting for benefits in the prior quarter from prepayment fees. This is a good result considering the extremely competitive environment in which we are operating. Deposit gathering activities were bolstered by growth in noninterest-bearing demand deposits, which increased 3% from the prior quarter and nearly 9% from a year ago. Noninterest expense increased just modestly compared with prior quarter despite the seasonal impact of elevated payroll taxes and employee benefits in the first quarter. And finally, our board announced a 14% increase in our first quarter dividend to $0.24 per common share. In fact this was the fifth increase in our dividend since 2013, and during this time, the dividend has grown more than 240%. Looking in more detail at our first quarter results, we reported net income of $14.9 million or $0.46 per diluted share. On a linked-quarter basis, net income per share increased by $0.10 or 28% compared to the fourth quarter of 2017, which included a onetime revaluation adjustment of $3.9 million to reduce our deferred tax assets as a result of the recently passed tax reform legislation. Compared to the first quarter last year, net income per share increased by 7% or $0.03 per share primarily due to the growth of core sustainable earnings generated by the expanding portfolio of loans and leases. I'd like to point out that net income in the first quarter of 2018 relative to the fourth quarter was negatively impacted by approximately $0.04 per share related to two events. These included the $428,000 loss from the sale of and the exit from Community Reinvestment Act or CRA mutual funds that were acquired as part of our 2014 acquisition of Central Bancorp, Inc. as well as de minimis prepayment fees in the first quarter. Turning to loans and leases receivable, our portfolio expanded by 10% on an annualized basis in the first quarter and 12% from a year ago. New loan and lease commitments booked in the first quarter of $281 million, excluding residential loan purchases, represents a 17% increase as compared with production in the first quarter last year and 5% increase on a linked-quarter basis. This is very strong result in what is typically our seasonally weakest quarter of the year for loan and lease production. Our Commercial Equipment Leasing Division continued its exceptionally strong performance in the quarter. First quarter lease production of $55 million increased 5% from the prior quarter and 39% from the first quarter last year. I'm pleased to report that this was the best quarterly result since we completed the acquisition of this business in the fourth quarter of 2016. In addition to being a nice complement to our focus on business banking to diversify the Hanmi loan portfolio, the newly generated leases for the quarter had a weighted average lease yield of 5.5%. This weighted average yield on new production is higher than the fourth quarter 2017 figure of 5.29%. This portfolio continues to generate a higher yield than the other loan categories as the weighted average yield on new organically generated loans for the first quarter was 4.91%. I continue to be pleased with the ongoing success of our C&I lending effort, which is benefiting from previous investments to extend our reach geographically with a coast-to-coast footprint and into new areas of focus such as specialty and entertainment lending. During the first quarter, C&I commitments booked totaled $62 million, which was 35% higher on a year-over-year basis and 11% higher on a linked-quarter basis. As of the end of the first quarter, the balance of C&I loans outstanding excluding leases was up 2.6% on a quarter-over-quarter basis and was up 29% on a year-over-year basis. Due in part to the strength of our C&I and Commercial Equipment Leasing Division, the diversification of our portfolio continues to improve. At the end of the first quarter, CRE loans comprised 71% of our portfolio compared with 76% a year ago. We expect CRE loans as a percentage of the total portfolio to continue to decline throughout the year. Looking ahead in the second quarter and beyond, our loan and lease pipeline remains healthy, and we are confident that we can generate double-digit growth in loans and leases for the full year. I'm also confident that the SBA loan production, which typically slows in the first quarter, will ramp back up to the $40 million per quarter level. In terms of deposits, we continue to operate in a highly competitive Asian-American banking landscape for deposit gathering activities. Total deposits of $4.38 billion increased nearly 1% during the first quarter on a linked-quarter basis while deposits have expanded more than 7% from a year ago. Similar to recent prior quarters, growth over the last year is coming from the core deposit categories including noninterest-bearing demand deposit, which are up nearly 9% year-over-year, and retail CDs, which have grown 21% year-over-year. It appears the retail CD market competition has heated up with banks having funding pressures driving up the pricing of CDs at a level not consistent with the fed's interest rate moves. However, our ability to generate core deposits particularly in the noninterest-bearing demand deposit category will allow us to better control our cost of funds. I'd like to provide some color on our first quarter net interest margin of 3.7%, which compares with 3.79% and 3.89% in the prior quarter and a year ago quarter, respectively. On a linked-quarter basis, approximately 8 points of the 9 basis point reduction in NIM was related to prepayment fees that benefited the fourth quarter. In fact, prepayment fees in the first quarter were only $83,000 compared with a quarterly average of $497,000 over the last 4 quarters. Furthermore, nearly half of the year-over-year contraction in NIM is attributable to the additional interest expense associated with the $100 million sub debt that was issued late in the first quarter of 2017. Given the competitive market and rising deposit costs, I'm pleased that we have been able to maintain our net interest margin in a relatively tight range over the past year. Hanmi's ability to generate higher-yielding assets, combined with our ability to generate core deposits, will allow us to maintain a strong net interest margin in a challenging environment. And finally, our asset quality metrics continue to remain strong. Nonperforming loans declined slightly to $15.4 million or 35 basis points of loans. We also recorded net recoveries for the first quarter of 2018 of $85,000. All of the other asset quality metrics have improved quarter-over-quarter. Finally, our allowance for loan losses was maintained at 72 basis points of loans and leases at quarter-end. Even as we generate loan growth on a double-digit annualized basis, we continue to maintain a culture of disciplined credit underwriting. In the first quarter of 2018, consistent with prior quarters, the weighted average loan-to-value and debt coverage ratios on new commercial real estate loan originations were 54% and 1.78x, respectively. Before turning over to <UNK>, I'd like to reiterate that our first quarter cash dividend increased by 14% to $0.24 per share and was paid on February 23. This represents an annual dividend yield of 3.1% based on yesterday's closing stock price. The increase in our dividend highlights the earnings power of the Hanmi franchise and the board's confidence in our ability to continue to deliver profitable growth to our shareholders. With that, I'd like to turn the call over to <UNK> <UNK>, our Chief Financial Officer, to discuss the first quarter operating results in more detail. <UNK>. Thank you, <UNK> <UNK> , and good afternoon all. First, let's discuss our net interest revenues in a bit more detail. First quarter net interest income of $44.9 million decreased 3.1% or approximately $1.4 million from $46.3 million in the fourth quarter and increased 6.1% or $2.6 million over the same quarter a year ago. Following a very strong fourth quarter, our first quarter results reflect upward pressure on deposit rates as deposit interest expense increased by $383,000 and borrowing interest expense increased by $316,000 as well on higher borrowings. Total interest expense for the first quarter was $10.2 million, up 7.6% from the fourth quarter's $9.4 million. The linked-quarter decline in net interest revenue was further compounded by a higher level of prepayment fees experienced in the fourth quarter versus a lower level in the first quarter. Interest and fees on loans were down 1.2% or $602,000 from the prior quarter but increased 13.7% or $6.2 million from the first quarter of 2017. Our loan and lease portfolio continued to see solid loan growth, up $109.1 million or 2.5% from the prior quarter. Total deposits increased by just under 1% in the first quarter to $4.38 billion from $4.35 billion at the end of the fourth quarter and were up 7% year-over-year from $4.08 billion. Noninterest-bearing deposits finished the quarter at $1.4 billion, up 3% from last quarter and up 9% from a year ago. Our loan-to-deposit ratio for the first quarter was 101%, up from 99% last quarter. Since March 2017, the Federal Reserve increased the benchmark fed funds rate 4 times for a total of 100 basis points, including a 25 basis points increase on March 21 of this year. The quarterly average rate paid on interest-bearing deposits over the same time period increased 27 basis points, representing 27% of the change in the fed funds rates. For the first quarter of 2018, the 8 basis point increase in the average rate paid on interest-bearing deposits represented 32% of the most recent change in the fed funds rate. Net interest margin for the first quarter was 3.7%, down 9 basis points from the prior quarter. The average rate paid on loans and leases was 4.85%, down 5 basis points primarily from prepayment fees. The average rate paid on interest-bearing deposits for the first quarter increased by 8 basis points to 1.05% from the fourth quarter, while the average cost of overall deposits saw a more muted sequential uptick of 5 basis points to 0.73%. Switching now to noninterest income. The first quarter saw a decrease of 21% to $6.1 million. The primary driver was a $428,000 realized loss on the sale of CRA mutual funds that were mostly holdovers from the CBI transaction. Additionally, SBA loan sales were seasonally lower at $19.2 million loans, down from $27.5 million in the fourth quarter. Changes in servicing income, servicing charges and fees and other operating income accounted for the remaining decrease in noninterest income in the first quarter. Noninterest expenses for the first quarter excluding OREO, which tends to be lumpy, were relatively steady from last quarter with a 1.1% or a $320,000 sequential increase to $29.7 million. Salaries increased $1.4 million due to annual bonus payouts and payroll taxes. However, this was mostly offset by lower cost for professional fees, marketing costs and other expenses. The increase in noninterest expense, coupled with the decrease in our noninterest income, resulted in a higher efficiency ratio of 58.4% in the first quarter versus 54.2% last quarter and 55% a year ago. The effective tax rate for the first quarter was 27.8%. This was down from an effective rate of 53.2% in the fourth quarter, which included additional income tax expenses many banks experienced at the end of the 2017 year stemming from the remeasurement of deferred tax assets. In the first quarter, our return on average assets and return on average stockholders equity both increased to more normalized levels at 1.16% and 10.65%, respectively. Very importantly, the quality of our asset base continues to be strong with nonperforming assets coming in at $17 million for the quarter or 32 basis points of total assets. Our delinquent loans to total loans decreased by 4 basis points to just 16 basis points, and nonperforming loans to total loans fell 2 basis points to 35 basis points for the first quarter. Our provision expense increased to $649,000, up from $220,000 at the end of the fourth quarter, and our allowance coverage ratio remained unchanged at 72 basis points. Lastly, our tangible book value finished the quarter at $16.98 per share, pretty much flat from the $16.96 per share from the prior quarter. Our tangible common equity ratio remains strong at 10.43% as do all of our regulatory capital ratios. With that, I will turn the call back to <UNK> Thank you, <UNK>. Hanmi's performance in the first quarter represents a solid start to the new year. With strong growth in conservatively underwritten loans and leases, excellent asset quality and expanding earnings, Hanmi is well positioned to deliver strong financial results throughout the year. I look forward to sharing our continued progress with you when we report our second quarter results in July. Thank you for your attention, and have a nice day. Dana, let's open up the call for questions. So maybe, <UNK> <UNK> , <UNK> might want to take the first part of that question. Yes, I'll let <UNK> take that. Sure, this is <UNK>. We haven't really run any CD campaigns. We had a strategy, more of a defensive yet a competitive strategy, where we are looking at our each relationship customer individually and match the competition. When we look at it, it's all about overall profitability. Okay. And then with respect to the cost of deposits, we did notice a small increase. And as we tried to point out, it appears that the CD deposit pricing is basically running independent of what the fed may or may not do. But as ---+ <UNK> <UNK> also mentioned that we do have the benefit of a higher-yielding portfolio if ---+ not only in leasing but in other elements of the portfolio. So we do envision some pressure. <UNK>'t exactly know how it's going to play out for the entire year, but I think we have a good chance of being about where we're at. Yes. Let me take a stab at that. The ---+ I think the 3.70%, we have a pretty good shot at maintaining. And depending on what the Federal Reserve does relative to the future rate increases, we have a chance to move that number up in a hopefully meaningful way. As I tried to mention earlier, we have an ability to generate loans that very few banks have. And because of that, even though we have a fair number of our loans that are in this hybrid pricing structure, we have the ability to, in essence, increase pricing, I would say, with a little bit higher level of elasticity than you might envision for the type of asset liability position that we have. So the leasing portfolio and even the commercial real estate, we think that under <UNK>'s leadership and her cracking the whip a little bit more, we can get a better yield, better return on the loans that we're going to be generating. Yes, I believe so. Well, you're right in that the fourth quarter number, the actual figure was $964,000, and that was unusually high. That followed the third quarter figure of $793,000. So for the year last year, we averaged slightly under $0.5 million. And so the prepayment penalty is an unpredictable number obviously, and frankly, I was a bit surprised of the level of prepayments that we had in the second half of the year. Going forward, in what I believe to be a rapidly rising rate environment, the ---+ I don't think that we're going to have a high level of prepayment penalty. Having said that though, the flip side is the more the loans that we have generated will stick in our portfolio. And so whether the income comes from ---+ as I said, going forward in 2018, whether the ---+ whether there's a prepayment penalty or there's a higher loan value or loan totals in our portfolio, we're going to be just fine. But the ---+ it's hard for me to think that the 2018 is going to have a high level of prepayment penalty given that the rates have already started to move fairly significantly in a category like commercial real estate. So we may not get the prepayment penalty, but more of the loans that we generate is going to stick on our books. I don't want to say conspiring to slow it down. I would say that the smaller institutions are concerned with the impact of the kind of interest rate environment that we all have been experiencing. And so I made a mistake a little while ago of signaling that there was a deal imminent, and it didn't happen for reasons that were not in our control. But let's just say that we've been very active in discussions with interested parties. And given where we are in terms of the stock price and frankly given where we are relative to the clean position of the organization from regulatory or whatever viewpoints that you want to look at us from, we're looked at as one of the potential partners by quite a few potential sellers out there. Yes, we did. We did, and that was because we thought that there was going to be a large relationship that was going to get paid off. I would say that the ---+ given the pipeline that we have of potential organically produced loans, it will be at the level that we did in the first quarter, maybe even less. <UNK>, this is ---+ yes. So <UNK>, again, I expect between 27% and 28%. We're closer to the 28 side, so I think we'll still be around between those 2 marks. I'm not sure exactly where the decimal point will come in at each quarter. Of what, the $1.4 million. Pretty much if I compare it to the fourth quarter, I would say probably about 80% of that increase, maybe 75% of that increase, kind of reflects the year-end incentives, the incremental taxes, the incremental benefits. Yes. I don't think we're ---+ our book ---+ our security book is not that big, so we're not expecting any significant change to that particular portfolio. So in terms of a mix, it might be leaning a little bit more towards leases and C&I than CRE. But other than that, I don't expect a significant change in the mix over the next couple of quarters. Thank you for listening to Hanmi Financial's First Quarter 2018 Results Conference. We look forward to speaking with you next quarter.

2018_HAFC

2017

VAC

VAC #Sure. <UNK>, I mean, I think I might have said this one time before. We really didn't strategically plan to add six new locations in one year. By virtue of the way in which deals came together and the timing of same, that kind of all created the perfect storm of opportunity of having to open six in one year. Ideally, we'd like to add one, two, three kind of on a yearly basis. We have a very active development pipeline that we continue to look at, both in North American and in the Asia-Pacific region. And I would expect us to continue to add along those lines. Unfortunately, one of the things that happens with deals is you can't always control the exact timing of same. So you could have a situation where some things kind of bunch up together but that's certainly not our intent. Well, as you might imagine, we have an ongoing dialogue with Marriott as our licensor and we continue to have very good relationships with them. Obviously, there are deep ties between our management team and those in Bethesda because of the long tenure that we enjoy here with our staff and we were all part of Marriott before that. As you may recall, even last fall, we worked with Marriott to help them in their desires to try to link the two frequency programs together, that being Marriott Rewards and Starwood Preferred Guests, to allow some ability to have people take their earning experience in each program and apply them as separately or going across the system. That needed some help from us to help make that happen given some of our exclusivity arrangements that we have on the loyalty program side. Having said all that, Arnie Sorenson has been very forthcoming when he said the intent is over time is to eventually blend these two programs into one program. And we will continue to work collaboratively with them to try to make sure that they can get to where they are they want to get to and we can preserve the value that we have in our license agreement. Well, no. I think you've articulated our position clearly and quite frankly by virtues of our license agreement that's what's stated in our license agreement, that we have exclusive space to the Marriott Rewards Program or it's successor program. With that said, I can't speak for ILG and what their intentions are. I know they have some rights to the SPG program. But I'm uncertain to be honest, as to whether or not they have any continuing rights in the event that the SPG program is no longer viable or available. So with all that said, we're going to do everything we can to try to make sure that we can be helpful to Marriott in what they want to do but we're not going to give up anything of value on our end. Thank you. Thanks. Thank you very much, Rob. So let me close by repeating my excitement for how we ended the year with the strongest quarter-over-quarter contract sales growth and EBITDA performance we've had as a public company. And more importantly the momentum that we have carried into 2017. I certainly like what I've seen so far this year and look forward to discussing our results on future calls. And finally, to everyone on the call and your families, enjoy your next vacation. Thank you very much.

2017_VAC

2016

CREE

CREE #There will be some, but I don't have a specific breakout for you at this time. Obviously, it's a small percentage of the total. So I'd say it's relatively modest. And the reason I talk about it as more important in the mid- to longer term is today what we're really talking about is smart lighting that allows you to optimize the lighting environment. When you start to think about smart lighting, which are really platforms for not only lights, but sensing and then some building analytics or environmental analytics, you're really talking about systems that start to add value at a fundamentally different level than just the lights. And so that's not going to happen overnight, but I think it really creates an interesting opportunity for all the lighting companies that we can participate ---+ we can add value by more than just delivering great lights. I don't know that there's any significant ASP or unit trend. It's really a quantity of project trends. So I wouldn't think of that as some dynamic as far as a big shift one way or another. It's just when we had the disruption back in our fiscal Q3, we really created a project pipeline gap and it will take us two to three quarters to rebuild that. Thank you for your time today. We appreciate your interest and support and look forward to reporting our first quarter results on October 18. Good night. Thank you.

2016_CREE

2016

MS

MS #Good morning. Let me try to take a swing at this one. So as we laid out on the page, first of all the compensation, the $1 billion-plus of compensation and non-comp savings are assuming a flat revenue environment. So if we get out two years and we're flat to today our ratio will be 74%. As <UNK> mentioned, we do expect revenue growth throughout this period. And therefore the efficiency ratio should be lower than the 74% because we do have operating leverage in the business, first and foremost. So I think that is probably the biggest disconnect in your math. You can see in the revenue bucket, or the modest revenue growth bucket, we do have improvements in different business segments. And then in terms of the capital base, ideally we believe we have sufficient capital, we had been accreting capital over the course of the last several years. We would expect to probably accrete a little bit more capital over the coming period, but we would like to try to clearly slow down the accretion of capital since we believe we have the appropriate amount of capital for our current plan. I don't want to get ahead of predicting how regulators are going to think about this. We did what we think is right for our business. Our job is to generate returns for our business. However, arithmetically if you have met all of the capital targets, by definition if you change the structure of your business and throw off additional capital that you now by definition don't need, that ought to be available for returns. Do I think that there's going to be one-time major dividend in the next 12, 18 months. No, I don't think that's possible. But do I believe that we're going to be in a position where we increase our returns. Absolutely. And you've seen banks that have generated payouts above 100% for this reason. They are accreting more capital than they need for their business. That's before you get to banks that have actually restructured their business in the face of the new business reality. So again, I don't want to get ahead of them. That would not be a smart thing to do. But I do think our strategy is pretty clear, and it's certainly consistent with where the regulatory push has been. <UNK>, we've got about a little over $9.5 billion of goodwill and intangibles. So on our capital base somewhere around 125 basis points above those numbers, just math. We have an ROE target of 9% to 11% for all of our common equity. Not totally sure I understand your question. All of our employees who are bonus-eligible are paid in stock. The stock has generally performed somewhere in line with ROE and priced to book. So everybody's affected by that. The most senior management team receive as part of their compensation performance units, which are directly affected to ---+ by ROE and total shareholder return. So that's very specific for the senior team. But we're not doing this to, frankly, drive up our personal comp. We're doing it because we think these businesses should be run with returns at or above 10%. And nobody in this world predicted the last four or five years of what's gone on in the markets and the amount of capital that will be required to support these businesses. When I took this job our capital base was $40 billion. Today it's $69 billion. We're in a tremendous E position, and the challenge has been to get the R moving consistent with that rate of growth of the E. And what we've done here is to frame it for investors, because understandably they want to know what is a realistic time frame. Just to <UNK>'s question before what is a realistic time frame. How do the pieces add up mathematically to get you there. Are they believable, are they plausible. And we thought, <UNK>, it would be smart to lay out what we think is a realistic time frame, that kind of range, 9% 11% 2017. The pieces are we are definitely taking out expenses. Some of them are in the bag, if you will, and some of them are going to be driven by management processes that we put in place. We believe there is revenue growth across many parts of our business over a two-year period. And we believe we are sufficiently capitalized, given the world that we operate in. So if you add all those pieces together, putting it in terms of a target to help investors have a framework rather than open-ended seemed to be the right transition point for Morgan Stanley. In the last several years we couldn't have done that because we couldn't address some of the issues on the right-hand side of that slide. I'm sorry, say that again. We addressed the compensation, we didn't give meat on what. Well, I think what we wanted to frame was the total comp ratio ---+ I'm sorry, the total efficiency ratio of 74%. And embedded in that was $1 billion of expense savings which will be a function of comp and non-comp. We're not going to break those out in detail on this call. We are very confident about that, as we were referencing with <UNK>. There are a number of these things which obviously just go away through reality, like the severance costs. There is the elevated legal expenses we've carried in the last several years, which we think is unlikely to be carried forward. There is the restructuring we did, which frankly changes the run rate of your salaries, benefits, medical and the bonus pool for those individuals. And we've already initiated a major effort under this Project Streamline, and some of those pieces began this week. We started with changing our so-called contingent employees who are consultants in far away markets where we've achieved the objective of what they were being put to work. We've now reduced some of those numbers. And all of those efforts are coming together. So you'll see a mix of ---+ and over the next several quarters we'll give you much more details on the non-comp. So we're not going to break it out now. No. Certainly not that's visible at this point and not that's planned. Sure. No, I'd think about it in terms of the full year. Obviously the second half revenue run rates of $500 million were incredibly low. But we look at what the total market size is, what our share is, and what our expected share is and expected market size in the next couple of years. And that's where we say we believe we're right-sized for revenue rate equivalent to 2015. We obviously will be trying to do a lot better than that, but we think that's a plausible outlook. Sure. A couple of questions. I think on the Investment Management question the way I would try to think about it is there are basically two major components of how we make business in that ---+ how we make money in that business. One is just our fee revenues for managing money. And obviously that's going to be a rate times volume equation. So if the amount of money we're managing goes down, that'll be impacted by the markets that we're seeing. But that line is pretty stable. The second line, as you said, is the investment line. And when I referred to the investment line I'm talking about the segment reporting we do in our supplement. That number was negative $235 million last quarter. We said that was predominantly driven by a reversal of carry in our Asia PE fund or funds. This quarter it was $100 million. That return to a positive number was driven by all of our ---+ or most of our investing businesses, both private equity, infrastructure and real estate. So it was more balanced. We said in the third quarter when we took the reversal of carry that that eliminated the vast ---+ or, excuse me, of the majority of the carry that we have accrued in our Asia PE businesses. We obviously have a carry accrued in other businesses. And that's disclosed in the Q. But the exposure certainly in Asia has been reduced. And the fund that was under stress in the third quarter had no material changes this quarter. That was the first part of your question. I think the second on transactional revenues, those numbers have been subdued. Clients are cautious. Whether that's a floor or not is hard to tell, given the volatility. But we think that those numbers hopefully have stabilized. I'm sorry, I'm just turning to page 3. Before getting that page in front of me, I think the results this quarter, we did see Asia was down but continues to be a strong and important part of our business. We did see weakness in the fourth quarter relative to the third quarter in Europe, given the concerns and uncertainty around Brexit and some of the immigration issues. We still think that Europe, although showing some signs of growth in certain areas, is going to be a fragile economy and the drivers of our business will be the US and Asia. In terms of the third ---+ page 3, again don't have in front of me just this minute, but that you should also know is a managed ---+ the way we look at the businesses is on a managed basis. And so those revenues don't necessarily tie back to the tax rate that I talked about earlier regarding the geographic mix of earnings. So <UNK>, I'm not sure ---+ I wouldn't agree with that statement. I think historically over the last couple years we've seen good growth in both the ISG lending product as well as the Wealth Management lending product. And those have been the key drivers along with deploying our deposits away from securities into these loans. Those have been the key drivers of the NII growth historically. I think going forward, I would tell you that the primary driver of the lending growth is going to be Wealth Management. The growth assumptions in the ISG part of the business are much lower than they had been over the last couple of years that we built those portfolios up. So the key driver's going to be the Wealth Management area. I don't have a target here. We could break out mathematically how it separates and get back to you. But I don't have a target off the top of my head. Obviously it's very low single digits. It's not in the above 10%. You can see the numbers on the chart which just show mathematically what the total residential lending is, $21 billion up from $16 billion. So I guess that would imply we [bid] about 2.4%. Sure. I think first I'd highlight it's a 2017 ultimate target. I think, as you say, the Wealth Management is being really driven by the lending growth and some of the other initiatives we have there. In terms of both equities and Investment Banking, listen, we think that we can continue to gain some share there. We have good shares in those businesses but the backdrop is a constructive one where the revenue pools are up modestly. If we're in a situation where revenue pools for these products decline precipitously, these are ---+ that's not the backdrop that we set these assumptions. So a little bit of share gain and a little bit of revenue or pie growth. I think it's a mix. Clearly more non-compensable revenues is helpful for that target. But as we've said for the totality of the firm, we are very focused on expenses and comp. And there are some other levers that we can use here, other than just the growing non-compensable line item. Well, I can take at it. <UNK> may want to add something. CCAR is a function ---+ there are of five different ratios under the normal scenario, and then the severely adverse scenario. Where we had an issue, to the extent we did, was on the total leverage ratio which we addressed with our [TruP] preferred securities. So I think ---+ listen, CCAR was submitted last November/December, I think. January. The cycle got moved out this year an extra three months to April. So the world we're in, 15 months ago our RWAs were significantly higher. They weren't where we finished the year at. So it's sort of an apples and oranges back then. We presented the firm as it was then. This April we will be presenting a different firm, although there are various cutoff dates when balance sheets are set and so on. So I don't really want to get into ---+ and I know you didn't ask for specific prediction on CCAR. But all we can do is put ourselves in a position where it's clear we have sufficient capital and any incremental changes we make to the business or any incremental earnings that we accrete by definition become excess capital. Whether that flows on a dollar-for-dollar basis obviously is something to be considered when we submit our thing and hear from our regulators. Okay. So <UNK>, the two parts of the question. I think on the funding question there's obviously a lot of components that go into those lines, including the size of our balance sheet, secured versus unsecured. What we said, just to give you some ---+ to try to cuff it. We did about $21 billion of new unsecured last year. And those came in at rates that were significantly below where the historical debt had been issued. Our average maturity, or WAM, on our unsecured stack now is about six years. So we were sort of retiring five-year debt and putting on slightly longer. But we saw our credit spreads were easily 100 tighter than where they were before. That process went on throughout the year. We obviously didn't refinance all of the debt on day one. So we'll continue to get the benefit from those funding savings as we annualize. And so that, I think, addresses question number one. And question number two on the deposits, we will continue to grow our deposit base. I think what we would like to try to do this year in 2016 is try to optimize the deposits. We have different deposits that have different liquidity values. We think we can support the lending growth that we've highlighted in the strategy deck without growing our deposit base, but clearly that is a goal. And in 2017 that will be a requirement to support our future lending growth. We've talked about some of the digital strategy and cash management products that we're rolling out, and that will support ---+ that will hopefully drive the deposit growth in 2017 and beyond. I'm sorry, IS. Again, I'll come back to you on that one, <UNK>. No. I think we've ---+ this is probably our longest call. I'm glad we got everybody's questions in. And we look forward to talking to you again at the end of the first quarter. Thank you.

2016_MS

2015

CMS

CMS #You are welcome. Thank you. Yes it is. Bedford is an existing site that we have. It has gas infrastructure, has electric infrastructure in place. We currently have a permit that I think extends through this year into next year, so we have an active permit to build on that site that has been approved by the DEQ. I do not expect to move forward with that. We pretty much put the project on hold until we see what happens with legislation, but, yes, it's a great site, it's ready. The community will accept it. We've got older peakers on the site right today, and we could move forward if we need to. The commonality. I think generally everybody agrees with start with retail open access. We have to do something about it because there's an unfair subsidy. What we do about it is a debate. Is it 10% with the queue. Is it full regulation which we are moving away from full regulation more to keeping the 10% with probably a one-way door. So, if you return, will stay with the utility. The integrated resource plan is a bit of a debate because what the governor is trying to do is put in a plan that meets the EPA clean power plan that also is best for Michigan while at the same time I think some of the Democrats in the House and Senate want to have a standard in there that they can count to that, that will be part of the law regardless of what happens with the integrated resource plan. So that's a debate right now. The commonality, I think we've talked about this in the past from a regulatory standpoint, self implementation will probably go away, but will advance the timing of rate cases from 12 months to 10 months, and if they are not done in ten months you go into full implementation. Could I just add a little bit. I would just say you've got two bills, one in the House and one in the Senate, that have moved closer together. Definitely. And there is a lot of similarity in those bills, but there are some people who really don't like certain parts and so of course now is the time people are pushing real hard. There are individuals who are pushing real hard on different points in different ways, but I would say the momentum is in those two bills which is pretty good. I would say there's a lot more commonality at this point, even with a lot of arguments going on from a few people to move ahead with a pretty good law. I think, <UNK> were confident it's going to be done by the end of the year. There isn't ---+ I mean we've had the hearings, the hearings are completed. We are very close and I think they are very close. If they weren't I don't think we would have rated this as successful by the end of the year. Here we are almost in November that in two months this thing's going to get done. The wonderful thing about that is the 2008 energy law is pretty good. Yes. _ And we are in quite a great position if nothing changed, but this is a wonderful opportunity to address the EPA rules, to address renewables, to address ROA, to address a little bit better regulation. And so there's a lot of opportunity in there for our customers, and we are thrilled about it. I'm going to pile on one more time, <UNK>. You also have two leaders there and three with the governor, but these two leaders have really spent a lot of time with Senator Noss and Representative Nesbitt to get this thing right so that they could be aligned. They have spent a lot of time, a lot of committee hearings, and they've been talking about it for quite a while. When they bring they bring it together they want to make sure that the debate is limited. It is in the bills, whether it will make it or not we will see. It is in the bills ---+ and on the gas ---+ it's on the gas side it exists today. The way it is structured in there, it's optionality. It so it so that if a utility wanted to ask the public service commission for decoupling, then they could do that. It gives the commission the authority to do that with the clarity that wasn't there for both the gas and electric last time. And then the commission and the utilities get a chance to decide if they want to put it to use when you get out there in future rate cases. No. We don't see any issues there. I think the filings and things they are doing with FERC to move along and keep the plant running successfully appear to be all going well. Our only issue, candidly is at the end of the contract with us we would like to make sure for our customers that it is more economical. If it turns out that building a gas plant is a lot cheaper for our customers then we have to negotiate hard to extend the contract or go with what's best for them. But everything we know and you should ask them rather than us ---+ they appear to be doing a good job. No. We're so chicken we are unbelievable. We have ---+ just because we got frightened in 2002, we never got let go of this idea that we just want to be conservative when it comes to the financial side of the business. So for the parent, we actually reach out for two years, and we don't necessarily take the debt out, but we raise the debt so that the cash is in place. We don't do it with arbitrage or hedging or anything like that. We literally raise the cash. You are going to say what kind of conservative people are you. But we are. We raise it. We put that in place, and then when the economics are right to actually call the debt and take it out we do that. So we have the resources ready to go for two years out in time and it's just that simple. There's no magic to it. Do you mean how much cash. You know what, this is really easy to do, because we give you our maturity schedule on the parent and the utility. Just look at that look forward and you can see either there is nothing left for the next two years or whatever the debt is go look at cash line, and you will see it is bigger than that. So you can watch that all the time as we move through time depending on the size of the maturities. We like being chicken, by the way. (laughter) Good. (laughter) All right. Let me close things out. First of all I of all I want to thank everybody for joining us today on the call this morning. We are pleased with the quarter, and we look for to future success both this year next year. And we look forward to seeing you at EEI. With that we will close it out and thank you for joining us.

2015_CMS

2015

RMD

RMD #<UNK>, the programs are in place and a number of initiatives that the team is working on for sure. And then haven't got back to that in earnest. We're over that hump of making sure we matched supply with demand. So we are through all that, and we are working through ---+ typically what we do with the new platforms is then drive a pretty solid cost out program on that new platform. We are now in the throes of doing that. You probably maybe a little bit, but really I think more of that will flow through over the course of 2016, and it will be as I said earlier it will be more progressive throughout the year I think. Yes, the sequential impact, and I've got a caveat because the exchange rate is moving around all the time, but if you look at it on a current exchange rate it's probably the sequential benefit of the weaker Aussie, it is in the order of 50 basis points, give or take. It is that sort of quantum. We're not giving a lot of granularity around ASP, obviously, from a competitive perspective and so on. As <UNK> and <UNK> mentioned earlier, we are lapped through some of those most acute adjustments we were facing on pricing. We are through that now. So it is very much more of a typical or historical type of marketplace in terms of pricing. There is still ---+ year-on-year there is still an element of decline and selling prices and so on, but there's certainly in today's environment much less acute than what we were facing back 21 months ago, for example. Let me say it's a more historical normal state of play. Good question, <UNK>. I'll hand it to <UNK> <UNK>. Obviously, <UNK>, we have made some acquisitions in Australia last year which were a bit of a change in our market model, and that's going very well for us. Then, obviously, the Curative that we talked about. But on a case-by-case basis, our strategy is we will continue to invest locally for local market development as appropriate. And we've got very strong teams around there. And then we are challenging that with trying to get efficiency with common core processes that let us leverage really the key product range through there. Good question, <UNK>. Clearly this is a public conference call, so if we have strategies, tactics and plans to compete with a very clearly known 12-month anticipated product launch, it's not something we would go through on the earnings call here. The bottom line is, of course, we are ready for competition in this space. As I talked to on the response to <UNK> earlier, we are quite complimented and excited about the fact that the new basis of competition is healthcare informatics and how good your cloud is. Ad we are really excited about how strong the air solutions is and the value that we provide. How well we have done, frankly, over the last 12 months and getting north of a million devices out there connected to the cloud and providing value to those customers. We think ---+ we know that they've seen the value. Of course they are going to try and sample a new product out there, and we do think the share we would gain would be something we build upon because of the value that we are providing. But you know it's competitive game, and we look forward to it, and we are ready for it. I think the valuable is incredible. I talked about in the last call 59% labor cost savings. I talked about on this call 83% more patients set up with the same labor costs. These numbers are incredible, and these are the ones customers said it's okay to talk about because they are in markets where they have strong control, and they are comfortable sharing those data. The ones in competitive markets are getting similar results and don't want to share the data. <UNK>, you're closer to the business on this, do you want to share any further anecdotes. I think it's a really good question, <UNK>. We feel very confident we have a superior offer. We're getting what you might term a lot of customer loyalty off of the offer because of the value that it's driving. The device is a better device. It is simpler to use. It is simpler to set up. It has a very elegant and reliable cloud connection built into it, so it's not complex to get it connected to the cloud. And then our software offerings are the only offerings on the markets that are proven to increase compliance and therefore increase revenue and to lower costs. We feel pretty confident. As <UNK> said it is actually good for the market for the basis of competition in sleep apnea to shift toward health informatics, because it provides end to end care for patients. It will provide better bang for the buck for the entire healthcare system. And it puts us in a very good position, because we've enjoyed more than the year long lead in that now, and we will continue to press that lead. So we feel very confident. <UNK>, absolutely willing and happy to say we are the market share leader. I don't want to go ---+ we are in 100 countries, and I don't want to go into individual countries or individual market shares within any of those individual countries. But as you've seen the really, really strong high double-digit growth numbers over these last four quarters in flow generators, and look at the number of devices that we've sold and the market share and your assessment of the market. I think you'd be pretty confident and pretty much every sellside analyst would be pretty confident we're the market share leader in not only flow generators but also masks globally. But we don't want to go into details of it, <UNK>, for competitive reasons. The main thing about market leadership is not just the market share leadership but the fact that you're innovating better and driving value. I think one of the core parts of this is providing value for the end-users in the system who are the patients. We provide the smallest, quietest and most comfortable and most connected care altogether to patients, and I think that's what's really driving our growth and leadership. And frankly it's a challenge for us and anyone else playing in the field to continue to do that, and that is what the game's going to be going forward, providing that long term value to patients. Thanks, <UNK>. Replenishment is really an important part of sleep apnea care, because the masks do degrade over time and become more leaky. To have a patient on sleep apnea care for a payer who is following it properly ---+ a payer provider who is following it properly, the investment of $100-odd on a mask every six months to keep the patient out of hospital where a visit to hospital can cost $2,000 to $3,000, $5,000 just walking in the door and spending one day there, the return on investment for payer providers who were following this model closely amongst their sleep apnea patients, their COPD patients, their neuromuscular disease patients, their [ovalet] patients the ROI is a no brainer when you've got the data. I think our informatics solutions are allowing us to have the data to provide to payer providers and show that ROI. And so I think you are transitioning from a world of utilization management where people just think of unit costs in a fee-for-service world to a world of care management where people are thinking about holistic costs for the patient and what it costs to not provide the diabetes supplies or to not provide the hypertensive meds or to not provide the sleep apnea mask. And it is saying I'm going to cut back on diabetes supplies to save myself when then the diabetic is back in the hospital or to cut back on the number of masks and therefore have the sleep apnea patient show up at the hospital is a 1980s way of looking at from a utilization management front. I think we're seeing that transition, and I think that the payers are really moving to that world of a ACOs and payer providers and looking to mimic the model of those successful payer providers. But it is a transition world and we are playing in both the fee for service world and in the care management world and balancing between the two very carefully. Thanks a lot, Melissa, and thanks for all the good questions. In closing I want to thank the more than 4,000 strong ResMed team from around the world for their continued commitment to changing the lives of literally millions of patients with every breath. I'm very proud of what this team has accomplished in creating the market leading innovation in connected care and healthcare informatics solutions in our medical devices, and we remain focused on our long-term goal of changing 20 million patient lives by 2020. Thanks a lot, and we will talk to you all in 90 days.

2015_RMD

2017

ECL

ECL #Thank you, Mike So, the first quarter was certainly not our prettiest, but better than it looks and it does set us up for the full year delivery Most things are on track, pricing, new business, innovation, investments, industrial business acceleration, energy recovery and FX stabilization, but we did have a few surprises Raws moved faster than forecast in the quarter, and we do believe will be net higher for the year The good news is, our pricing also has traction and we believe will catch up on a dollar basis this year Institutional sales were also soft They were softer than expected, but they're better than they look So, if you take and adjust the base business for Swisher exits, which we have done because of margin and other issues, we're really growing at about 5% in North America and 4% globally That's still slower than last year and slower than we expected The issue primarily is that U.S restaurant same-store consumption is down (05:14) you got to go sell more business We're not going to fix the U.S foodservice market by ourselves and the division is already all over this driving significant new business campaigns, and we've got the right team to do this In total, Q1 was solid, not brilliant, but leaves us in position to deliver the year The most important perspective on 2017 to understand is that the second half EPS ramp up is not nearly as steep as it appears We need to do 14% EPS in the second half to reach our midpoint or $4.80. The first half run rate is really an 11% when you control for hedge and other non-recurring install and other expenses So, we still have a step-up, but it's much more manageable moving from an 11% to a 14% than what may appear to be from like a 4% or 5% to a 14% So, the step-up requires sales to move from 2.5% in the first half to 5% in the second half, which I believe is quite doable Here are couple of facts Energy trajectory this year, 0% growth really in the first half, we expect them to grow at least at 5% in the second half If you assume that, then II&O (06:27) needs to go from 3.5% in the first to 4% in the second We already have Industrial sales trajectory moving, it's accelerating Institutional in the second half will lap the Swisher exits, and we've got a clearer view of timing on known wins and losses throughout the businesses, all of which are quite favorable to us Net, we're making progress We believe we're on track to go deliver a solid year And so while Q1 won't win many style points, we do believe we're going to deliver a more Ecolab-like performance in 2017. So, with that, I'll turn it back to Mike Yeah, I think within the Institutional margin, you've got some of the noise I referred to earlier You certainly have some impact from hedging, not in the U.S margin particular, but U.S global or in Institutional global And you also have investments that have been made, particularly in plant equipment, to enable a new platform for solids, which is now coming online It's in the margin, but not yet fully or even partially utilized in some cases, as we're rolling that out late in the second quarter That's also making it a little worse And then we have a few rollouts, where we've got the mechanical equipment expense or the ME expense in the business, but not the sales yet So, I would say if you look at Institutional margin, it looks like it's down, but there's a number of things, which really, I think, mask the underlying trend in their margin And we expect, over the year, that their margin is going to start showing daylight between this year and last year Pricing in Institutional was the best performer last year, and they're continuing on a very solid track this year So, we're not really worried, ultimately, in Institutional margins Well, <UNK>, I mean it really comes down to mostly same store's consumption in U.S restaurant And that we've dealt with many times in the past Restaurants come in and out in terms of how successful they're being I don't think we're the only ones feeling this We've tended to manage this better than others The division got on it early They have a number of what I would call high-energy new business efforts underway that are gaining traction, and that's the only way you sell through this is you got to go gain more business We, by ourselves, can't force the restaurants to consume more, and they're really just reflecting the softness in their business Typically, what we've seen in the past and what we expect this year is, let's call this the very early innings of a recovery And we typically see really margin recovery and a lot of flow-through more in year two than in year one And that's simply because as you're starting to see volume increase, you're simultaneously seeing some of the raw materials increase, pricing lags a bit And so you end up with increasing sales, but not significant and sometimes even near-term decelerating margin before it starts expanding again You also have some costs you've got to add back The largest cost this year that we're going to have to add back is compensation So, it's a business because of performance, it hasn't earned bonus over the last several years They are on track to earn bonus this year, and so we've got to rebuild that We're also rebuilding some other comp where it matters because the industry heats up, it becomes much more competitive In total, for the year, I think we're pretty much where we thought we would be last call, and that is we're going to have some year-on-year sales growth in this business Really, it's going to be a second half story as I alluded to in my opening remarks And we also expect to be about even to have some minor potential accretion on the operating income line, too, as we start rebuilding comp and that somewhat offsets the volume benefit that we're going to see In Specialty, it's more a timing issue, and it's not even just the comp We've got a lot of new business that's being put on in Specialty right now They're going to have a very solid year The quarter is really just sort of an aberration We've gone through this As I've always described, that's sort of a – the way they feed their village is through hunting elephants, and they've landed several, but they just haven't brought them back to the village So, even there you've got some of the pressure as a consequence of they've installed a lot of these accounts, but they haven't yet started consuming our product in the first quarter They're starting to in the second quarter, as they had to run out the old competitive product first So, that also put pressure on the first quarter margin There's going to be a little less pressure from that in the second quarter but still some, and all that pressure goes away in the second half as we realize the full effects of the new business volume in Specialty I don't think we're going to see dramatic wage inflation in 2018 versus 2017. I mean, it's been fairly steady even over the last couple of years I mean, many of the markets that we compete in are pretty full employment And we've got several things going for us One, we've got a great employment brand story We've got great track record of growth We're on the right stuff, stuff that matters to people who are joining the workforce in terms of our ability to talk about clean water, safe food, abundant energy and healthy environments It really does resonate with people we're trying to attract And in terms of how do you offset the wage pressure, it's really through efficiency programs So, as we've talked, we've invested a lot in field technology That's bearing fruit and enabling us to help our team do more and handle more as we take the admin off them and automate that kind of work We have many more programs like that now that we have the installed base, the field technology in their hands, and that's in the base business or the run rate So, those are really the steps we have to take, but I wouldn't be signaling that there's going to be some fundamental shift in wage pressures We've had wage pressure We expect to continue to have some wage pressure, but I don't think it's going to be at a dramatically different trajectory Yeah, Life Sciences business chase (16:30) is a big market It's very well designed for us It's dominated by large multinationals who have significant hygiene needs, as you might imagine With a change in their business model, where they're going from long-run to shorter-run drugs and even cosmetics, changeover is important And so our ability to help manage changeover time, water consumption, hygiene, all fits very much their needs, and our ability to do it consistently across the globe is also important So, as we look at this, it already is a higher-than-average margin business We would expect it to remain so, given the fit for what we do and the critical needs that our customers have in this area It's going to act a bit like Kay and then it's going to be lumpy, meaning we're going after large customers They aren't all going to come on smoothly, so I think you're going to see some knockout quarters and other quarters that may be single digits, not double digits But in total, our expectation for this business is it's a double-digit organic growth business We will look to see if there are smart acquisitions to be made But that's to be seen We're not relying on it Fundamentally, we've got the capability we need and we can build what we don't, and we're getting after this So, we're quite excited about this market and the potential No, I think Europe will do better as the year goes on I mean, Europe is a combination of somewhat the environment, but I would also say, I think, there's some things we can do better in Europe And certainly, we've got a couple of businesses pulling down the overall I mean, as it stands, what I would say is, we expect Europe to have modest sales growth and modest OI ratio improvement for the year And what we're going to work hard to do is improve that outlook as we go forward I don't think it's going to dominate the news in terms of company performance, and I think the forward quarter is going to be better than this one Yeah, I would say heavy, in total, I'll get down to organic, had growth in this quarter and we expect it to accelerate Mining narrowed its decline, I mean it was low single digits, better than the fourth, which is clearly better than the third We'd expect mining to start showing growth maybe as early as this quarter, more likely in the third quarter So, I'm not sure it's all that important, but it's clearly making the progress we expect And we expect heavy to continue to accelerate throughout the year The comps for water, for heavy and mining, in particular, improve throughout the year And so, we'd expect you're going to see overall acceleration in water as a consequence Under the heading you got to get the big ones right, we are So, we really – we've liked Anios and admired it for a long time and for good reason I think everything that we're learning is what a quality company and business it is It's a lot easier to integrate a business that operates well because in all, the new stuff that you can bring to them and also the ideas you can take from them for the other businesses, it's going on a firm foundation That's certainly what we have there So, yeah, Anios, it's growing We're seeing the operating leverage we expected We're on track We believe to deliver good synergy numbers My hope is that we exceed it this year, we'll see But yeah, we feel very good about it, still early days, but it's off to the right start Well, I would certainly say I think anytime a company goes through a transition like the one that either GE Water or Diversey has to go through, i , a big ownership change, certainly causes distraction We've seen it in the past We expect to see it going forward, and we aren't shy about working to capitalize on it We feel it's our responsibility So, we have – let's just say, I talked about the Institutional efforts We have very strong efforts everywhere to get after new business We had a good first quarter from a new business standpoint We had a very significant ratio against our key competitors in terms of win/loss, I would say stronger ratios than we had in 2016, which were quite strong as well, so we're all over this I wouldn't say that's the reason we're confident we can accelerate, but it's certainly another, I guess, thought to put in the back So, we'll accelerate Yeah, I think caustic and propylene, in particular, caustic's up this year for us It's a main raw material in our Institutional F&B businesses, in particular We also have propylene, which is expected to peak in the second quarter as new capacity comes on, as we go forward And I think propylene run-up was the surprise that we had early in this year versus expectations Caustic, we expected to see go up, and it did go up Well, I'll do the second first question No, I think the second half, it'd be a more realistic run rate model for what we would expect in 2018 in the first I mean, the first had – the single largest impact is hedging, and hedging is going to account for literally like a 4.5 point with a 5-point drag on EPS, 5 percentage points, 500 basis points in the first quarter It's going to be 4 in the second, so 4.5 for the first half all by itself It does go away It's simply – these were foreign hedges that we put on in a rising dollar environment It's really not that there are huge negative costs in the first half We're just comparing against a year-ago period, where you had very favorable contributions from the hedging activity as the dollar was rising So, you got to go – we normalize, we look at our GP progression ex-hedge to understand really what's going on underneath, and it's all the stuff you would expect, which is why we're very quite confident in the second half So, we do not expect next year to have year-on-year hedging impacts, simply because we aren't benefiting this year from them So, there's nothing really to compare against The others were sort of oddities, and normally you don't get this many stacked up, but a lot of it's good news We're investing in new technologies for institutional solids We have a lot of new business wins, where we have a lot of installs focused on a specific quarter, where we're not realizing the volume from those installs, but you're realizing the cost We typically don't have this many stacked up at one time and in a couple quarter period I don't mind it, but it does make GP look artificially low for a period of time, and we know that goes away Based on our history, this is unusual If it happened again, I would explain it again and be happy about it again In terms of GCS, it's really not a retention change Retention's always been a bit of a challenge there in the field workforce We spend more than other people training our team They get poached at times by competitors There's not a change in retention of our employee base What's changed is just how fast we've been able to add on new people to replace those that are leaving And there, we got a little bit behind in Q4 and are catching up on Q1. I don't think this is going to be an ongoing challenge for the business It's just a bit of a near-term challenge No, I think our QSR business, I'm not worried about at all You're right, the quarter was a little bit soft in terms of growth rate, I mean, but it's still growing at what five and change But it's going to accelerate throughout the year We've sold a bunch of business in that – in QSR And we've rolled it out a lot of it, we're going to start seeing the volume coming in, in the second quarter, and we'll enjoy 100% of it kind of at run rate in the second half So, it's just a timing issue It's nothing fundamentally wrong or to worry about our QSR business Yeah I don't think we've seen the peak sales and OI in our Energy business for all time by any stretch So, yeah, I think ultimately we'll reach and I would expect to exceed those levels down the road Has there been change in the industry? Yeah, I would say all kinds And in some areas, yeah, it's more efficient, we're more efficient It can take less chemical in some cases, but there are other applications that take more The net story that we've always talked about, which is easy oil transitioning to harder-to-get oil is still fundamentally the driver and that has not changed So, that market continues to become more attractive over time as exploration picks up, which really isn't this year, but we think more meaningfully in 2018 and really in 2019. They're going to have to go after the harder-to-find oil because the easy oil's gone and when they do that, the average, if you will, consumption of our technology per barrel will continue to rise and that's the fundamentals in the business So, we plan on continuing to gain share The market will recover It's not going to be identical to the business that we had in 2014 because that industry continues to evolve and will continue to evolve, but I think we're in great shape to evolve with it and continue to increase our competitiveness Yeah, look, I mean, several things Yeah, I think F&B you saw acceleration We expect continued improvement throughout the year as we go forward So, we expect the second half to be stronger than the first half The team has been investing in more corporate account head count, I think, wisely That business has been successful over a long period of time, probably analysis the team did said hadn't been expanding the corporate accounting probably as fast as we've been expanding share and if we want to continue to have capacity there, we got to add to it which they've been doing And I think it's already showing that it was the right move So, I don't know, I remain – yeah, I would expect that business to be better this year, and knowing what we know now, I would say we should at least hold that growth rate moving into 2018. <UNK> S <UNK> - Credit Suisse Securities (USA) LLC Great And just very quickly on the Pest Elimination business, you mentioned you saw strong growth in North America and APAC, but can you just comment on the key puts and takes in Latin America and then Europe in both the short and long term? And also, just the overall longer-term view of that business, is that a segment which you'd consider doing M&A in, as well as any other initiatives? Thank you Yeah, well, we love the Pest business, and so absolutely, on your M&A question, and we've done M&A and we would be a happy acquirer of a good business at a reasonable price It's the second part of that equation that's been hard to find recently People have been paying, in our mind, too rich of multiples in pest Pest is attractive for many reasons, but one of its real attractiveness is its return on invested capital It doesn't require a lot of capital The only way you screw that equation up is you pay too much for a business Now you've got too much invested and you've lost the heart or the secret to that business, in a sense So, we're going to be wise people as it comes to M&A In terms of what's going on, it's really more a Europe story Latin America's a relatively small business, and Europe is just sort of – you get paid as you serve Our service calendar was a little out of whack in the first quarter There's catch-up activity underway in the second quarter, and so I'm confident ultimately that all comes back around and I'm not really worried about the Pest business I think those guys are doing the right things and they've got good momentum <UNK> - Credit Suisse Securities (USA) LLC Great Yeah It was up double digits in the first quarter I mean, grew faster, obviously, than in the fourth Yeah, WellChem was up just north of 20% in the first quarter We expect it to continue to accelerate based on our projection of what's going to happen in terms of rigs and rig activity Yeah I would say the big noise in the Industrial business was hedge, particularly in the water business If you get out – so in water, I think it was off 70 basis points, and 50 basis points of that was a hedge So, that's the dominant story there And that's a little bit just kind of one-time comparison If you take it out, you start seeing the natural trajectory you would expect to see in our Industrial gross profit margin They are getting pricing Pricing accelerated in the first quarter for our Industrial businesses versus what they were able to get last year, so they're on track in terms of doing what they need to do to offset raws Once the hedge comes off, which is after second quarter, I think you'll see a more natural view of their GP Yeah, there's not a significant gross profit difference one to the other And so here's what's going on I mean, you would see this in other Energy-related businesses So, North America went into whatever you want to call that, a recession, clearly much earlier than the balance of the world, and they're coming out of it earlier than the other parts of the world So, if you will, the Vs just aren't lined up, U.S versus international It's really driven by structure of the industry Much of the international business or big hunks of it are owned by governments It's used to pay their bills So, when oil dropped, they actually worked to up their production That works for a while, but without new CapEx, you can't keep at that pace forever So you're starting to see that curtail and it will continue to curtail until they start drilling again business dropped off dramatically in terms of its productivity when the oil price dropped because it's more privately owned, and so it reacts to the market and doesn't chase lower-margin business with more dollars, which other parts of the world will But now you're seeing it rebound as the oil price rebounds and they're starting to chase the opportunity The big picture in the oil market, I would say, is that you're starting to see a rebalance of supply and demand So, demand this year is projected to be 1.2% growth, and production right now in the first quarter was down 0.4% So, that's the stuff that everybody needed to see We're going to see oil bounce around, we always thought, we talked $45 to $55. We didn't expect a big recovery this year in terms of oil price We think that's more a 2018 story We also don't see oil falling off a cliff either And so I think there's slow improvement in activity, which we're seeing is – what we're going to continue to see until we start seeing prices more in the 60s and north, and there's a great deal of confidence that that's really going to stay When you see that, I think you're going to see a big upturn in activity, and that's when you're going to see even faster growth than we're projecting now for our business Good news is, though, our Energy business, it's no longer a drag on the business I think it'd be minorly accretive, but just being neutral is a significant improvement over the last two years and going forward, this business can be a very strong piece of our growth story Yeah, I don't – I would say this Room demand isn't – it slowed a bit in North America It was better in Europe and parts around the world, so I just don't think the lodging isn't really the story I really think it's what we talked about earlier What we saw that was unusual and correlates with sort of what we see in our metrics was consumption was down in U.S restaurants It wasn't negative, it was just much slower growth than we've seen in the past And that's a hole or volume that we thought we were going to see that we didn't see, but we believe it's overcome-able by getting after and stepping on new business activity, which the team's done And I would just say this, our U.S Institutional team is very strong, they're very good when focused and they're very focused Yeah, on our appetite, we'd be very comfortable doing a deal of size as long as we feel it's going to be a good deal for us The story about the asset, just as when is quite complicated So, I would just say that doesn't change my view I think I even said a year ago, I'd be surprised if we do a big deal in the very near term and quite surprised if we don't do one over the next five, six years I think that my view still holds there So, our appetite isn't diminished at all I think we just go in eyes wide open and try to fully understand what the risks are and the challenges are in any deal and as a consequence, what price makes sense Really in Energy, it's about 30% Water's just a little south of that in terms of percent Those are where we have the big cost-plus contracts, there's a few others spattered across the other segments, but they're not significant But, yeah, those will always lag I mean, they lag going down, and they lag going up simply because you've got to realize the cost in your business before you're going to be – before you're able to price for them Well, since all my prior stance seems to have worked, I'm going to tell you I'm still not enamored with the business because it seems to spur them on Now I would say that's not really – where we were on that is, I just said as a stand-alone, we probably wouldn't have bought it But as a business that came along, it was a pretty darn good business in many respects We haven't changed our feeling on it It's got a great team, and I think the team has gotten better So, how are they growing it? It's called the old-fashioned way New business, they've had new technology They're gaining share, they're doing smart things in terms of getting their portfolio to be more focused on where you see growth in that industry like tissue, towel and boxes versus newsprint and other materials, so those have been smart moves They don't happen overnight, so it's been an ongoing effort So, yeah, you've seen sales acceleration As they keep selling new business, they're going to keep seeing sales acceleration And I think they've managed the challenges successfully So, I don't – that's the story there Textile is not that fundamentally different If you sell new business, good things happen, and if you don't, they don't Yeah, I mean, same-store sales, look, I don't think is the singular metric that drives our business – or, excuse me, traffic Traffic's been down, I think, every year since 2008. I keep asking the team, is there one person left to walk into our restaurant based on these metrics Clearly, if you look at the sales in that industry, they were also up over most of those years And yeah, there are changes going on in that industry They're not dramatic I don't think they're going to hit huge inflection points, but we watch them So, certainly there's higher percent of takeout than there was 10 years ago I'd expect in 10 years, there'll be even a higher takeout than there is right now So, you see some of these changes over time With that said, the challenges in that industry simultaneously continue to increase People continue to get into that business, start new concepts, grow their business, food safety, clean labels, i , organic food without additives and the like All these things are also impacting that business and our customers, and our ability in food safety is more important even today than it was 5 years ago and 10 years ago So, I guess – I think when I take all of the shifts that are going on in that industry and net it out, it's still quite an attractive market for us, both in the U.S and around the world And we have significant share possibilities, not only in the U.S , but in particular, around the world, that we continue to get after Yeah I think we've said 24% to 25% Yes So, last year, we talked, we had probably lost about 3 points of top line to price in that business And it started getting modestly better as we went throughout the year last year We saw continued improvement in the first quarter Second half, I would say it would be neutral to positive on price Yeah I would say, right now, it's more a reflection of rig count increase and activity increase I would say several things I mean, what we've been working on products and programs and have them, that reduces the need for companies conducting a frac in terms of how much water they need, how much sand they need, et cetera, to conduct this Less is better And we'd rather cannibalize ourselves than get cannibalized Some instances, it takes less chemical, and there are other applications where it would take more of our product to get that same result I think, over time, I mean, this kind of shifting of how much technology it takes to get an end result, I think, if you look over any long period of time, it typically gets more efficient We would expect that to continue to be true, but challenges continue to grow And so the need for technology evolves So, I had somebody try to say that fracking's going to disappear, and I do not think that's the way to think about it It's going to continue to evolve and change, but there are plenty of opportunities for us to introduce new programs that bring great benefit to those conducting a frac that's going to represent new opportunity for us even as others may dissipate slightly Yeah, well, Healthcare, yeah, clearly has improved I mean, it's a 5% underlying organic rate, if you peel out Anios and the other And, look, I think the team's doing a very good job I mean they went through and are doing a lot of integration work that started even before, obviously, the close of Anios They continue to drive and accelerate their underlying business So, the work that we did and the work that team did around getting clarity around the program, clarity around the message for customers, adding resources where they needed them, we've continued to add additional talent into that team and it's paying dividends So, where am I? Yeah, I'm proud that the team's been able to build this up to 5% And then the other side of me is greedy, and I think that team's capable of doing even more, and it's only because I think they're great So, 5% is good, 7% is better, that's our focus Yeah, us too It took us longer to exit the hygiene business than we had planned, which delayed our exit from a number of facilities because we had to continue to operate it until we could move it And so it was a couple quarters after we had thought we were going to be able to move it So, that delayed a number of things That's why you're seeing some of the charges come through now versus, say, third quarter of last year, et cetera In total, I think the Swisher noise is really going to be out of the business come third quarter as we go through So, then it's just going to be a completely natural part The exiting and the comparison with hygiene and all the other stuff will be out of the base Well, the most significant probably underlying change would be in dairy Clearly, dairy was under a lot of pressure The market's improved somewhat I don't know that all dairy producers would call it a victory yet, but it certainly helps as we've gone through Food continues to be pressured by consolidation There's a lot of, obviously, big headline acquisitions that have been made in that industry Some others that seem to be contemplated, but not consummated And brewery beverage is strong and that's more a continuing story So, the inflection one would be mostly in our dairy business I don't – you know what, I don't believe so I honestly haven't seen those advertisements, but of course, I live in a state that borders Wisconsin, so we wouldn't likely be airing them in this market So, anyway, no, I would say if anything dairy has gotten better because it was so depressed I have not seen any impact from the advertising you talked about I don't think we feel that our ability to earn the type of margins that we were earning or targeted has changed So, the margins have been most impacted near term just by loss of volume on a fixed overhead base, particularly in plants And so I think as this business comes back, which we expect it to, as we continue to roll out technology and the needs for technology continue to grow as old oil becomes new oil, which is harder oil and needs more technology, we think we'll continue to see margin expansion Now, that's all predicated on us being a great value-added supplier to our customers Only reason people are going to pay margin to us is if they get great value, and I think our team understands that Stuff we have on the drawing board, we are quite pleased with Stuff that we're launching, we think has got great runway So, I mean, we remain bullish about this business Well, the reason we broke it out is it creates focus So, previously, we've been serving the Life Sciences industry in part from the F&B business and in part from the Healthcare business And both were doing a good job with the tools at hand, but neither had a complete set of tools So, if anything, once we decided to do it, we wondered why it took us so long That's a shot at myself So, getting focused, I mean, think the Kay business going after QSR, textile, going after textile, we have many examples of this That's how we succeed So, now we've got a freestanding business It was a significant investment last year and we're still paying some of the incremental investment this year in the first half before we fully lap it And the second, has enabled us to have dedicated corporate account teams, dedicated marketing teams, dedicated corporate account finance teams to really understand how to develop and position programs to specifically meet this industry's need The structure is multinationals, which is what we like, fragmented competitive set, which is what we like So, by and large, what we're competing against is a lot of regional folks who are offering services to this industry And so our ability to put together a global program we believe will give us the same kind of advantage here that it does in other industries we serve because certainly the pharma need for consistency, you might imagine, would be fairly high in areas that we're serving So, I don't know if that helps give you color Big business, plenty of opportunity We can grow without doing M&A If we see M&A that works, we'll certainly be quite open to it Yeah I think if you look at – it's kind of a combination of just underlying commodity costs starting to rise and then transaction costs and foreign currency that – because a lot of these are U.S dollar denominated, so if I'm buying them in reals, et cetera, I got to pay a higher price given the devaluation over time We see that rising, ironically peaking around the second quarter Part of this is the propylene conversation we had earlier, but still being somewhat a year-on-year drag in three and four, which is not at the same level, but overcome by pricing And I talked earlier that we have pricing traction Pricing is never easy We're getting it Institutional, I think was ahead on ramping up its pricing activity last year, trying to get in front of the caustic moves and some of the other stuff they knew was coming And you see the Industrial businesses now accelerating their pricing activity, which they need to do, given the increased raw materials facing them So, I guess, we're confident we're going to end up with some daylight between the costs we realize incremental on raws and FX related to raws and the pricing that we're going to get Yeah, I guess – no, I would not say – I mean, look, we do a lot of analysis on our business to understand retention, new business, acquisition and sort of current customer consumption Retention really – I mean, if you look at our historic retention rates, I mean, we're under – we're better retention rates than we've been historically in that business So, if it was competitive activity, you would see it in worsening retention rates, and that's just not what we're seeing as really the story The big dip is in kind of same-store consumption It's not a loss of product placements, if you will, in those units It's a loss of consumption across those products And that's the story So, we aren't – we don't believe that we're infallible or unbeatable or anything else, we pay a lot of attention to competition I just don't think that's the story Yeah, I don't know that that's really a huge piece of emphasis for them, to be quite honest I mean, they just made a large acquisition They've been quite successful in the businesses they're in I just – I don't know that that's really an avenue they're going I don't know that it lends itself I mean, that's a little bit – they're a much better executor, I would say They're a good company, does a very good job in the businesses they're in, but it's hard to take people in one set of business and make them kitchen hygiene people just because they're in the back of the restaurant That was Swisher's play It wasn't very successful, although I grant you, and I think the company you're talking about is a much better executor

2017_ECL

2017

MU

MU #Thank you, <UNK> Good afternoon, everyone Our fourth quarter results accentuate an unprecedented year for the company I thank the Micron global team for maintaining intense focus on our key priorities and delivering outstanding results Our fourth quarter revenue was $6.14 billion with record gross margin, operating income and free cash flow Full year revenue, profitability and free cash flow also set company records Our results were driven by favorable industry fundamentals and solid execution in deploying our next-generation, lower cost technologies and diversifying our product portfolio toward a richer mix of differentiated, high-value solutions We are excited about future opportunities as customers increasingly recognize the strategic value of our memory and storage solutions across a range of high growth markets Now, I will share details from each of our business units, followed by our perspectives on industry dynamics and an outline of our corporate strategy In our Compute and Networking Business Unit, we saw robust growth in Q4 revenue and profitability compared with the prior year Our results were driven by strong demand in Cloud and Graphics, complemented by a healthy pricing environment Revenue growth from these two segments significantly exceeded overall CNBU growth, which more than doubled compared with the year ago quarter Cloud sales are supported by increasing DRAM content per server, which is up nearly 50% versus a year ago In Graphics, we continue to leverage our industry leading GDDR5 and GDDR5X performance to address strong demand, primarily from gaming The business unit is also benefiting from the initial ramp of our first-generation 1X 8-gigabit DDR4 product, which was sold primarily into the client and cloud segments In fiscal Q1, we anticipate continued growth of our 1X portfolio, coincident with the ramp of our second-generation 1X 8-gigabit DDR4 and GDDR5 products, both of which have already been validated at certain partners and customers We also received initial customer qualifications on our TSV-stacked DDR4 products, enabling modules with up to 128 gigabyte and the highest speeds supported on industry standard server platforms These products address the growing demand for analytics and in-memory databases in both the enterprise and cloud segments Fourth quarter revenues in our Mobile Business Unit, were driven by a favorable pricing environment and significant growth in our eMCP business Due to strong execution, sales from our mobile NAND and eMCP solutions nearly doubled year-over-year We believe that increased DRAM and Flash capacities in flagship smartphones will continue due in part to new applications such as augmented reality in mobile devices Our roadmap of new LPDRAM, discrete managed NAND and eMCP offerings position us well to address these market requirements In fiscal Q4, we achieved our first 1X LPDRAM qualification at a major Mobile OEM and have several others underway Also, our technology capabilities in 1X LPDRAM Package-on-Package products allow us to offer cost effective, high capacity mobile solutions ranging from 3 gigabyte to 8 gigabyte We expect volume shipments of these new products in fiscal 2018 following successful customer qualifications During the fourth quarter, we also qualified our first 3D TLC eMCP and eMMC solutions at a major chipset vendor and now have dozens of high-density products in qualification with several OEMs. We expect production shipments to start later in 2017. Our 64-layer 3D TLC UFS products will also start OEM qualifications later in 2017, enabling us to participate in the mobile market’s highest density designs The Storage Business Unit recorded a revenue increase of 71% in Q4 compared with the prior year quarter, supported by strong demand for our SSD product portfolio Late in the fourth quarter, we identified and corrected a flash component issue on select TLC 3D NAND products We paused shipments of affected products as we worked to implement a solution to the issue, which appeared only under a narrow set of performance conditions As a result, our SSD revenue declined sequentially during the quarter Shipments have now restarted and we expect to resume solid sequential SSD revenue growth in Q1. We continued to garner positive momentum with our SSD products across a broad range of customers Our flagship SATA 5100 SSD has been qualified at enterprise server OEMs, cloud service providers and Fortune 500 companies Demand for our client SSDs is also strong, with Micron shipping solutions to most leading PC OEMs. We see healthy demand trends for SSDs moving forward Client SSD attach rates continue to increase And although storage density growth has slowed temporarily due to a tight pricing environment, we foresee longer term demand for higher density SSDs We made substantial progress in growing our relationships and our business with cloud and hyperscale customers in fiscal 2017. Cloud data center customers are seeking innovative memory and storage solutions tailored to their workloads Micron’s unique capabilities and expertise in DRAM, 3D NAND and emerging memory technologies make us a compelling partner for these customers Our Embedded Business Unit delivered strong performance, growing revenue 39% for the full year We strengthened our leadership position in automotive in fiscal 2017, with growth driven by increasing connectivity and electronics content in vehicles Automotive applications continue to require leading edge performance As a result, we have seen significant ramp of our 20-nanometer DDR and LPDDR technologies this quarter and began sampling automotive-grade 1X DRAM to meet these needs The growth in edge analytics in both industrial and consumer connected home applications led to record quarterly revenues in both segments We saw strong growth through the year of our NAND and LPDDR MCP products, driven by form factor and performance needs in applications like machine-to-machine communications, surveillance, drones and home automation Turning to Micron’s technology progress, our 1X DRAM and our 64-layer NAND production rollout is proceeding on plan and we expect to achieve mature yields in both technologies before the end of calendar 2017. We are pleased with our 1Y DRAM technology progress and are focused on the late stages of technology and product development Our third-generation 3D NAND development is also proceeding well, with production expected to commence later in 2018. This latest generation technology continues to utilize Micron’s industry leading CMOS under the array architecture, which yields smaller die sizes We have made significant progress in our technology development and volume ramp execution We see meaningful opportunities to further shorten the cadence of new technology node introductions, accelerate new technologies into volume production, upgrade our fab infrastructure and expand our captive assembly operations Through successful execution, we expect to narrow our technology cost gap and optimize bit output growth in both DRAM and NAND, with a disciplined focus on profitable growth Our fiscal year 2018 CapEx plan targets achieving these objectives through technology migrations, with no new wafer capacity Ernie will discuss our CapEx plans in further detail later in the call Our ability to successfully execute our technology transition plans will be a key enabler of our cost reduction and supply bit growth capability in the foreseeable future Moving on to the demand and supply fundamentals, we expect the industry to remain moderately undersupplied for the rest of 2017 for both DRAM and NAND We see DRAM industry supply bit growth of about 20% in calendar 2017 and expect it to grow at relatively similar levels in calendar 2018. The DRAM industry supply demand balance is expected to stay healthy throughout calendar 2018, driven in part by ongoing strength in data center and cloud computing trends We expect Micron’s fiscal 2018 DRAM bit output growth to be slightly below the industry growth rate Our bit growth is supported by our 1X DRAM ramp, which represented mid-teens percent of our DRAM bit output in Q4 and will grow throughout the next several quarters to achieve bit output crossover as we exit calendar year 2018. We expect industry NAND bit supply growth to finish calendar 2017 in the high 30% range At these levels, supply remains below demand, which has created a constrained environment As the industry continues to transition to 64-layer 3D NAND, we estimate industry bit supply growth in calendar 2018 will approach the 50% range, which should better satisfy the current unfulfilled demand We expect that Micron’s ongoing transition to 64-layer 3D NAND in fiscal 2018 will result in bit output growth that is somewhat higher than the industry range In fiscal Q4, 64-layer NAND represented mid-teens percent of our trade NAND bit output and we expect to achieve bit output crossover during the second half of our fiscal 2018. The dynamic industry transition to 3D NAND is taking place in the context of a NAND market that has consistently exhibited demand elasticity We expect this behavior to continue for the foreseeable future as higher-density SSD solutions increasingly displace HDDs in client computing, cloud data centers and enterprise environments and as average capacities continue to grow with more performance-sensitive, storage-hungry devices and applications in mobile and other end markets These trends support our view that NAND demand drivers will remain healthy into 2018. As I begin my first new fiscal year as CEO, I would like to outline our strategic priorities First, we are focused on driving our cost competitiveness to best-in-class levels, primarily by accelerating the percentage of our output on leading edge technology, in both DRAM and NAND Second, we will drive execution excellence, delivering solutions to customers quickly, predictably and in line with their product launch windows Third, we will accelerate our transition to high value solutions We intend to lead the industry in deploying disruptive memory and storage solutions Fourth, we will leverage the full breadth of our capabilities to develop deeper collaboration and partnerships with marquee customers, maximizing our value in the market And finally, we are strengthening our focus on our teams, investing in the best talent and driving a winning culture We believe our diligent emphasis on the speed and urgency with which we execute these strategic priorities will have a transformative effect on our market competitiveness and financial performance I look forward to sharing the results of our progress with you in the year ahead I will now turn it over to Ernie, who will walk through the specifics of our financial performance this quarter Thank you, Ernie As part of our strategic planning process, Micron developed a new vision statement that embodies how we see the opportunities in front of us As we close out 1 year and look to the next, I would like to now share it with you Our vision, transforming how the world uses information to enrich life, captures the tremendous potential Micron possesses New technologies like artificial intelligence will change the world in ways we can barely imagine today Fast data access and high-performance data analytics will be at the heart of those transformations, making memory and storage core to the data-centric world that is taking shape in front of our eyes I believe our strategy to tighten our focus, accelerate our technology and product development and strengthen our presence in critical markets will make Micron an increasingly prominent player in the industry as these revolutionary new technologies take shape Fiscal 2017 was a record year for us, but I am confident that the best is yet to come for Micron We will now open for questions Question-and-Answer Session And of course, our focus also could be on high-value solutions, so that our revenue share outperforms our bit share In terms of the market environment, we are certainly excited about the demand requirements for DRAM as well as for NAND As I mentioned in my prepared remarks, I mean, bit growth driver for DRAM certainly that’s outpacing the average growth of the industry is in the area of server and cloud And here we are making great penetration with the hyperscale customers in terms of driving the growth of the DRAM business So, we remain very bullish about the DRAM market environment through the 2017. We think it will be undersupplied And given the demand trends, we think we will have healthy demand supply balance in DRAM throughout 2018 timeframe as well And in terms of NAND as it’s well-known that average capacities are increasing certainly in mobile devices, but even more importantly, SSDs are displacing HDDs at the rapid pace with the attach rates continuing to be projected to be going up over the course of next several quarters And of course, there is a strong value proposition for SSDs in the cloud and hyperscale data center environment as well given all the trends of artificial intelligence, machine learning, all of this is driving big data analytics So, all these trends are related to artificial intelligence, bit growth in data customers wanting to offer differentiated value to their end customers, all of this is driving need for memory and storage solution and overall, we remain pretty bullish about the demand trends I mean, if they look at DRAM as well as NAND even in autonomous vehicle, the demand requirements for flash, I mean data is being generated So much data is being generated by autonomous vehicles that it requires fast processing both within the vehicle as well as on the cloud So, I think demand trends for the foreseeable future continued to be strong and that bodes well for our industry In terms of your question regarding customers and some of the customers wanting to engage in longer term requirements, yes, that is absolutely happening and we do consider that based on various customers I mean, it depends on the nature of the customer’s requirements, really cannot get into the details of that here in this call, but certainly, our business includes customers that are more transactional in nature that have business more on a monthly transaction basis, some that are more on a quarterly basis and certainly certain customers that are also involved in longer term trends I think customers are just seeing increasing value of memory and storage I mean, this DRAM and flash is becoming strategic to our customers and our customers are seeing Micron as being uniquely positioned with having a strong portfolio of DRAM as well as flash and being the only company in the Western Hemisphere with those capabilities and that is definitely making us an attractive and valued partner to our customers Thank you So, in terms of going in to 2018, we see healthy industry demand and supply balance for NAND And you are right to note that the bit growth is going up because of the technology transition in the industry to the 64-layer technology And when we look at the demand trends, those demand tends continue to be strong as I just pointed out related to SSDs as well as increasing average capacities of flash in mobile devices and all kinds of other devices So, demand continues to be strong We see healthy trends in that regard in 2018 timeframe Regarding pricing, we don’t specifically for competitive reasons provide comments on pricing on the call, but we just like to point out that we believe that the healthy industry environment as one where price decline is less than or equal to cost declines and we are certainly focused on aggressively reducing our product cost with realizing successfully our technology production ramp of 64-layer Certainly, the diversification of the end markets for DRAM absolutely bodes well for the future health of our business We have enjoyed the benefits of that Calendar year 2017 as you noted is a great example And you just pointed out the mix of our DRAM business between PC what used to be just about PC and mobile is now very much about PC mobile, server, automotive and multitude of markets and Micron has really great presence, where variety of I mean whole slew of customers and channels So, this really bodes well, plays very well to the strength of Micron It has really for long time enjoyed diversified set of global customers and great presence in channels and that is coming into full play as the demand requirements for DRAM continue to grow nicely and into multiple mega-markets With respect to NAND in terms of our third-generation 3D NAND, we are not yet disclosing the number of layers in that technology As I said in my prepared remarks, we are continuing to make good progress with that and we plan to be introducing that technology in the 2018 – calendar 2018 timeframe and continuing to deploy CMOS under the array technology that continues to provide Micron a die-sized leadership position, which is usually attractive to us [indiscernible] point of view And with respect to DRAM in terms of 1Y node, we will be introducing that node also in calendar 2018 timeframe And beyond that, we are not providing any specific details for our technology related to competitive basis And your question regarding floating gate, we have a strong roadmap of future technologies related to floating gate As we have indicated before that in terms of technology cost position as well as the technology node readiness, in recent times over the course of last couple of years, Micron has lagged the competitor in terms of getting advanced technology ready at par with them and deploying those technologies into volume production However, in recent times, Micron has made very good progress in this area and we are getting the benefit of that as we are ramping those technologies into production I have said before that these kind of undertakings, driving, accelerated deployment of new technology nodes into volume production and continuing to narrow the gap on the cost front is a multiyear phenomena and we have made very good progress in this regard I fully expect us to make – continue to make good progress in fiscal year 2018 as well And we are of course very much focused on continuing to accelerate the timeline of our future technologies into production and then well positioned to ramp those technologies into volume production as well And along with this of course remain very much focused on driving a greater mix of high-value solutions both in DRAM and NAND as well So, these are really two very important pillars of our strategy driving cost competitiveness and driving greater mix of high value solutions and these things don’t happen overnight They will continue to be strong growth opportunities for us going forward over the course of next few years So, I will let Ernie comment on the CapEx, but on the demand side, as I pointed out earlier, I mean it’s not that this demand is perishable, I mean this demand in terms of the trend of SSDs replacing HDDs in client notebook computers where the attach rate continues to increase in 2017 attach rate of SSDs to PCs is around 35% That attach rate over the course of next few years continues to grow to around 50% in 2018 and by 2020 timeframe expect it to go to around 75% So, these demand trends are secular in nature It’s the same thing on the enterprise side, again on the cloud side that the attach rate of SSDs as well as the average capacity requirements on our per-server basis continued to go up as well So, these are really very solid secular trends here that are long-term in nature and of course the trends of mobile devices adding new rich features such as augmented reality, such as rich displays, all of these are trends that also continue to drive higher average capacities in mobile devices So, I feel very good about the demand trends on the NAND side Yes, some of this product enablement CapEx is related to back-end captive assembly operations, which will help us improve our cost position going forward And of course also there is CapEx associated with upgrading of the infrastructure that is needed to realize the technology transitions Sure, Chris So, I think as has been the case for a few quarters now, there is actually a fair amount of tightness across those three channels that you mentioned So, it would be hard to distinguish one from the other relative to any nuances there I don’t think there is an inventory issue certainly, if you actually take a look at inventory levels that are reported, which are typically financial numbers and adjust those for dollar cost of how pricing has changed over the course of the year You do get a bit of a different perspective on inventory as reported by a variety of customers and channel partners in those areas, but the environment continues to be strong The supply demand circumstances continue to be fairly tight and we are working very closely with our customers to make sure that we stay in close sync with them as they think about their plans going forward We do not rule out M&A in the future Right now, our focus is on the priorities that I mentioned that include cost competitiveness and strengthening the high-value mix in our revenue And of course, if and when, we were to engage in M&, our focus would, of course we to try to strengthen our future opportunity and make it an opportunity that’s absolutely provides a strong ROI, beyond that I would not speculate in this matter I mean, we are definitely seeing strong demand trends from – the entire spectrum of our customers a large what you would call Tier 1 or Tier 2 as you termed, although all customers are important to us and we do engage meaningfully with them and we work closely with them to understand their demand requirement and we apply our own judgment to their demand requirements as well in terms of assessing that overall industry demand trends And based on those demand understanding of our – on behalf of our customers, we project healthy industry supply environment in DRAM and NAND So, we talked about being at bit output crossover for 1X DRAM by before the end of the calendar year of 2018. And then as we have previously shared for the 1X node, we see somewhere roughly 45% increase in bits per wafer versus 20 nanometer and about a 20 – to slightly more than 20% cost reduction on a cost per bit So we say that our SSD mix was about 20% of our NAND revenue and that consists of our sales of client, two client customers as well as to the hyperscale of cloud and enterprise customers And both are roughly about the same in both of those categories Beyond that, we don’t provide further breakdown In general, the technology complexity increases where subsequent technology generations both in DRAM and NAND and also given the increased technology complexity, gigabytes or gigabits that you gain in NAND as well as DRAM on a per wafer basis tends to decline with advanced technology nodes So, all of those factors play a role in terms of cost reduction capabilities as well going forward I can do that I just want to add a comment to the previous question on cost My comment was related to cost on a per wafer gigabyte per wafer basis from one technology node to the next Of course, cost also depends very much on how you deploy those technologies into volume production And this is one of our focus areas in terms of deploying advanced technologies faster into production Now, specific to your second question regarding the attach rates in enterprise and server markets, so SSD attach rate is around 50% there in terms of on a SSD per unit basis and opportunity there is greater Average capacities are definitely moving fairly fast In fact, enterprise and data center is one of the fastest growth segments for flash in terms of year-over-year bits demand increases that are projected Average capacities in enterprise and data center for SSDs are over 3 terabyte That’s average capacity and that trend continues to increase by some projections tripling almost to 9 terabyte by 2020 timeframe So as I was saying earlier, I mean, these demand trends for increasing attach rate of SSDs in client and data center cloud computing applications as well as the increases in average capacities are secular trends Yes, Mike So, certainly the statement about no new wafer capacity in fiscal year ‘18 applies equally to both DRAM and NAND And relative to your second question, there is not anything material relative to the CapEx guide that we shared that relates to construction costs or whatnot As you pointed out, there is obviously incremental clean room space available or could be available at pretty low cost, but it would not be material in course of the overall guide that we provided I think in the flagship models, to answer your specific question, the demand for DRAM as well as for NAND, average capacities continues to go up And of course, the mix of these high-end smartphones also as a part of the total smartphone market continues to go up And specifically to DRAM, average capacities of DRAM in high-end smartphones going from somewhere over 3 gigabyte in 2017 projected to go up to over 5 gigabyte closer to 6 gigabyte by 2020 timeframe And specifically to NAND, average capacities of NAND in high-end smartphones in 2017 is somewhere around 70 gigabyte, let’s say, projected to double – or more than doubled by 2020 timeframe as well So, again, the average capacity increased trends in smartphones continues to be solid, not only actually in high-end smartphones, but in value segment of the smartphone market as well

2017_MU

2017

GM

GM #Factored in. I mean, we factored in the expectations from ---+ at least ALG and other's expectations for what's happened with used car pricing. So a continued normalization of used car pricing. Obviously we factor into our pricing and cost of funds, expectations, continuously rising interest. So that's factored in. Going back to the conference, <UNK>, in January, we laid out all of the downsides and headwinds that we saw in 2017, and what we were doing to mitigate that in the context of our guidance. And the factors you mentioned were part of that ---+ pricing dynamic, continued investment, and new technologies, the pricing environment in the US and China, for example, raw material headwinds in 2017 versus 2016, FX from a global perspective. That dynamic is not getting any better. But when you look at the things that were under our control ---+ costs, our product launch cadence, which will improve mix and pricing ---+ we again are confident that we're going to see strong results again in 2017. Just to answer those in the order that they came in, <UNK>, as we move through the 2016 calendar year, our lease penetrations came down. You may recall, earlier in the year, first quarter, second quarter 2016, lease penetrations were up in the high-20%s, and we moved them down to where we ended. As I said, mid-20% is the appropriate level, and that's something that we would continue to manage. Relative to our lease residual exposure, or our thinking of lease residual, I've covered this before, vis-a-vis, some of the competition. We've got a different mix. Because GM Financial has been leasing vehicles and been the captive lease provider only for the last couple of years, we have a significantly different mix ---+ lower penetration of passenger cars, higher penetration of trucks and SUVs. And I'm not going to give you specifics on what we're assuming from used car. All I would say is, we're anticipating continued moderation and normalization of used car pricing, not inconsistent with third-party-type data that you could get out there, over the next two to three years. I would say, in total, in the range of about 7% over the next two to three years. But I'm not going to give a year-to-year specific. And one of the fundamentals relative to how we're running the business residual [modeling], we're working with GMF, our Express Drive, 100% of our vehicles being re-marketed by GMF, so that we can efficiently absorb and distribute in a way that is not detrimental to residuals, the vehicles that are coming off lease. And that's one of the reasons we've significantly reduced our daily rental sales as well. So taken in balance, I think we've got a reasonably balanced view of what's going to happen, from a residual perspective, over the next number of years. Yes, I would say the following. Over the last number of years, the pricing environment has been moderating. If you look at overall incentive spend as a percentage of transaction price, it's been inching up on a consistent basis, which is certainly not unexpected where we are in the cycle. We continue to be very disciplined. Our actual incentive spend, compared to the industry, has come down. Back three or four years ago, we were running at 110% of industry. In the 2016 calendar year, we were closer to 103% or 104%. And I think that just highlights the strength of our product lineup. I would expect to see incentive spending inch up again in 2017. We said that we expected continued pricing challenges, or competitive pricing environment, in the United States and China. Within that though, when you look at our launch cadence, let's remember, in 2016 we have the oldest compact and mid-crossover lineup in the industry, and still perform very well. That's going to be completely refreshed, which should provide an opportunity. Trucks continue to perform very well, demand is strong. We're running all of our plants on three shifts, full-on. So supply and demand in balance. Where we have challenges is, our cars, and we're aligning supply and demand on that by cutting production. So on balance, a more challenging pricing environment, but we think we're well-positioned within that, given our product launch cadence. At the last point, that is correct. To your first question, that Q4, I would say was run rate, when we have ramped up the AV engineering and cruise automation at roughly plus or minus $150 million a quarter. We weren't spending very much at all until we got into the fourth quarter. And I would expect to see a run rate similar to that in 2017, roughly $150 million a quarter. That will, we believe, be sufficient. Because we've already got the architecture, with the Bolt, to put us in a strong position from an AV standpoint. And when you look at the overall corporate sector, you've got that year-over-year roughly $450 million increase, plus there's some incremental legal expense in 2017 versus 2016 related to the ignition switch activities. And as I think about that, beyond 2017, who knows. But that should start to moderate beyond then. The EBIT bridge is on a consolidated basis, so it would exclude China. We report China equity income ---+ the drivers of China equity income in 2016 similar to 2015. Pretty similar. Volume is positive, mix is positive, pricing has been a 5% headwind, material cost performance has been a positive. And then as we've ramped up plants, the fixed cost has inched up net-net. In that dynamic, we've been able to maintain the equity income. But you've seen the margin compression, which we've talked about before, on a go-forward basis, due primarily to pricing, that the margins were going to compress. And we saw that play out in 2016. I think the drivers of the industry over there are very consistent. Higher volume, better mix, pricing, is going to be a headwind kind of in the same zip code, in the 5% range. Material cost efficiency will be a tailwind. And then, between their cost-down, efficiency-up and full run rate on the plants, fixed cost will be up slightly on a year-over-year basis. But generally consistent with what's been driving the business the last couple of years. Yes, for the fourth-quarter 2016 versus 2015, inventory build ---+ because you've got to look at the change, and the change was about 100,000 units. And when I look at the net impact of that, about $100 million. Volume was up, but mix was unfavorable, because a lot of the stock was building up stock of passenger vehicles, which we're now addressing. So that's the impact in the fourth quarter. Absolutely consistent with what we talked about back in December, we will be building inventory as we move through the first half of the year. We will be addressing the passenger car part of this with the shift reductions that we've announced. But we'll build inventory of our crossovers leading into the launch, as well as trucks. And then inventory will normalize in the second half, very similar to the dynamic we had when we transitioned from the GMT 900 to the K2. And then we would expect to end 2017 in the same zip code as 60- and roughly 70-day supply. Well, the electrification costs, depending on ---+ they end up in the vehicles themselves. And if it's engineering costs associated with electrification, it goes to the region, fundamentally based on engineering resources deployed. The reason that we're separating autonomous is because we would expect over time, as we continue to move that business ---+ along with Maven ---+ forward into a commercial piece of the business, that we want to make sure that there's visibility around that on the commercial side of autonomous vehicles. Because we would expect to commercialize that obviously. That would have been part of our overall engineering expense. So certainly a portion of the engineering expense, but I'm not going to break that out separately. You know, as it relates to trade overall or NAFTA, it is just really too soon to tell. But I mean I think we've got a seat at the table and are providing input, because clearly we don't want to create a situation where we impact jobs in the United States. Which will quickly happen, when you look at how integrated the supply base is, and how things go back and forth. So it's really way too soon to speculate. What we're looking for is fair, free trade, because we believe that, with every country ---+ because we believe then the strength of our product line will allow us to do well around the globe. So in all the conversations, we're making sure people understand possibly some not-understood aspects of the business, so a very informed decision can be made. As <UNK> said, we do support overall tax reform, but the details are key. And that's why we're having such an active voice in making sure the business is understood, the jobs we provide, et cetera. I would expect that our pricing dynamic, if you're speaking specifically to North America, will be ---+ year over year, on new, will be a little bit more robust than the $200 million a quarter in 2016, based on the crossover launches. Yes. Thank you. So I just have a couple of quick closing comments here, and I want to share a couple of key takeaways. First, the Company is producing strong financial results. And I think we've given you a lot of reasons and specifics of why we plan to continue to do just that in 2017, and realize stronger financial results. We believe, overall, GM is a better, more disciplined and more focused Company. And you'll see us continue to drive that focus across all 220,000 employees around the globe. Because we believe there are more efficiencies that we can deliver, higher quality, and continue with strong products, as well as our investment in the future of mobility. All of this to drive strong shareholder value. We are taking the steps to make sure, in the very important area of the future of mobility, that we have a leadership role, and we're building on a strong foundation in many of these areas. And overall, if you step back and look at 2016 as a whole, we're demonstrating that we can do what we say what we're going to do, and continuing to build that track record of delivering on our commitments. So we look forward to a very strong 2017. And I want to thank all of you for participating on the call.

2017_GM

2017

EGP

EGP #Thanks, [<UNK>na]. The second quarter saw a continuation of EastGroup's positive trends. Funds from operations came in at the high end of our guidance, achieving a 6.1% increase compared to second quarter last year. This marks 17 consecutive quarters of higher FFO per share as compared to the prior year's quarter. The strength of the industrial market is demonstrated through a number of our metrics, such as another solid quarter of occupancy, record leasing volumes for the first half of the year, positive same-store NOI results and double-digit positive re-leasing spreads. In summary, our increasing FFO and dividend proved the success we're seeing in all 3 prongs of our long-term strategy. At quarter end, we were 96.8% leased and 94.9% occupied. And as market commentary, we've never achieved this level of occupancy for this long. Drilling into specific markets at June 30, a number of our major markets, including Orlando, Jacksonville, Charlotte, Phoenix, San Francisco and Los Angeles, were each 98% leased or better. Houston, our largest market with over 5.5 million square feet, down from over 6.8 million square feet in the first quarter 2016, was 95.6% leased. Supply, and specifically, shallow bay industrial supply, remains in check in our markets. In this cycle, supply is predominantly institutionally controlled and as a result, deliveries remain disciplined. And also as a by-product of that institutional control, it's largely focused on big box construction. In fact, a recent CBRE study showed shallow bay deliveries still below pre-recession levels. Rent spreads continued their positive trend for the 17th consecutive quarter on a GAAP basis, rising 14%. Overall, with 95% occupancy, strengthening markets and disciplined new supply, we continue seeing upward pressure on rents. Second quarter same-property NOI rose on a GAAP and cash basis by 2.5% and 2.4%, respectively. Average quarterly occupancy was 94.9%, which is down 60 basis points from second quarter 2016. A material portion of our occupancy decline came via acquired vacancy and value-add acquisitions, which impacted average occupancy 110 basis points. Also of note, in our June 30 results is the 190 basis point margin between percent leased to occupied. This is an atypically large margin and it's being driven by several larger second quarter lease signings, where build-out and permitting are under way. It will take a couple of quarters to begin seeing the full impact in our results, and the other benefit lies in lower risk shifting from projected leases to actual signed leases. We expect same property results to remain positive going forward, though increases will likely to continue to reflect rent growth as with mid-'90s occupancy, we view ourselves as fully occupied. The price of oil and its impact on Houston's industrial real estate market remains a topic of discussion, and we thought it appropriate for <UNK> to again join today's call. <UNK>, until next Tuesday, has run our Houston office, with responsibility for EastGroup's Texas operations. <UNK>. Good morning. Our Texas properties finished the second quarter at a combined 95% leased, while our Houston portfolio finished the quarter at 95.6% leased, up slightly from last quarter and ahead of projections. The Houston industrial market exhibited solid fundamentals at quarter end. The market vacancy rate was 5.5%, extending the consecutive quarters that the rate has been below 6%, coupled with positive net absorption to 24. Meanwhile, developers continue to show restraint with the construction pipeline containing only 2.2 million square feet of speculative space, which is down to a level not seen since 2011. Even though the overall Houston industrial market remains stable, there is an undercurrent of tenants downsizing upon their lease expiration, which is producing a lot of movement within the market. We have not been immune to this trend and have incurred vacancy as a result. However, there continues to be prospect activity in the market. In 2016, we signed 30 leases totaling 836,000 square feet. By comparison, through the first six months of 2017, we have already signed our 30th lease for virtually the same amount of square footage. Our leasing efforts have reduced our scheduled expirations for 2017 from its peak of 17.7%, down to 5.1% as of June 30, and we have also reduced our 2018 exposure to just 5.4%. This is a welcome reprieve after the past 2 years, which were in the 17% to 18% rollover range. Although we still have some known move-outs throughout the remainder of the year, our leasing results to date have been better than our projections. Due to that activity and the sale of Techway Southwest, our leasing assumptions for the remainder of 2017 now reflect occupancy reaching a low of 90% in the third quarter versus the prior expectation of 87%. <UNK> will go into more detail regarding the Techway Southwest sale in a moment, but I am pleased that over the past 18 months, we have sold over 1.3 million square feet of buildings and 12 acres of land for gross proceeds of $88 million, with book gains of $53 million. This significantly reduced our Houston footprint, and we've now successfully deferred all of the material gains via 1031 exchange transactions. Our development platform within Texas continues to produce positive results and further portfolio diversity. Our 2017 development starts include additional phases to existing parts in Dallas and San Antonio, and our first Austin land acquisition where we plan to start construction before year-end. In summary, the fundamentals remained strong for the Texas markets outside of Houston. <UNK>. Thanks, <UNK>. Given the intensely competitive and expensive acquisition market, we view our development program as an attractive risk-adjusted path to create value. We believe we effectively manage the development risk as the majority of our developments are additional phases within an existing park. The average investment for our business distribution buildings is below $10 million. We developed in numerous states, cities, and sub-markets. And finally, we target 150 basis point minimum projected investment return over market cap rates. As of June 30, the projected return on our development pipeline was 8%, or as we estimate, the market cap rate for completed properties to be in the low to mid-5s. Further, we're continuing to see cap rate compression in the majority of our markets. During second quarter in our development pipeline, we began construction in 3 existing parks on 7 buildings, totaling 507,000 square feet, with a total investment of $41 million. Those starts were in Dallas, Phoenix and San Antonio. And on the other end of the pipeline, we transferred 5 properties totaling 867,000 square feet into the portfolio at 86% leased. As of June 30, our development pipeline consists of 14 projects containing 1.9 million square feet with the projected cost of $150 million, which is 47% leased. And during the quarter, we acquired 2 new development sites: the first being 30 acres in Round Rock, Texas, which is just North of Austin with plans to develop 4 buildings totaling approximately 340,000 square feet; the second site came via part of our Broadmoor acquisition in Atlanta, where we acquired adjacent land to develop a building slightly in excess of 100,000 square feet. Our goal is to break ground on both late this year or first quarter 2018. And for 2017, we project development starts of approximately 100 million and 1.3 million square feet. What's gratifying about these starts is we can reach this level again in 2017 with no Houston starts, demonstrating the value of our diversified Sunbelt market strategy. Our asset recycling is an ongoing process, and year-to-date, we've sold $39 million in assets, with a couple of other opportunities we're evaluating pending pricing. Including in this figure was a $33 million disposition at Techway Southwest, of 4 building, 415,000 square foot, EastGroup development in Houston. In addition to Techway, we sold a 99,000-square foot Stemmons Circle in Dallas for $5.1 million. And over the past 18 months, as we've recycled capital, the portion of our NOI coming from Houston declined, while the quality of that portfolio has risen. Specifically, at the beginning of 2016, Houston represented over 20% of our NOI, with 3 properties under development. Today, Houston represents 15% of our 2017 projections, and following the Techway sale in fourth quarter 2017, Houston falls under 14% of our projected NOI. Our second quarter acquisitions included a $5.8 million investment in the 84,000 square foot multi-tenant Broadmoor Commerce Park in Atlanta and the 99,000 square foot Southpark buildings 5 through 7 in Austin, Texas for $10.3 million. These buildings are immediately adjacent to our Southpark 3 and 4 properties, and both the Atlanta and Austin properties are 100% leased. <UNK> will now review a variety of financial topics included in our updated 2017 guidance. Good morning. FFO per share for the quarter was $1.05 compared to $0.99 for the same quarter last year, an increase of 6.1%. Operations have benefited from an increase in property net operating income related to same properties, developments and acquisitions, and we had lower interest rates on replacing maturing debt. FFO per share for the 6 months was $2.04 as compared to $1.90 for last year, an increase of 7.4%. Debt to total market capitalization was 27.2% at June 30. For the quarter, the interest in fixed charge coverage ratios rose to 5x, and the debt-to-adjusted EBITDA was 5.9. The adjusted debt-to-pro-forma-EBITDA ratio was 5.5 for the quarter. Floating rate bank debt amounted to only 2.2% of total market capitalization at quarter end. These stats are some of the best we have had. In the second quarter, we saw $30 million of common stock under our continuous equity program at an average price of $79.59 per share. For the remainder of 2017, we are projecting new debt of $60 million and no sales of common stock. We do have one mortgage coming due in the second half of the year, and we plan to pay off the $45 million mortgage on August 5, 2017. It has an interest rate of 5.57%. In June, we've paid our 150th consecutive quarterly cash distribution to common stockholders. The dividend of $0.62 per share equates to an annualized dividend of $2.48 per share. Our FFO payout ratio was 59% for the quarter, and rental income provides almost all of our revenues, so our dividend is 100% covered by property and net operating income. Earnings per share for 2017 is estimated to be in the range of $2.41 to $2.49. FFO guidance for 2017 is estimated to be in the range of $4.19 to $4.27 per share, and the midpoint stayed the same as previous guidance, or $4.23 per share. Guidance changes from previous estimates include an increase in same-property NOI, the effect of dispositions, an increase in stock sales and the timing of leasing on new developments. At the midpoint, we are projecting a 5.2% increase in FFO per share compared to last year. Now <UNK> will make some final comments. Thanks. Thank you, <UNK>. Industry property fundamentals are solid and continue improving in the vast majority of our markets. Based on this strength, we continue investing in and geographically diversifying our portfolio. We're also committed to maintaining a strong, healthy balance sheet with improving metrics as evidenced by our equity issuance year-to-date. Overall, we're excited about our 2017 opportunities. From a holistic standpoint, our expectations are for another solid year. I used holistically as I mean it in 2 ways. First, I like the current industrial market, I like where we fit in the food chain and the consistent steady value per share we're creating each quarter. Secondly, I'm using it in terms of people. We're excited to have Reid Dunbar as Senior Vice President for Texas; as well as Ryan Collins, our Senior Vice President for the Western region. They brought with them years of industrial real estate experience, excellent reputations and their solid additions to EastGroup's culture and team. Secondly, I'm excited to welcome <UNK> <UNK>, who I've known over 20 years, as our new CFO. I've worked with <UNK> when he transitioned from accounting to our operations side, so it seems fitting to work with him on the transition bank. And as excited as I am about these moves, it's truly bittersweet to see <UNK> retire. <UNK> has been with us over 37 years and I've known him since my first day in the office. We're in sound hands, but we'll miss him and I'm simply not articulate enough to adequately thank him for all that he's done for EastGroup and for me, personally. But with that said, I'm excited he's off to enjoy himself and he's agreed to our, if we'll buy lunch, consulting arrangement. We'll now take your questions. Yes. I don't think we're under any sort nondisclosure with the sale, but it was purchased by Cabot. And the buyer pool, we had entertained selling this property 12, 18 months back when we begin our disposition program. It did have some leasing risks, so we decided to hold it and just stabilize the rent roll moving forward. But there's so many people looking for investments and there's nowhere to put the money. We were approached by different groups, over time, but in this case, the price was attractive. They were willing to price it and take on the leasing risk. So at that point, we were willing to sell and so we're excited about the timing and the price. And like I say, it was on our disposition list, and we're ---+ it was a good property we developed. I think it's the first time we've sold a property that we've developed. That submarket we viewed is that we'd likely wouldn't add to that cluster, over time, maybe even a declining submarket, in our review, over time. So we were happy to sell. It's probably been a little more active. I think we're the majority of the way through our dispositions in Houston. I mean, we'll sell maybe a few more. There's a property in Central Green that we signed a lease on thankfully. In the second quarter. We're doing the buildout now. We may bring that to market once that tenant's in. We saw the buyer pool contract the second half of 2016, and it feels like there's still demand and it's picked backed up, and in fact, someone was just recently telling us about how barely North of the 5 cap sale of transaction in Houston that traded. I think if it's solid, these are newer assets, kind of middle of the fairway, there's certainly a buyer pool. And it does feel like it's maybe opening up a little bit more in Houston. And as <UNK> said, this was an asset we had on our list. We really had pulled it off. And through a broker, both entities new, we' got approached and they were able to hit kind of within our target pricing range. Thank you very much. Good question. We are seeing a little more ---+ there's certainly more supply out there, over all, but I would bifurcate it in that what's ---+ where we like ---+ perhaps we've mentioned, we like where we fit in the food chain, recently saying, Atlanta and then, I was in San Antonio looking at a project we're considering there, some land and so much of the new supply is all big box. So we've simply not designed, with that average tenants size of about 26,000 square feet, probably a little bit larger than that in our new developments, but the vast majority of the new supply is noncompetitive. If you and I are on the ground and we drove around Broadmoor and Atlanta, you'd see new buildings, but they'd be 250,000 square feet and up that are around us. So supply has picked up a little bit maybe and in Orlando and things like that. The merchant builders are typically not working with that, but, really, with our way for institutional capital to acquire industrial, they're really, I'm going to call it a fee developer, but close to that, maybe a 10% partner with institutional capital as the investor. And so we're seeing a little bit of that. But if you said what keeps us up at night, one of our main answers would be finding next land sites. So probably the biggest hurdle we've got to new supply is we simply have struggled to find new land sites as do our peers. So it keeps getting pushed further and further out of town. And then usually, once you're there, they're building something that's noncompetitive to our design projects. We've got a lot of noise in G&A this year. We had ---+ we're changing our plans, and we put out a press release first of the year and said that, that was causing $0.03 a share. And then we've had some terminations over the time and my best and accelerating, and we do expect G&A to be down next year. I have not come up with the final numbers, but it should be less than this year. Thanks. Good question. Maybe a little bit ---+ both are a little bit different. In Texas, we've got ---+ both places, we have good teams. We have 2 seasoned vice presidents in Texas that are continuing to perform well, and we had known Reid Dunbar, really, from when he came from Charlotte when he was with Prologis in Charlotte, followed him, certainly has a lot of good ideas and a lot of good experience that stepped into an ongoing situation and is really continuing our development program in Dallas, in San Antonio, really with the next phases of buildings. And it's thankfully been a nice seamless transaction. Reid was just here in Jackson last week, so got to meet more of our team and he's kind of hit the ground running and had a set runway in front of him out west. We opened an office in Los Angeles for Ryan, so it's really been a way to be, we've used the phrase patiently optimistic. He is from Texas. He moved to Los Angeles a few years ago with Clarion, has a great kind of rolodex of contacts and experiences in Southern California, growing Clarion's portfolio. So he's hit the ground running. We've turned down any number of projects that just didn't quite fit us, but seeing such a large market in California, turned down opportunities, but are a couple that are on the radar that may come in, yes, that we're still evaluating. And again, he's just finishing his second month there. And then, really Mike Sacco, he's come into his own, as you mentioned, in Phoenix, where we are 90%, about 90.5% occupied at June 30, but 98% leased. So he has stepped in and done a ton of development leasing and done a big driver of that delta that I mentioned, a 190 basis points between percent leased and percent occupied of a lot of first-generation space that he stepped in. And he's really ---+ kind of with the opening of the California opening office, has led the Arizona office, more or less, be his office to run and do as he wants to. And I'm happy for Mike and I'm pleasantly surprised that he got as much done as he did as quickly as he has. So I guess, the other side of that, I'll just add, what's nice is on the side, we had shut down our Phoenix development program because of the vacancy we had in the first quarter of 2016. But now that we're 98% leased and Mike even got a nice prelease in some land that we have, part of our pickup and really our timing of development has been stabilizing the Phoenix market. It's let us really move from playing defense to playing offense this past quarter in that market. Yes. He got some space pre-leased. We're 36% leased on new buildings, so we're going to finish out our Kyrene Park. And soon as our earnings call is over and sales down, I promised him to come out to Phoenix. He's got another new land site that we'll drive around while it's 115 degrees still out there, and see what we think of that site, if it's our next park or not. So we're excited and, yes, he's doing a great job. I think we would ---+ even if we couldn't find the acquisitions, we'll probably be looking more towards value-add acquisition these days. I like the 2 or 3 assets we bought at the end of last year. We were achieving yields that are higher than core markets, but maybe a little bit below what if we had built it our results are coming in. And I guess, answering your question, the pace will probably slow down a little bit, but I think we should always be pruning our portfolio. We still have some service center buildings in Florida and things like that, that I think, for our shareholders, it's a good set of market to sell into, so we should continue to sell and move assets out. And I'm happy the team has done a great job managing through the 1031 process this last 1.5 years, and we'll probably keep that process going and match it as best we can. No. We are happy with where development ---+ I'll let <UNK> chime in. The other one we did bump our interest rate assumption a little bit this quarter. So that was the other thing, that was ---+ we debated and kind of went through internally issuing ---+ updating our guidance. Happy with the development leasing. It's moving ahead with our size and especially with development. If a space or 2 gets pushed up versus an assumption a month or 2, it's 0 or 100,000 maybe within that space. And so a couple of those and all of a sudden, we're at 200,000, and that's the difference between raising guidance if any or holding it steady. So we're not saying the development market slowed, but versus assumptions and what we're happy with as we're able to shift some of those assumptions to actual signed leases and scrambling to get permits and subcontractors and things like that to get the space built. We've averaged about ---+ if we went back to '14, maybe 170 to 100 basis points has been probably typical. First quarter had jumped up to 150 basis points. And in this quarter, it's all the way up to 190. So a lot of that is that development leasing where the buildout takes a little longer. As <UNK> has mentioned, the Houston retention ratio has really inverted these past 2 years, so more new leasing in Houston. So that's some of what's caused the delta between those 2 numbers to grow, but it's about twice our normal run rate at the end of this quarter. We didn't. Probably if we were underwriting it to acquire it, as <UNK> mentioned, it had some vacancy, it would be a low 6% kind of cap rate. Yes, if we stabilized it at market rent and some of the things, that\ And Rich, it was at that 6% or low 6% with ---+ it was fully occupied, but we had a tenant that was about 20% of the project that we knew was going to vacate July 1. So we knew that, that was going to go down from there. So the buyer was willing to price through that and take that lower yield for however long it takes them to restabilize the property. I'll take a stab, and <UNK>, chime in maybe between this, and <UNK>'s really seen the world of Houston grow up. Not unexpectedly, we agree with the first half of your statement. We think it's the best industrial park, arguably, in the country. What I love about it, you really shoehorned in between Beltway 8 and George Bush Airport and a fast-growing, fourth-largest city in the country. So I think our location and the access is really strong, and it's proven itself out over the years with the demand there. I think the North submarket had more available land, so it had more development hitting into this kind of oil price shock. The other thing that makes it, maybe where you're, I'm picking up on your word, Bill, transitory of what we've seen. We have more ---+ because of its location near the airport and near the freeway, there's been more 3PLs and freight forwarders. So those guys may have 5 or 6 locations, and I ---+ my mental image is almost like an accordion. As they lose contracts, it's easy for them to contract organically versus if you and I owned the manufacturing business, but by the same. So we felt that on the contraction, by the same token, and this may be the optimist in me, but as they pick up new contracts, they will expand much faster than a typical, say, closely held or wholly owned 3PL would be. So we probably do have more transitory freight forwarders because of the location adjacent to the airport. But long term, I like ---+ I love being next to George Bush Airport. <UNK>. Yes, no, I would agree with that. We love the location, love the submarket. The North became softer than the other submarkets just because of its desirability. It became a victim of its own success when, as <UNK> mentioned, there's more land opportunity there initially. So as the market continued to grow and to be hot, more developers entered into that submarket. So as ---+ when the music stopped, everything began to slow down. Again, it had more space and it was softer. But down the road, whether that's 1 year, 2 years, whatever, when things pick back up and spec development picks back up, you'll absolutely going to see that occur in the North submarket, there's no doubt about it. Yes, we looked at that ---+ I mean, it helped ---+ we have 2 things that are helping us there that were ---+ incrementally, we're doing better with ---+ on leasing. And certainly, the sale of Techway, as I mentioned, we have that large tenant right around 100,000 square foot tenant that was originally budgeted to vacate, would have been empty the rest of the year had we continued to hold the project. So Houston, specifically, the improvement there in the same-store forecast, I would say, a lot of it was related to a Techway, and then some portion to better leasing. But it was probably, with 2 quarters to go, a little more related to the Techway disposition. But we were very pleased with the timing. We were able to operate it 100% for 6 months and then right as the vacancy's impending and approaching, we were able to sell an asset that we had already desired to sell for probably going on 24 months now. The other nice driver in our same-store results kind of for the balance of the year is that lease up in Phoenix, as I mentioned. We had projected leasing in the balance of the year, but not getting to 98%. And a couple of cases within that, it would fall ---+ one of them would definitely fall into same store. It was a development that had sat vacant for a while. So that will roll into our same-store pool later this year, and that project is at 100% now. So that's kind of the other pickup of really just exceeding what our assumptions were 90 days ago. Thank you. We've talked about that. I think we'll be below 14% in fourth quarter, really, with no new developments planned. I mean, we might ---+ maybe, pending the market, least we could think about it, maybe in '18, where we didn't really think about it this year. I think if we stay 12%, 13%, 14%, that's probably towards the high end of it. And really, more of that will be driven by how fast we can build out, say, Miami, how fast we can get up and running. And I realize it's incredibly competitive in California, but that's certainly an under-allocation within our ---+ if you look kind of at our investment spectrum. And so if we can ---+ what I would hope is each of our major markets, we have runway when we find the right opportunities to step forward and, hopefully, that let's Houston, in the near term, drift or settle back to that 13-, 12-type percent within our portfolio. Yes, <UNK>, look ---+ took control of what. But much like <UNK> said when he took over for <UNK>, I mean, me, taking over for <UNK>, I very much just view it as putting hands on the steering wheel. We have a great accounting team, a great ---+ have a great support. And no, our conservative balance sheet, keeping 65-35, 70-30 debt-to-market cap, being very judicious with issuing new equity. My primary goal is to try to do my first loan at just even one basis point lower than what <UNK> did, just so I can needle him with that. But it will be very similar. I mean, our structure is very simple and straightforward, and we'll continue ---+ my goal is just to continue to ---+ I hope <UNK> and the guys in the field are finding lots of great opportunities that we're ---+ hope we're making decisions about equity versus debt and those type of things going forward. You mentioned e-commerce, so that ---+ probably steady demand, steady growing demand quarter-after-quarter. I mean, one, we mentioned we just signed the lease with Wayfair, for example, and Florida and they popped up on our radar as a growing e-commerce and it surfaced in other markets as well. So that segment, which is maybe an easy one. Homebuilding is another one. It feels like it\ Okay. Please come to Jackson. Well, it's hard to tell for us just internally within our portfolio. As I mentioned, we're excited that we only have 5% rollover for the remainder of this year and just a little over 5% for all of next year. So we're looking at just around 10% rollover for the next 18 months. That just, by default, is going to insulate us from that activity. So within our own portfolio, that's mitigating, I think, for the most part within the Houston market. Most of that has shuffled and played itself out as tenants have rolled and have the opportunity to resize. As I mentioned, these tenants aren't leaving, they're just readjusting. We've signed 30 leases in the first 6 months of this year. That equaled what we did all of last year, and we were excited about what we did last year. So I would like to think that things are getting incrementally better as opposed to going the other way. I don't ---+ good ---+ sexier, probably a little bit of it. It's always more fun to build bigger things than smaller, but a lot of it is the dollars you can place. And so we're an institutional investor, but so many of our peers are larger than us, especially when you get to the pension funds, and they have dollars to place and it's, call it, in our average building maybe $9 million to $10 million. It's minimum wage or manual labor for them to put the dollars out. They've got to keep pace and go ---+ if you go by a 600,000-foot or 700,000-foot building on the edge of town, you can place dollars so much more efficiently than putting it out ---+ describe our development program as a subdivision. But a $10 million home after another, and we add one when the next one gets leased up ---+ when the last one leased up. So I think they just ---+ it's an inefficient way for them to place the size capital they have to invest. And for the merchant developers, the fees are larger on ---+ absolute fees are bigger on a larger building than a smaller building. That's a little bit ---+ we're happy with the assets, long term, but what we saw in Fort Worth where a good market, a growing market, long term, but where they built 4 buildings at once, where we would have built probably 1 to 2 buildings at a time. And then I'm thankful for it. It's just an interesting fact in our market. Good question. We ---+ our rent spreads are up. One thing that's been nice this year, our leasing volume is higher through the first half of the year. We're a little bit bigger than it's ever been, but also, our rent spreads are up. We were up about 12% and 15% ---+ I'm doing this from memory, 15% and 16% and we're 16% year-to-date. So our rent spreads are up. And really, there's ---+ I say there's less supply, but there's always competition, and it's usually always pretty good competition. So when we're out with space, especially if you have a little more leverage on the renewal, then you do a vacant new space. But they always have options, and we are pushing rents and we don't see a trend of it turning down. But I always thought the best brokers really know what your competition is, what your ---+ here's the 2 or 3 spaces they're looking and here's the pros and cons of each of those spaces. So I like that everyone is full for the most part, but there's always still seems to be ---+ every tenant has an option or 2, where the tenants are usually can be a bit flexible in their ranking or what size square footages they can use, things like that. <UNK>, can you. . Yes, I'd say there's still strong demand in the big box. So it's not as though they don't have the power to push their rents as well. So part of that factors into it. And so you push a couple of big 500,000-square foot leases on the rental rate. That will move the needle quicker than, say, if we move a handful of small tenants' rental rates. But the good news, we're both in the position to lever. And just following up on that in terms of small box, our peer group, the idea of building a 100,000 square-foot building and leasing it to 4, or 5 or 6 tenants, it just doesn't move fast enough. And even from an institutional buyer standpoint or development standpoint, they don't like the intents, rent rolls, where you have maybe a portfolio where you've got 20, 30 tenants versus where you might have 2 or 3 tenants in large buildings for the same amount of square footage. So sometimes, they just ---+ thankfully, they just shy away from that type of administrative work. Well, kind of the feedback we get, and we talked to a couple of the different national brokers, their commentary was along the lines of, say, the top 5 markets. And maybe I'll use Inland Empire in California, where it was already 4 or really a little bit below 4. Those have pretty much stabilized. But what we're hearing industrial is a safe haven and, certainly, we are enjoying that from the equity side. But for institutional capital, they started under-allocated to industrial and now compared to retail or maybe some other sectors. So we're seeing, really, those markets that maybe 1 through 5 have held steady, maybe markets 5 through 15 or, really, probably up even in the low 30s, where it would be a San Antonio, a Charlotte, a Tampa, some of those markets where it's probably come down 25 basis points is what the brokers are saying. Nationally, their transaction volume is pretty consistent with 2016, but because people are underwriting higher rent growth, their comments were more total deferred expectations are about the same. But because everyone is seeing a rent growth, they're willing to ---+ more importantly, underwrite more rent growth. It's pushed cap rates down maybe another 20 to 25 basis points this year. And really, kind of how do we think about it, it's a good time to continue selling assets where we can. It probably pushes us. It makes our development program all that more attractive and really pushes us more towards a value-add type acquisition. If it's a building that's been built and vacant that we can step in and continue spending capital on like we did in South Florida and Las Vegas and some others, that's probably where our strategy will take us. Just-to-go-head-to-head with an institution on a Class A project with credits in it, it is just a tough fight, and I'm not sure anybody wins that right now. Thank you very much, <UNK>. Yes. It's hard to say it's at the bottom when you ---+ the vacancy rate of the market has stayed under 6 the entire time. But for the North, specifically, I would think so. I mean, certainly, there's been no, there is no and has been no spec development, so that alone is allowing it to get more stable. In terms of rental rates, I mean, we've been very pleased and satisfied with rental rates. All in all, as you can see, our spreads have tightened some. And I was just looking back World Houston, for example, in second quarter alone, we signed 5 leases and those leases were signed at an average rental rate of $0.53 a foot. So I've seen a lot of press about rates being well below that. I guess, I would just say, I'm glad those brokers aren't doing our leasing, but they've held in there well. When we've leased our Central Green building, 80,000 square feet had been vacant for a while. We were able to get a really good rental rate there, and that's really what drove our positives this time. We had 2 prospects that got into a hotly contested desire to have the building. And so one of them ramped up and went through the leasing process very quickly and signed the lease for it. So again, incrementally better. I don't like the deflection straight up, but we were feeling positive, feel good about the rates we achieved for the quarter. And again, the low rollover, going forward, we're looking forward to that. Nothing. Good question. Nothing within our top 10 tenants, thankfully. I mean, Essedant, we actually did a long-term renewal with last year. So they should be put to bed. Iron Mountain, again, knock on wood, we've had a good portfolio-wide retention rate with them. I know (inaudible) is a tenant we get questions about because they're a retailer and they've actually ---+ they've got term left on their lease and are actually in the market looking for additional space for distribution in Charlotte. So thankfully, there, we've got a couple of moveouts in Houston. And then the other move-out that we're working our way through, but I would describe our 240,000 feet in Santa Barbara, it's 4 buildings. 3 of them are full, but we had one tenant that had been there 20 years that grew and grew and really took the entire building at just over 50,000 feet and they vacated during second quarter. So the tricky part in Santa Barbara. The good news is that it's a high rent market. The bad news is when it's vacant, it's an expensive vacancy and it's more of, as you'd expect for Santa Barbara, smaller tenant R&D projects. So it's one of our challenges this year, right after Houston, is probably re-leasing that square footage in Santa Barbara. We have prospects, but it's a thinner market, so we'll work our way through it. But if you said, overall, where have our moveouts been, it's a couple more coming still in Houston, probably between now and or will between now and year-end. And we got hit with one, a tenant move out in Santa Barbara that we're working to re-tenant. They have term on the Houston lease side. Yes, there's nothing really there. No. I know they were required by a South African firm, I may be off on that but I believe. So I think nothing that I'm aware of, seemed to be fine, and no news one way or the other. We get questions about retailers within our portfolio and thankfully don't have that many. I know ---+ like Nordstrom is in Southern California, but they've been there 20 years in our Walnut project, so not that many retailers. Okay. Our development yields, well, this quarter, we're at 8% lead. We keep thinking it will come down and it will trend down just because we worked really through most of our inexpensive land. We've put it into service, everything we're acquiring land-wise. So our development yields could come down, but we've been thankfully able to stay well above that ---+ a 150 kind of basis points over what a fully-valued ---+ what we think we could exit it for to kind of justify the development risk. In terms of acquisitions, and then, we minimally try to decouple. I mean, it's almost like on or off. Maybe when we're in early 50s or low 50s a little over a year ago, thankfully, on the stock price, we weren't very active. We're looking for acquisitions. As our stock price moved up and our cost of capital came down, we started looking more and more for acquisitions, and we're active in that market at the end of last year and have been this year, trying to decouple those as much mentally. If we don't like it, I don't think we should buy something just because we have capital. I'd rather you not be grilling ---+ thankfully, <UNK> will retire, but you'll be grilling <UNK> and I about it 2 years from now if we buy it simply because we have the capital. So try to mentally decouple it, but we are active and looking, and it's kind of one that's you know it and when you see it, probably in Atlanta or in Southern California or Northern. And it probably steers us more towards value-add again because people ---+ if there's nothing wrong with it, people are willing to pay such great prices for it. And I also like the fact that we're a long-term holder. It helps us kind of underwrite and look further down the road. I think our peers are within the reach so much, but again, what we were hearing, those people are willing to underwrite more rent growth, and so that's what's driving the compression in cap rates and the underallocation. Probably, if you can't get into Dallas, Chicago, Southern California, Northern New Jersey, then Tampa, Phoenix, Orlando, any number of our other markets just get that much more attractive. So it probably helps from an NAV perspective or where we're looking at it. But it's ---+ the acquisitions won't be our primary path to growth and probably shouldn't be right now, unless it's buying vacancy where we can take on some risk that others are uncomfortable with. We'll probably ---+ a couple that were looking, like Austin, where we're not finished there, but we'll probably be mid-7s in Austin. And probably if we sold them, mid-5.5, 5.75%. I'm estimating, brand-new product in Austin, in Atlanta, it's an allocation with the building, but we'll be a high 7 development when we do it, when we finish it and that's probably easy 5.5 brand-new building. And along I-85 in Atlanta would be a low 5 cap rate, so the spreads are hanging in there. We're looking at something else that's about a 7.5%, that's going to investment committee this week elsewhere in the country. And probably, again, easy 150 basis points spread. And that, <UNK>, will vary by market. When we get active with our Dade County development project when we bought the land last quarter, that spread will be tighter. But again, that's different market dynamics and has different long-term growth. Certainly, if Ryan unearthed something in California from a development standpoint. Again, that spread would look different just because of the market dynamics. So it\xe2\x80\x99s not a one-size-fits-all necessarily, but for most of our markets, it's along the lines of what <UNK> described. Thank you, everyone, for your time this morning. I appreciate your interest in EastGroup, and I will join the chorus of wishing <UNK> well on the golf course. So thanks, everyone.

2017_EGP

2015

COO

COO #Overall, we've been saying 4% to 6% without necessarily saying any particular number in that range. So, did we dial down this year a little. A little. Yes, there's no doubt that the combination of UPP has taken a little weight off of it, so that this year, 2015, I don't see us being at the top end of the range. Having said that, I think if you adjust for the VAT year over year on a trailing 12-month basis we're still at around 4%, which is the bottom end of that range, and I would expect improvement going forward. I made a comment in my comments on the guidance that it really is a combination of, FX is a factor, and the other factor is rationalization of the portfolio, the legacy products that come into play. We did indicate when we put Sauflon together with our product line, we had some decisions to make on which we would promote, which we would redirect, which we would discontinue. So, it's factoring in a bit more cannibalization/rationalization. I would say in our revised guidance we think we've factored the current thinking. Having said that, I would not say we've concluded all the challenges of what to do with the plethora of legacy products we have on both sides of the aisle. So, in some degree, in some cases we're taking a product into a private label modality and it will survive. In other cases, it will not survive. That is not a concluded exercise at this juncture. From a tax perspective, again, we've had some normal discretes that we normally do in the quarter. We have incorporated Sauflon, which has gone well. And, so, it's nothing really out of the ordinary that we've seen in the prior quarters. The rate is a little bit low. Rates do fluctuate. We felt comfortable looking at the full year that the rate would be a little lower than we had originally guided to. And, again, it just takes an opportunity to see where the tax laws are going and now we feel comfortable with that 8% to 9% range. Okay, a couple things. We obviously talked a lot about product ramp-up with our new products, clariti and MyDay. So, the fact that we'll, among other things, be rolling out, launching MyDay in the US in August. And when it comes to clariti, the ramp-up of production has gone very well. We're actually ahead of the curve there which gives us a little bit more muscle and power in the marketplace. Keep in mind, in the second quarter with the clariti roll-out in the US, we were still in a bottleneck getting the supply channel freed up, getting fitting sets out. Now, we're in a pretty robust roll-out of our fitting sets and are optimistic we have the supply channel coming onboard to better service the quarter and the roll forward. Yes. Part of the step-up relative to the year-over-year growth is easier comps. In the second quarter, of course, we had Japan and the VAT which was a substantial hurdle, as we can see from the Asia-Pac numbers, the fact that they're down for the calendar quarter substantially 6%. I'll take the first one. CooperSurgical, we understand the revisiting of that with the things going on between our rationalization of the product line and IVF, the foreign exchange hit we had in IVF, which is an offshore business predominantly, and then now coupled with the mesh and the mocellator issues in the US. We think that's short-lived. We're very excited for the new product pipeline that is now coming through surgical, and we see the IVF business as very attractive long term once we're through the rationalization period. We like that side of it. The fact that there is minimal CapEx and it generates a lot of cash flow and it fits perfectly in our tax structure. And with that I'll turn the tax side over to <UNK>. Yes, and <UNK>, as you know, we don't give guidance on the tax rate going forward, but there's a lot that goes into it. There's geographic split of income. There are discretes that we have year to year. So there's a lot that we look at. And also tax law changes. There's a lot happening on the forefront. So, at this point in time, with our current structure, we ran over the last three or four years, we've been in that non-GAAP tax range of around 9%. I think there's nothing that we see at this point in time that dramatically changes that. Great question. The data we look at is also known as GFK data. It used to be HPR in the past. Now there is new data. But the same concept is basically on eye. It doesn't populate everything but what it does populate looks very good relative to the traffic into the eye care professional. What we're seeing in the industry going out the door is not a true picture of what is happening in the on-eye part of the industry, which is good news. It means that once the pipeline gets realigned to wherever it needs to settle out post UPP ---+ let's say it should settle out at some time in the near future where we catch up with the robust growth of the on-eye part of the industry. So, we're optimistic about that. I think your read is right, that the first calendar quarter was robust. April was okay, part of that is comp related. The long and the short of it is we say one quarter does not a trend make, whether or not you're looking at fiscal or calendar. Look at a lot more than that. And there's nothing we see particularly anomalous relative to the month of April that comes into play. Yes, on UPP, obviously most of the manufacturers are only dealing with some new products they've rolled out. UPP to us, while we can't predict what it means from a legal point of view, there's obviously legal activity that goes on in various proposals. Net-net-net, Cooper doesn't weigh in one way or the other. If it goes away tomorrow, that's okay. If it stays, that's okay. What it means in the marketplace on average realized prices, are the prices going up from the manufacturer or down. Suffice it to say, there seems to be more arguments that some manufacturers are net up in their pricing. But having said that, that's a little difficult as an assessment because, in most cases, exchange A's, they're all about new products, so that's an arbitrary assessment, is it net up or net down or just a new product launch and a technique. So, remains to be debated there. I think manufacturers are doing their price strategy as they see fit, with or without UPP, which means, at the end of the day, we're going to position products, if it's going to be in the premium market, the way we want, if it's going to be in the mass market, the way we want. And coupons and other vehicles that have been around forever will traditionally play into that. And it's like UPP is just another marketing strategy, if you will. So, it's no big deal to me but I know it's a bigger deal to a lot of people. Sure. The operational efficiencies that are going well, we're ecstatic about two things. One is the production ramp-up with related lower cost of goods. That will ripple its way into more the tail end of our gross margins in the fourth quarter, because we see some of that coming through. On the SG&A area, the integration around the world has gone very efficiently, particularly in Europe, which is getting the brunt of a lot of the rationalization and realignment. So, all of that has gone extremely well and we're more optimistic about the amount of synergy we're getting out of that integration. I think <UNK> mentioned in his script you've got a little bit of product rationalization. And part of that you also have to step back and look at what we did in Q2. So, a good chunk of that comes from the fact in Q2 we were light, and probably based on various guidance, the actual's probably somewhere around $9 million. So, taking that off, you had some currency impact there. And as you go into the second half, you've got a little bit of currency impact and then you've got again the product rationalization and maybe cannibalization. I think we're saying about $3 million of FX in the back half. I don't want to overplay how advanced we are in terms of having done it all. We were very successful in unbottlenecking what we wanted to get out in March and in April. As of the end of the quarter, or about now, we're north of 20,000 fitting sets. Keep in mind that some accounts have three different fitting sets, and that 20,000 is the combination of multifocal, torics as well as the spheres. Relative to the total market, the total market is over 37,000 fitters, of which let's say 30,000 is the total. We have a long way to go to address all of that market with all of the types of lenses. But obviously we're doing that in a prioritized manner, but not always doing just the Cooper accounts. We also are, to a degree, going after our competitors' choice accounts which is something they would be frequent to reciprocate on that. So, the long and the short of it is the roll-out of fitting sets is a multi-year program. It's not going to be done in total just the next 12 months. We're far from saying we're there already on that. I think where we are is, this year we're expecting to be north of the $200 million we've talked about. And it wouldn't surprise us to be in the range of $50 million to $75 million less next year than we are this year. For example, if we finished this year at $225 million, just to pick a round number, someplace north of $200 million, and it came down $75 million to $150 million, it would be in that level, $50 million to $75 million of incremental free cash flow, combined with improved profitability would get us to that $300 million-ish range of free cash flow. As far as sustained, if we talk about the sustained CapEx rate, where we're going north of $200 million now, it clearly will be well below that $200 million and probably below the $150 million mark post 2016. What we have done the last couple years is built a lot of the bricks and mortar, spent a lot of money on what we call Speedwell in the UK and Costa Rica, our facility there, building the bricks and mortars. As I indicated in our capital requirements, the cost of a line for Sauflon's production for silicone hydrogel is one-third our cost. So you're talking about a huge model change on capital requirements for the same level of throughput capacity. So that's why we're pretty optimistic not only about 2016 but the go-forward period. It's probably a little early to give too much substantive feedback on the US opinion leaders. But suffice it to say MyDay has been in the market for several years now in Europe, so we have a pretty good read on how it compares to others in the premium category where it's headed. So that's clearly Total1 and TruEye. We feel good about MyDay in that space and how the market should handle it. I think that's where we come into play, because if things continued the way they were, with only premium silicone hydrogels, then your model would be you'll never get there because not everyone can afford a premium one-day silicone hydrogel. Our whole thesis is we want to make it available for everyone and the sweet spot of the market, which is the Moist spot of the market, where the masses are. Now you're talking about moving that paradigm to never getting there to probably still five- to seven-year period to really significantly influence. The one thing going for us is we already have a lot of converted masses so that eye care professionals already know they like it in the two-week and the monthly market. What's going against us is you're now dealing where 730 lenses are a lot to buy. So, to the extent someone is really price limited, they're going to look for the bottom of the basement on what's a good product at the lowest price and that may mean they don't go with a silicone hydrogel. So, I think that part of the paradigm is really, when we talk about it will take you a lot longer to reach much further down, which would with more cost of goods reduction play if it's going to really get there. I think it will move quite a bit but it's not going to move quite as high as we are in the two-week and the monthly. All right. As far as the use of the platform, suffice it to say our pipeline of products and product rationalization, certain products will not be able to make, at least in any short-term sense, a migration from an alcohol product to a non-alcohol product. So, we would not be able to take a Biofinity and an Avaira and move them onto a Sauflon platform as we know it. Having said that, is there mixing and matching of temps going on. Of course, in R&D. So, we're looking at future generations of products. And looking at future generations of products we obviously will have a bias to take the know-how we now have and leverage that as best we can. Having said that, we have so much to do in terms of the ramp-up and roll-out of clariti, as we now know it, that it's going to keep us busy for several years. So, even if we did have a magic bullet that could take one of our existing products onto that platform, we're still limited in terms of capacity for the near future on that platform. But as I indicated in my commentary, that's something that's the ease of expansion is proving reasonably easy by way of the cost of the equipment, the time frame of getting the equipment in. So, two years from now we're looking at a different discussion on that. As far as free cash flow, go ahead, <UNK>. I think, Matt, when it comes to debt, we were happy with being able to pay down the roughly $47 million worth of debt. And I think next year as we have more free cash flow, obviously our uses of cash stay the same ---+ organic investment, M&A, debt paydown is obviously one of those and we would definitely be looking at the opportunity to do that as the quarters progress. So, yes, that's definitely one of the things that we'll be paying attention to. How much, I don't want to get into exactly how much it is because there's a lot that plays out between now and then. I think, <UNK>, just going on the earnings, it really comes down to ---+ the guidance seems similar but if you look at, let's just take gross margin. We said it was around 63%. We're now seeing it being north of 63%, so we're seeing it sliding up a couple of tenths here and there. Operating margins, the same thing. Taxes is definitely ---+ we were guiding originally 9% to 11%, and now we're looking at 8% to 9%. We've dropped our shares a few hundred thousand shares. So you put all that together, from the standpoint that we're feeling comfortable with our mid point now and we definitely want to make sure again we feel good about the second half, so I think we're good where we're at this point. As far as product rationalization and cannibalization, there always was the expectation that we would rationalize. There also was always the expectation that some of the clariti roll-out would cannibalize and the whole of Sauflon would cannibalize part of our portfolio and others. The introduction of clariti into the US, for example, the whole plan is to cannibalize, if you will, the sweet spot of the market, which J&J's Moist. Meaning we're trying to switch out as well as get the new fits in the marketplace. We're directly targeting their wearers. That was always part of the plan, and it was always part of the plan to have some cannibalization as well as some rationalization in the guidance we were coming out with. The comment on the $90 million drop in revenue at the mid point from December, that was very indicative of the fact that, as we've gotten into Sauflon, we see a lot more synergy coming to play, and are really impressed with their ability to cut costs. Were it not for that, with the foreign exchange hit we had, you would have seen a real degradation of gross margin, which you're not seeing, in the numbers. So we've been able to hold onto the gross margin that otherwise would have been penalized by the amount of foreign exchange hit we've taken along the way. Yes. I think in my comments I alluded to some of our legacy products, which would be your two-week and your monthly, and in particular your non-silicone hydrogel families are being, if you will, impacted and some of them we're discontinuing. In those areas we're talking about, we've been able to take off the top and hold the bottom line by just having a more efficient higher gross margin product portfolio. Of course selling the one-day and going from a two-week or a monthly to a one-day is of course a trade-up of revenue. Relative to gross margin, the gross margin is considerably more attractive than what we initially thought about the one-day modality. Said another way is, whereas in the past we said think of the model as 50% for one-day at the gross margin line, but a much smaller operating cost, we actually are seeing margins that are north of that 50% with clariti. So better gross margins. ASP, yes, you can't compare the ASP on a sell to sell basis. You obviously are comparing a monthly, use 24 lenses or a two-week, which happens to use 24 lenses even though it should use 52, then obviously you're going to get a much lower ARP with a much higher revenue in aggregate with that switch. We look to the OI line when we do those tradeoffs. The profitability of switching out to some of these products on a profit per patient basis is enormous if we can switch them out from a two-week to a daily, for example, in the process. I think anyone that's cracked the reported numbers of us and our competitors know there is some pretty big market share shifts going on surrounding that. And you're correct, the big box retailers have been more vocal, as we know, in some of that shift, or reactionary, if you will, to what at least one of our competitors did in the marketplace. Now, that's a two-way street because obviously not everyone is an independent eye care professional and not everyone is a retailer, and there's a whole bunch of gradations in the middle. So, it's not one size fits all. But net-net-net, you can see Cooper's numbers that we're putting up are pretty robust. I want to thank everyone for their participation and questions. And we look forward to updating you on the progress we're making and the MyDay launch that happens in August when we're on the phone for our next call, which is September 3, I believe. And with that, operator, thank you.

2015_COO

2016

INDB

INDB #No, it was competitive. And a process. Well, thank you much ---+ thank you very much, everybody. It's a delight to be speaking to you from Martha's Vineyard, and we look forward to talking with you in January. Have a good fall. Thank you.

2016_INDB

2015

BJRI

BJRI #You're welcome. <UNK>, we haven't talked about it a lot, but we definitely have been able to reduce our pre-opening cost in our business. At times it ranges in the $500,000-plus range. We have seen that number come down into the low $400,000 range or so. Some of it depends on that pre-opening [phantom] rent. Frankly, opening a little bit smaller restaurant and so on you're going to have less personal costs and other things. It's been a big benefit for us and it's sustainable. Whether in California or other markets, it is sustainable. You will have bumps and things like that when you go into certain markets that are little bit higher, but overall, we made some of those changes that I think are good for us. As far as California goes, one of the new restaurants for next year is going to be in La Jolla, California, and it's a replacement of the La Jolla one we closed this year because in this case, again, it was the landlord redeveloping the property. In this case, we were able to get a site that we liked in that property in the landlord and us were able to make an agreement that works for us. And we still have onsies and twosies in California. When it is the right spot, we will take it. That's really what's happening for next year. We've been pretty consistent around. There are still trade areas that, frankly, some of them, we've been trying to get into for 10 years plus that when we find the right real estate we'll still do but as we've been consistent about the we're not looking at California to drive too much of the unit development going forward. Thank you. You know what. I'm glad you asked that question. It's one of my favorite things about our concept is I often use these words, the breadth of appeal, but if that flexibility, even here in California where we as well in Montebello as we do in Huntington Beach and Irvine. That's what really works in some of the markets you are just using as examples, Chris. It's really that breadth of the menu enables us to do that. We do see regional differences in areas of the menu that are more popular by geography, but we still ---+ we have pretty much something on that menu that's going to appeal to somebody in a wide range of demographic and geographics. That helps us a great deal. Our fundamental value just works in a lot of different places as well. It's one of the things we briefly mentioned in our comments, but it gives us a lot of optimism when we see some of these put in the brand-new market category like the Pittsburghs and Murfreesboros that we're off to good starts there because people think we are a wholesale club more than a restaurant in some of these markets. The fact that we are doing as well as we do says a lot about the strength of the concept. Sorry, I thought you were done. Go ahead. I think we will, frankly, I think we will do better than that. Our goal is to build these on average, and we been beating it, at $4 million. That's the $1 million that we have been saving here. And some of the market you are referencing, we're able to do it for even less than that. I don't know what your definition of significantly is. The cost of materials isn't going to vary all that much so you look at the labor content and our construction, et cetera, we do save. There is more of a premium when we build in places in the Northeast, like our New York unit restaurants, and et cetera. But to answer your question, we're building these restaurants closer to $4 million and achieving that $1 million savings goal and we are able to do a little bit better in those markets. The gap is probably not as big as you think. Chris, it's an interesting comment you made about the 1.2 to 1 sales ratio. So if you think about what Greg <UNK> just said that we can build these restaurants for $4 million. A one-to-one sales ratio is only an $80,000 a week, weekly sales average, because $80,000 times 52 gets you at your $4 million. We're doing better than $80,000 but it does get you to think about fact that everybody gets on the whole weekly sales average versus comp versus non-comp. When we get it at $4 million or we get it at $3.5 million, we can generate a healthy one-plus to one return on that which is going to generate those margins by not having to do California weekly sales averages. That's been part of the strategy in regards to the right use of return on investment capital for us going forward and it's working out really well and we're pleased with where we're going. That's a good question. We're actually refreshing that data. We have plans and are in the process of starting that process, Chris. It's a really good question. We do know in our loyalty base, which is we have great visibility on frequency of those guests, right, so we are driving frequency among our most loyal folks. That is improving nicely. That gives us comfort. We do see, I mentioned earlier, we are seeing significant increases and improvements in our food quality scores overall. We think that is a key driver in all of this and is paying dividends there. The other thing, the dynamic that I think you know but I'd remind everybody is, the lion's share of the reductions occurred last year. We are still pruning as we are adding. This last menu, or this latest menu coming out next week, keeps a flat menu count in the 130 range. We are taking items off as we add them. I still ---+ we're still pushing the envelope and seeing if we can get lower overall net, but it's not been a be a 180 to 130 kind of change going forward. We are staying disciplined to make sure we don't leak our way back into 140, 150-plus land because that's a difficult restaurant to manage. Thank you everybody for joining us today. We appreciate your time and like you said, if you have any follow-up questions, don't hesitate to grab us. Operator, thank you.

2015_BJRI

2016

VLY

VLY #Good morning. Welcome to Valley's second-quarter 2016 earnings conference call. If you have not read the second-quarter 2016 earnings release that we issued earlier this morning, you may access it from our website at valleynationalbank.com. Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements. Now I would like to turn the call over to Valley's Chairman, President and CEO, <UNK> <UNK>. Thank you, <UNK>. Good morning and welcome to our second-quarter 2016 earnings conference call. This morning, we are pleased to review Valley's second-quarter operating results and provide an update on the bank's previously announced strategic initiatives. For the quarter, Valley generated net income available to common shareholders of $37.2 million, an 8.3% increase when compared to the first quarter of 2016. Top-line revenue growth provided the foundation for the linked-quarter increase in net income. Non-interest expense was negatively impacted by a few infrequent items, which <UNK> will discuss in more detail during his prepared remarks. Exclusive of these items, non-interest expense materially declined from the prior quarter as many of the strategic cost-savings initiatives materialized. During the fourth quarter of 2015, Valley outlined an aggressive branch consolidation coupled with a bank-wide cost-reduction program which when consummated were expected to reduce annual operating expenses by $18 million. Nearly $10 million of the total savings were originally anticipated to be recognized in 2016. Today, I'm pleased to announce that we now anticipate the 2016 savings to equal nearly $15 million and the ultimate annual reduction in operating expense to eclipse $19.5 million, which is nearly 10% greater than originally announced. The additional savings are largely a function of further consolidation of branch facilities, coupled with technology enhancements for certain back-office operations. Valley's 2015 branch efficiency program identified 28 locations to be consolidated based on our assessment of customer delivery channel preferences and branch usage patterns. Based on our continuous evaluation, we have identified an additional three former CNL locations in Florida, which we anticipate closing during the third quarter of 2016. Further, of the 28 original locations identified, 27 have been consummated and we expect to complete the entire program in early October. Another component of Valley's cost-reduction program was the increased utilization of technology and process improvements to decrease the bank's reliance on staff expense attributable to transactional activities. During the second quarter, Valley's full-time equivalent employee level declined by 31 to 2,866. The current headcount not only compares favorably with the prior quarter-end, but for the same period one year ago when the bank had 2,899 full-time equivalent employees. Keep in mind, the reduction in staff has been achieved while simultaneously we nearly doubled the bank's Florida presence to 35 offices and added over $2.5 billion in assets. This expense reduction has been accomplished despite a significant increase in the bank's technology spend to enhance and add new customer-facing delivery channels. The aforementioned expense reductions are no small accomplishment considering the expanded regulatory expectations, which have led to new risk management positions. The risk management programs implemented by the bank over the past few years coupled with our strict underwriting criteria have enabled Valley to expand loan originations in categories, which others have either been forced to or elected to scale back. The bank remains steadfast in its goal of reducing its core efficiency ratio. Excluding tax credit amortization, we are on track to lower the ratio to approximately 60% by year-end. During the second quarter, organic loan originations, excluding purchase loan participations, exceeded $900 million, an increase of over 45% from just the prior quarter. Origination activity was strong across Valley's multiple business lines. Residential mortgage activity for the quarter was brisk as origination volume was strong across all of Valley's geographies. This activity resulted in closings equal to $177 million, a significant increase from the prior quarter. However, in the quarter, Valley sold approximately $120 million of residential loans in an effort to manage the level of interest rate risk on our balance sheet. As a result, the period-end residential loan balance contracted approximately $46 million from the prior quarter. Current application volume is robust and as long as the interest rate environment remains accommodative, we anticipate continued strong volume in mortgage banking originations led mainly by refinance activity. Consumer lending results for the quarter varied as direct-to-consumer collateralized personal lines of credit increased over 30% annualized from the prior quarter. Valley's automobile lending portfolio continues to be negatively impacted by the revised indirect dealer loan level pricing guidelines recommended by the CFPB and adopted by Valley. For the quarter, Valley originated a little over $70 million of which nearly 7% came from Florida. Presently, we have signed up over 100 dealers in Florida and expect the contribution from this geography to expand. Additionally, the bank continues to focus on implementing sustainable initiatives to improve this business line's profitability. We have recently instituted several technology-based improvements into this area, which we believe will have positive long-term benefits. That being said, we continually assess the returns of our lines of business and when appropriate will make the necessary decisions to ensure each earns its cost of capital and achieves the bank's desired long-term profitability metrics. Commercial lending was strong across all categories as both traditional C&I and CRE organic originations each exceeded $300 million respectively for the quarter. In the aggregate, organic commercial lending activity increased over $200 million from just the prior quarter. The expanded volume was reflected throughout all of Valley's geographies. The approved committed commercial pipeline continues to be strong, equaling approximately $600 million at quarter-end. As a result, we remain optimistic about levels of commercial lending for the balance of the year. Although origination activity was solid for the quarter, period-end C&I outstandings declined slightly from the prior quarter largely due to a reduction in lines to both Valley's Florida and asset-based customers. The decline in balances was principally by design as certain developer and warehouse relationships were encouraged to obtain alternative banking relationships as those business lines, although profitable, were inconsistent with the bank's credit profile. Also, the reduction in some of our asset-based loans was a function of structure and pricing. This resulted from requests for financing alternatives, omitting personal guarantees and/or LIBOR-based pricing with spreads below our internal floors. We have previously communicated growth at Valley is a goal, not an obsession. Maintaining the bank's credit quality and returns remains paramount. For the quarter, total nonaccrual loans totaled $47.9 million, or 0.29% of total loans. The ratio of Valley's total past-due loans to total loans, including both non-accrual and accruing past-due loans, was 0.49%, a reduction from 0.61% as of <UNK>h 31. Valley's underwriting philosophy is unwavering with a focus on requiring borrowers to maintain significant equity in each loan facility. Our underwriting process stresses borrower capacity to pay and collateral values in multiple interest rate and economic scenarios irrespective of the advanced rates currently prevalent in the marketplace. During the quarter, our wealth management divisions moved forward on a number of initiatives, which should help to improve our future non-interest fee income. Under the direction of <UNK> <UNK>, our Florida President, an entirely new unit was built from the ground up. The division will operate under the umbrella of our trust department and is supported by a very senior and experienced staff of wealth managers and trust personnel. They will be operating from several of our Florida locations and focusing primarily on clients residing either full or part-time in our Florida markets. We are also pleased to announce that Hallmark Capital Management and New Century Asset Management, two of our subsidiary wealth management companies, have been combined in an effort to reduce operating overhead. Just prior to combining the two companies, we were excited to report that Hallmark achieved the distinction of having over $1 billion in assets under management. Before I turn the podium over to <UNK>, I would like to reiterate our focus on achieving the bank's 2016 performance goals. Despite the protracted low interest rate environment and challenging competitive landscape, we remain motivated to achieve our targeted revenue stream and expense initiatives. <UNK> will now provide some more insight into the financial results. Thank you, Gerry. For the quarter, total pre-provision revenue expanded 14% on an annualized basis as strong loan growth provided the catalyst for increased net interest income and higher mortgage banking revenue led the growth in non-interest income. Valley's net interest margin expanded to 3.14% from 3.08% in the prior quarter. The increase is largely attributable to a reduction in excess liquidity, which resulted in the total interest earning asset yield expanding by a similar 6 basis points. The loan yield on a linked-quarter basis increased from 4.15% to 4.17% mostly due to additional recovery interest and swap fee income. The increase in each more than mitigated the continued margin compression associated with the low-interest rate environment. For the period, Valley's new loan volume of $1.2 billion included both organic originations and to a lesser extent purchase loan participations. The blended new volume rate was approximately 3.5%, which in conjunction with normal principle loan amortization creates approximately 2 basis points of sequential quarter margin compression. The increase in the taxable investment yield is principally due to the reinvestment of maturing short-term Treasury securities into higher yielding Ginnie Mae securities. Partly mitigating the increase in yield was additional premium amortization associated with an increase in mortgage-backed security cash flows of approximately 25%. The total linked-quarter cost of funds remained flat at 0.78% as non-interest-bearing deposits grew approximately $100 million on average. As of period-end June 30, these accounts equal approximately 31% of Valley's entire deposit base. In late July, a $75 million long-term borrowing with a cost of 5% matured and was replaced with alternative short-term funds. The bank's loan-to-deposit ratio equates to approximately 100%, a level at which we are very comfortable operating. Contributing to the increased loan to deposit ratio is a decline in time deposits as the bank looked to other short-term funding alternatives as opposed to certificates of deposit, which are rate and term-sensitive. Non-interest income increased approximately $3 million from the first quarter as both current originated and previously held for sale residential mortgage loans sold in the secondary market equaled $128 million, an increase of approximately $75 million from the prior quarter. Origination volume remains vibrant and we anticipate continued strong residential mortgage gain on sale revenue for the remainder of the year should the mortgage interest rates remain at or near their current levels. Additionally, included in second-quarter non-interest income was a $709,000 gain on the sale of assets, primarily emanating from the sale of two former branch locations closed in conjunction with Valley's branch efficiency program. Non-interest expense of the second quarter was $119.8 million, a slight increase from the prior quarter. Significant linked-quarter increases in professional and legal fees of $1.6 million, coupled with other expenses sparked the increase. The sequential quarter incremental periodic expense increases overshadowed the noteworthy reductions in salary and employee benefit expense. Many of the periodic expenses incurred during the quarter reflect at times infrequent items and we do not anticipate incurring similar levels of expense in future periods. As I previously stated, Valley originated approximately $1.2 billion of loans during the quarter. Nearly $650 million were commercial real estate loans causing a linked-quarter period-end increase in CRE outstandings of $433 million. A portion of the growth reflected purchase participations in which Valley underwrites each loan individually applying Valley credit standards, including minimum cap rates on appraised valuations. Valley's motivation to augment organic originations with participations is largely due to the enhanced ability to manage portfolio duration. In addition, participating in acquiring loans through bank partners as opposed to purchasing 100% directly through the brokerage community mitigates the potential negative implications of adverse selection for certain loans. Valley's growth in CRE is a function of the bank's macro credit underwriting and concentration risk management processes. Valley has a diverse commercial real estate portfolio comprised of multiple property types such as retail, multi-family, industrial, office and others. Each segment has unique underwriting criteria specific to the inherent risks. The bank spends tremendous resources monitoring and stress-testing each portfolio. In part as a result of this diligence coupled with the bank's low historical loss rates and borrower equity requirements, we anticipate continued CRE growth within our balance sheet. This concludes my prepared remarks and we will now open the conference call to questions. I think a lot of the paydowns come from refinancing. People are taking advantage of the low interest rates. So as long as interest rates remain low, you are going to see a higher volume of refinancing. That being said, the economy itself is only growing at roughly a 2% rate, so new origination outside of refinancing is going to be tempered to some degree by that. How long it stays at these levels I think is going to be more dependent upon the Federal Reserve and actions they may take. People are selling properties also today because of the strong pricing and you are seeing a lot of that taking place. We are very conservative when it comes to commercial real estate financing, all types of financing, and one of the things we do do is we stress test to our own levels of cap rates irrespective of the cap rate that the appraiser uses. I think that's one of the things that has put us in good stead with our portfolio in the past and will in the future. It's really a combination of those things. At times, we want a balance. The residential mortgage portfolio tends to be heavily when they refinance in the 30-year bucket. We don't want to hold 30-year paper, which will extend far beyond what it has been in the past when people are refinancing in the low 3%s, mid-3%s for a 30-year mortgage. On the other hand, the participations we buy into are generally a much shorter duration and they have a remaining life usually in that three to seven-year range so that we are actually in a much better position from a duration standpoint. And again, as <UNK> correctly pointed out, we underwrite every single loan to Valley's credit standards. We don't buy everything that's presented to us by a long shot. Yes. Yes, I would say so, <UNK>. That's what you should expect. Sure. The one thing to keep in mind is the CFPB has their disparate impact measures that they use. I attended a meeting about a year ago in which Director Cordray spoke. He did not direct his comments at Valley, but he did speak about indirect auto lending and how the CFPB is concerned about disparate impact. And he gave some what he called his Safe Harbors, areas that he felt were appropriate for a bank because it's very difficult to measure disparate impact when you are buying paper from a dealer and there's no indication as to whether it's a male, female or what the ethnic background of the borrower is. But he did give some Safe Harbors and we went to those. We adopted his recommendation as to a Safe Harbor. It did have an immediate impact, negative on our volume, although it is to some degree clawing back. We've put in some enhancements to the dealer so they can better understand what they are going to be earning on the loan. As a result, it has come back to some degree. We've also entered into some other arrangements to build auto volume in the future. We have an auto lease finance program that we've gotten into, which is very attractive. We have a strong guarantor who is behind the residuals, so that was an inducement for us to get into the program. Not only that, they also guarantee the performance of the loans. So the volume of automobile paper should build back up again to a level that meets our expectations. (multiple speakers). Obviously, that is down today. It's not what it was at one point in time. We do measure it all in. But that being said, it's still at this point another line of business that gives us an outlet in the lending arena rather than just doing for example so much of CRE. We like the cash flows and we are hopeful that over time we will be able to come up with some efficiencies to increase the returns on that portfolio. <UNK>, one other point to that. There are corollary benefits that we get out of the automobile financing such as automobile dealer floor planning, which we have about $100 million of lines available in that area. We've been in that business since the 1950s with a very, very strong track record. It also brings in an opportunity to do some dealership financing as far as their buildings are concerned. So there are some corollary benefits to the automobile business that don't always show up when you simply look at the car volume. Yes, it will be lower than where it is. I think, <UNK>, we were pretty comfortable with the number we gave everybody at the early part of the year. I think we gave an overall rate of about $455 million annually. Unfortunately, there are quarters in which that number can go up or down depending on events taking place, which we had some of those during this particular quarter. But we are continuing, as Gerry pointed out, to work hard to bring down those expenses, so we expect to get close to a 60% efficiency ratio by the end of the year. Just as an example though, we talk about infrequent items. I'd give you a small taste of the fact that we had a loan that was an FDIC loan that paid off three years ago. We ended up having to take a hit this quarter for something that we thought was long gone and it cost us a fair amount of money this quarter that we don't expect to happen again. It was a very unusual item, but unfortunately it happened and we had to record the loss. So things like that occur. It drives our numbers up and down a little bit from quarter to quarter, but that's ---+ unfortunately, that's the way things go quarterly. Yes, I would tend to agree with that and I think you have to assume there's going to be at this level that quarterly margin compression just as a basis of rates we are lending at. There's just not much you can do to offset that. Well, we had that $75 million that went away this month, just a couple of days ago, so that obviously is a help. We still have more out there that matures in 2018. We have some going out to 2021 and 2022. So we still have some high cost borrowing out there. We constantly look at it, look for alternatives and when and if it makes sense, we will maybe do something about that. Frank, it's <UNK> <UNK>. I think that within our footprint in in-strategy, we are not discouraged about any of the markets. Having said that, we have our target institutions that we stay close to and we are asked to participate in most processes if someone engages in a process. But I wouldn't say that there's a market that's discouraged. It's an annualized run rate. I was hoping you weren't going to say it was a quarterly number. I got a little nervous there, Matt. Not quarterly. Well, the borrowing that just matured is going to help us beginning next quarter. It only matured at the end of this month, so we will get two months of benefit out of that $75 million, which matured at 5%. So we are going to pick up something there, but that being said, we still expect to see some core margin compression every single quarter until something changes. I think we revised that a little bit at the end of last quarter and said we didn't really expect that. And I think we said we were much more at the lower end. And that being said, that would have been 318, so this quarter came in at 314. It's better than where we were last quarter by 6 basis points, but you are still going to have the core compression. Also, if you remember, we reported in the first quarter the PCI, we had an adjustment on some PCI loans, which impacted our interest income on PCI loans going forward. So that impacted the original number we gave you of 318 to 325, so 318 to 325 is not a number that I think you are going to see. No, our New York City Medallion portfolio, which comprises the vast bulk of our taxi medallion loans, are all performing at this point. I don't know. It all depends upon what the City of New York does as far as Uber is concerned. We have always scrutinized our commercial real estate portfolio on our own. Over the past several years, we have artificially imposed cap rates that were somewhat higher than the appraisers were sending in valuations at. But we felt that making loans using crazy cap rates would only get banks in trouble just like making subprime residential mortgages did. So for some time now, we have been setting our own floor, coming up with appraisals that give us a level of comfort. As long as we get product that meets our criteria, we are happy to move forward and we haven't had any pressure regarding our levels of commercial real estate as long as they fall into those categories that we've been following. If you start to do apartment houses using a 2.5% or a 3% cap rate, you are going to have problems. If you are doing them at 5.5% cap rates, chances are you won't have problems, particularly if you maintain your loan to value using those cap rates. So ---+. It stays pretty much with the originating bank. I was having a dialogue with our Chief Credit Officer just yesterday about it and other colleagues and it's interesting because I think it's getting a little tougher on the lending front largely because we are we think common sense lenders and conservative lenders and we are finding profiles of clients that are looking for non-recourse structures that in our judgment don't deserve non-recourse structures. From a pricing perspective, I think that we have best-of-breed pricing and we use it appropriately to the risk involved. I think from an advanced rate perspective, if we are dealing with real estate purpose lending, we tend to be conservative. There are lenders, without a doubt, that have much higher, very aggressive advanced rate structures. And then from a cash flow underwriting perspective, I think we are common sense and conservative. And, yes, we are finding more lenders that will accept skinnier debt service coverage ratios and so on. So it is that part of the cycle it seems where banks are I won't say desperate for lending, but aggressive about lending and are relaxing standards below that which we will accept. And so we pick our spots and our transactions. I think we are all in it together from a lender perspective, a credit perspective, our risk management team in general. And so I think sticking to our guns means that we will sustain ourselves through any next downturn. But Florida is becoming frothier from a structuring and pricing perspective. For the most part, I would say the answer is yes. We've just sold, for example, as I pointed out, a couple of branches this past quarter that we had on our books and we had a gain on those. I know there's ---+ as we move into the next quarter, I think there was another one that got sold that also was going to have a gain. So for the most part, I would say that's correct. There's always going to be a potential anomaly where that won't really be the case, but we also have an awful lot of leased branches as well and so we are trying to exit those that we've closed down. A lot of those are trying to make deals with the landlord and figuring out a way to pay them something up front so we get out of the lease if it extends longer than we'd like. Thank you for joining us on our second-quarter conference call. Enjoy the rest of your summer.

2016_VLY

2017

ITGR

ITGR #Thank you, <UNK>. Welcome, and thank you for joining our call to hear about our second quarter results. We had another strong quarter and look forward to discussing our results with you. But first, I want to start by saying how energized I am to be part of Integer today. The past 4 months have given me the opportunity to meet many of my Integer colleagues and many of our customers. I continue to be impressed by the passion, the commitment, talent and capability within Integer and the opportunities for us to serve our customers even better. I am humbled and honored to have the opportunity to lead Integer at what I believe is an exciting inflection point in our journey to realize our vision. We are the largest MDO in our space. We have unrivaled capability. Our vision is aligned with our customers. We achieve our vision by serving our customers. And we reach patients by serving our customers. It is truly an exciting time to be at Integer. Thank you for being part of our journey. And let's now start the review of our second quarter results. We delivered 4.5% organic sales growth in the quarter, and we generated good operating leverage, with EBITDA growing 9% organically, double the sales growth. The net income growth was even stronger at 34% organically. We had another strong quarter of cash flow growth and even stronger debt repayment. So the first half results give us continued confidence in our full year guidance. We are raising the low end of our sales guidance. Additionally, we are maintaining our adjusted EPS guidance from business operations. But we're lowering EPS guidance for the noncash foreign currency losses we've already incurred. On balance, our business is performing in line with our expectations for the full year, and we continue to see opportunities for continued revenue growth and improvement in operations. Turning to Slide 6. We introduce this picture of our sales on a trailing 4-quarter basis because our business, as with all MDOs, has inherent variability from quarter-to-quarter. There are a myriad of reasons why an individual quarter can be higher or lower than expected, and many of them are not within our control. What is within our control is to successfully deliver innovative and cost-effective products across the full product continuum to our customers to earn the right to grow with them. If we do this, we will demonstrate a growth trajectory over time that will be evident on a rolling 4-quarter basis. Our first half sales give us confidence that we will deliver full year growth in 2017 after 2 challenging years. The trailing 4-quarter growth is at 2% compared to our current guidance of 1% to 3%. We will continue to show this trend in an effort to eliminate some of the noise that exists in any given quarter. This slide takes the rolling 4-quarter picture one level deeper. It provides a view of the trend for all of our product lines for the last 3 quarters. The takeaway from this chart is that all of the product lines have an upward trajectory on sales. Even though 2 are at or slightly below 0, the trend is improving across all of the product lines. It is unusual to see all parts of the business improving at the same time, albeit some are improving by slowing the decline, it is still improving. <UNK> is going to provide more insight into our financial results for the quarter. Thanks, Joe, and good afternoon. I will start by taking you through our second quarter financial results, and then I will take you through our updated 2017 full year outlook. As we discussed last quarter, any reference to organic when we are referring to sales excludes the impact of foreign exchange and M&A activity. Any reference to organic as we talk about adjusted EBITDA, adjusted net income and adjusted EPS excludes the impact of foreign currency gains and losses that are reported in nonoperating other income or expense. Turning to Slide 9. Here's a quick look at our results for the second quarter. Sales increased 4.1% year-over-year on a reported basis and 4.5% organically. I will cover the sales trends in more detail on the next slide, but I want to highlight that this is our second quarter in a row of solid growth, which gives us confidence around generating positive growth for the year. Adjusted EBITDA improved 2% year-over-year on a reported basis. In the quarter, we incurred $5.5 million of unrealized FX losses primarily related to intercompany loans, impacted by the strengthening of the euro versus the dollar during Q2. This FX impact was primarily noncash and reflects the change in the euro versus dollar exchange rate from our Q1 balance sheet date versus the Q2 ending balance sheet date, which was more than a 7% move during the period and was the largest move that we have seen in any quarter in 2016 or 2017. Excluding this FX impact, adjusted EBITDA would have increased 9%. Our adjusted net income improved 13% year-over-year on a reported basis and increased 34% organically when you exclude the impact of the FX I just mentioned. Taking a closer look at the sales trends for each of our product lines, you can see the trends of our growth rates when comparing each quarter year-over-year. When you look at all product lines, you can see that over the last couple quarters, each has generally moved positive or, at a minimum, to a less negative change. As we pointed out earlier, there are variations within product lines and from quarter-to-quarter. However, this has translated well for the entire company, showing 2 quarters in a row of year-over-year growth. The actions we have taken to focus on business optimization and customer relationships is allowing us to deepen our partnerships and win new and expanded business opportunities. Moving to Slide 11. You can see our Q2 adjusted EBITDA and adjusted EPS improved versus last year. On the non-GAAP or an adjusted basis, we saw improvements in both adjusted EBITDA and adjusted diluted earnings per share. Additionally, when we exclude the impact of foreign exchange, which is included in nonoperating other income and expenses, both metrics improved even more significantly. The improvement in our non-GAAP profitability metrics reflects solid year-over-year sales growth as well as operational improvements in cost management. The improvements were partially offset by higher compensation costs for incentives as a result of our improved business results and by the unfavorable foreign exchange impacts already mentioned. On a GAAP basis, our earnings improved primarily due to reduced spending on integration, restructuring and consolidation and optimization activities. These improvements were offset by the unfavorable foreign exchange impact of $5.5 million in the quarter and a $5 million impairment of a minority investment that was made back in the 2008 and 2009 time frame. Now turning to cash flow. As we mentioned before, generating strong cash flow to reduce leverage and invest for growth remains a top priority for the business. We delivered $39 million of cash flow from operations in the second quarter, our fourth quarter in a row of strong cash flow. Additionally, we repaid $40 million on our debt obligations in the quarter, including $31 million in accelerated payments, which brings our total repayments for the year to $69 million. Last quarter, we amended our Term B loan to reduce the interest rate on about $1 billion of our debt. This reduction will save us about $5.5 million of interest expense this year and approximately $7 million annually on a pretax basis. With our strong cash flow generation and our efforts to effectively manage working capital, our near-term debt and interest payments are very manageable. However, I would like to highlight that 67% of our debt is not fixed and is subject to interest rate volatility. We're closely monitoring our debt portfolio and our rates, and we will regularly evaluate opportunities to manage it when appropriate. Now turning to our full year outlook for 2017. We are updating our sales outlook based on the results of sales in our first half. And we are updating our adjusted EPS outlook specifically for the impact of the foreign currency losses that we have already incurred in our results. With sales, we are increasing the low end of our outlook range by $10 million, and therefore updating the range to be from 1% to 3% growth. With a solid second quarter following the growth in the first quarter, we have confidence that we are back on an annual growth trajectory for the year. From a profitability perspective, we're updating our adjusted EPS outlook to reflect the impact of foreign currency losses through the first half of the year. Our adjusted EPS outlook from business operations remains unchanged, and we continue to focus on driving efficiencies to deliver results. Lastly, we are reiterating our cash flow outlook. We have solid ---+ we had solid cash flows in the first half of the year, and we continue to make it a priority, with a focus on working capital management, as well as ensuring that our capital spending has appropriate returns. I will now turn the call back to Joe. Thanks, <UNK>. I'm going to cover our product line sales results and then close with a few comments about our vision and strategy and what we believe it can deliver. Starting with the Advanced Surgical, Orthopedics & Portable Medical product line. The top left of the chart depicts the growth or decline in the quarterly sales year-over-year. After a strong first quarter, sales declined slightly in the second quarter. As I mentioned earlier, the variation from quarter-to-quarter has many reasons. In this case, it was one customer, one product that led to the decline in the quarter. In fact, there was growth across many other customers that reduced the decline to only 1%. This is an example of why we added the chart in the bottom left of the page, which depicts the rolling 4-quarter sales and the year-over-year percentage growth or decline. So despite the current quarter being slightly negative, we're on an improving trajectory on a rolling 4-quarter basis. The Advanced Surgical, Orthopedics & Portable Medical business has new business they've already won that is expected to continue to accelerate in the second half of the year. We expect this ramp will enable their continued positive trajectory. The large and growing orthopedic and advanced surgical market provides us with significant opportunities to leverage our investments in innovation, such as single-use instruments, wireless charging and robotics, to deliver more value for our customers and accelerate our growth. The Cardio & Vascular product line continues to drive year-over-year sales growth with growth of 8% in the quarter, driven by strong demand for existing Integer-owned product lines, contract components and new program launches. The Cardio & Vascular business is benefiting from the acceleration of previously won business that is further along its growth curve as well as the introduction of new products with our customers, although they have been slower than planned due to slower market acceptance than anticipated. The rolling 4-quarter chart demonstrates the strong performance and success of this product line. We do anticipate slower growth in the second half, as the third quarter of 2016 was the highest quarter of the year and some of the products that are ramping up start to level off. Additionally, some of the year-over-year strength in the fourth quarter of 2016 and first quarter of 2017 was from customer restocking activity, driven by product transfers. We are a clear market leader in this product line and continue to have a wide range of opportunities to leverage our broad capabilities and investments in this large and fast-growing market, especially electrophysiology and structural heart. Our strong customer relationships combined with targeted investments and innovation in the fastest growth segments position us for continued growth in this market. The cardiac rhythm management and neuromodulation product line has been on an improving trend since the second quarter of 2016. This is evident in both the quarterly year-over-year trend as well as the rolling 4-quarter trend, which has leveled out to around $435 million in sales. Although demand has been strengthening across several key products and we have been ramping production in certain areas, we expect the second half to be more challenging on a year-over-year basis, as the fourth quarter of 2016 was the strongest quarter of the year. We continue to execute our strategy in cardiac rhythm management by providing full component design, development and manufacturing capability to our customers to enable their success and our growth together. Despite the low growth in the overall market, we continue to see opportunities for longer-term growth. The neuromodulation market remains a key driver of long-term growth for the product line. We're the market-leading MDO and are focused on accelerating growth through the active support of neuromodulation customers of all sizes in the design, development and manufacture of everything from components to full systems for customer applications. Electrochem delivered a strong second quarter on a year-over-year basis, up 60%, and turned a rolling 4-quarter trend positive for the first time since the downturn in the energy market. The combination of a market that has been recovering and market share gains during the downturn have positioned Electrochem to deliver significant growth for this product line. Electrochem managed the downturn very effectively by not only reducing variable costs, but also implementing efficiencies that are enabling them to capitalize on the improvement in the energy market as well as market share gains. The second half continues to look positive for Electrochem. And although 60% growth is a tough number to repeat, the third quarter of 2016 was the lowest of the year, which provides a slightly easier year-over-year comparison. After several years of battling the downturn, it is nice to have some tailwinds in addition to the successful share gains achieved by the team. Turning to a discussion of our vision and strategy. We are making good progress transitioning our business back to a growth trajectory. We're the market leader in medical device outsource manufacturing. We have unrivaled capabilities to serve our customers' needs, whether an engineered component or a complete device that we have developed to anything in between. Our innovative design and manufacturing capabilities, our global footprint and scalability, our high quality and our customer focus enable us to deliver more for our customers than anyone else in our space. Over the past 4 months, I've had the opportunity to meet and spend time with many of my colleagues in Integer from around the world, from the senior management team to the associates manufacturing our products on the shop floor. I continue to be impressed with their passion and commitment to fulfilling our vision of enhancing patients' lives and their deep industry knowledge and expertise. I am confident about our future because of the team I'm on and the capabilities they have built within Integer. I've also had the opportunity to meet and talk with many of our customers, from our large long-standing OEM relationships to emerging technology companies, covering the full breadth of our product continuum. I come away from those discussions with a healthy dose of reality and clear optimism about the potential at Integer to be their partner of choice for innovative technologies and services. Integer has the capability to serve our customers in a manner that enables their strategy and their success. And if we do that, we will succeed together. As we execute our strategy and realize our vision, we expect to deliver sales growth that is above the market growth rate. We expect to accelerate our EBITDA and cash flow growth. And we desire to earn a valuation premium from our shareholders. Given that it has only been a few days since the interim title was removed, I'm not putting a time frame on the delivery of these results. For the moment, we remain focused on delivering on our 2017 commitments to our customers, to each other and to our shareholders. It is an exciting time to be part of Integer, and I hope you share that view as an investor. Rob, we will now open up the call for questions. I just want to start off with gross margin. It improved sequentially and ---+ but it was still down year-over-year. I think last quarter, you talked about a couple of transitory issues that would be impacting the first half and then may start to mitigate towards the back half. Can you go back through that and let us know, like sequentially, how you're doing with those. Matt, it's <UNK>. I'd be happy to do that. There's a few items that definitely are having some impact. And you're right, we had some nice improvement sequentially. Some of that's volume leverage, and some of it's operational improvement. The items that you're referring to specifically are related to a transfer of some products from Minnesota down to Mexico. That is still having an impact on us in the second quarter, but to a lesser impact than it did in Q1. So we're on track with that. And we'll continue to have some headwind that will become less and less through the second half of the year. The second item was related to a customer that asked us to ramp up some production very rapidly. And we again did still have some of that impact in the quarter, similar to the first quarter actually. But we also expect that to ---+ we've stocked part of it where those costs will start to go away here in the third quarter. So those are the 2 primary items. There is also an item that we had mentioned around a little bit of a delay with a customer that we're back on track with, with a supplier that they had picked. But we're back on track with that. And the second quarter is better than the first. And the third will definitely be better than the second. Okay. That's helpful. And then on the EPS guidance, you moved it down specifically for the nonoperational FX I think you've already incurred. Do you expect to incur ---+ I mean, the euro continues to move higher. Do you expect to incur more cost, more FX nonoperational cost in 3Q and 4Q if rates stay the same. And then just some of the other moving pieces. Because you do have sales growth that's coming in at the high end of where your expectations are. You were able to lower the interest rate on your loans in mid-March. Shouldn't like the operational EPS be moving up a little bit, offsetting some of the FX. Matt, this is <UNK>. I'll cover the FX piece, and then I'll let Joe talk to the volume a little bit and the sales side. On the FX item, we've actually incurred $0.17 year-to-date on that. So we talked about $0.03 in the first quarter, and there's $0.14 in the second quarter. So ---+ and then you're correct that the rate at the end of Q2 was around ---+ between 1.14 and 1.15 exchange rate, and it's a little bit worse now. So that is going to be a little bit of a headwind, assuming no change in the third quarter. But what I'd point out is we're not just letting it flow through. It's a noncash item. It doesn't have a lot of economic value change to us at all. But with that being said, we're looking at our intercompany loan portfolio and seeing if we can do something by the end of the year that can mitigate some of that at least going forward. And then I'll let Joe answer the question around the sales side. So Matt, on the sales, we did ---+ given our first half performance, we did increase the low end of our range, but we're sticking with the high end of the range as we look into the second half and we just watch the variability of our customers' success, the products they're launching that we're serving them on. And we look at what the second half volumes look like, and we look at the changes that our customers are making in their inventory levels and their business. We feel confident about the range of 1% to 3%. <UNK> and I have been here now a whole quarter together, and we're understanding the variation, the variability that occurs in our business, and we feel 1% to 3% is the right range right now. I will point out that last year was the highest quarter sales, in the fourth quarter. It was $360 million during the fourth quarter compared to $330 million in the first quarter, for example. So we did have an easier comp when you look at first half year-over-year. So the second half year-over-year comps get tougher. So when you think about the year-over-year growth rate, you do have to look at the quarter splits last year. Okay. And then last question, the bigger picture question. Could you just talk about like outsourcing trends in the industry, is it still increasing, and kind of where you see the most opportunity. Well, we absolutely see significant opportunity. We see our customers looking to us, now that we are a larger MDO, the largest MDO, they're looking to us, at our capability and trying to find ways to help serve them better and help them rationalize their manufacturing footprint, free up capacity for them to focus on even higher value-added activities in their business that they can then outsource to us. So we see continued interest in outsourcing. We see it across all of the product lines. Clearly, there are some that have more opportunities than others, particularly in neuromodulation. We see significant opportunity there. There's a range of anywhere from 25% to 40% of the market that's outsourced. I know 25% is kind of the number that's been out there in the industry for a long time. And we continue to see interest from our customers for more. And we believe we are perfectly positioned to capitalize on that and serve them in a very differentiated way. Yes. Jim, it's <UNK>. Those intercompany loans, I think the first thing to think about is most of them ---+ or all of these loans that are affecting us came over from the Lake Region side at the time of the integration, or the merger. And if you remember, that was private equity owned. So they were a lot less worried about a reported earnings number than they would have been focused on cash optimization on their loans. We have an imbalance basically between euro-dollar and dollar-euro intercompany loans. And that's just the way it is. And you measure that on a quarter-to-quarter ---+ well, actually, a month-to-month basis based on the end of month balance sheet rates. And there's no cash involved at all. It's just the way that you have to adjust for the change in the value on your balance sheet of those loans. Jim, when that was inside of a private equity company it was focused on cash flows. It didn't get any visibility, because it didn't affect the economics of the business. Now that it's part of a public company, it still doesn't have any meaningful economic impact to us, but it does affect our reported results. So <UNK> and the team are working to restructure those intercompany loans to mitigate, ideally, over time, eliminate that reported impact that you'll see in our results. But in the interim, until we complete that exercise, we will spell out very clearly for you what the impact of it is so that you can see and focus on the operational performance of the business. I do appreciate that this may distract from the operational results, but our operational guidance, the performance of the business is unchanged. The only change we made was for the FX that we've already incurred in the first half of the year. So I'll start with the top line. The year-over-year performance is impacted significantly by the 2016 quarter splits. The fourth quarter was far and away the largest quarter of the year, $360 million of revenue in the fourth quarter last year compared to $330 in the first quarter. So when you look year-over-year, we can have linear sales of the same for the rest of this year and still be down on a year-over-year basis within the quarter. So our revenue we expect to continue to perform well. We just have a tougher comp in the fourth quarter. So full year revenue guidance is intact. We raised the lower end because we have greater confidence in our full year revenue guidance based on first half. In terms of earnings, we continue to have confidence in our EPS earnings. We have throughout the year expected the second half margins to be stronger as we began to realize more of the savings from some of the facility transfer activity that <UNK> talked about earlier, as we realized more of the synergy savings from activities late last year, early half of this year. And as we look at some of the product mix that we expect in the second half of the year, we get a little favorability there. Not to mention just the general productivity efforts and initiatives underway in the company. We haven't given any guidance on 2018 and beyond. That's something that we typically do with our fourth quarter earnings release. And for now, I don't see any change in that practice. Our objective is to continue to grow. We think about the business. We think about executing every day and delivering for our customers and executing at the highest level possible. But when we measure the business, we think it's appropriate to look at the business on a rolling 4-quarter basis. It takes some of the noise out of individual quarter points. So our objective is to grow the business on a year-over-year basis. So yes, we would expect to continue to improve.

2017_ITGR

2017

ECL

ECL #Hello, everyone, and welcome to Ecolab's second quarter conference call With me today is Doug <UNK>, Ecolab's Chairman and CEO; and <UNK> Schmechel, our CFO A discussion of our results along with our earnings release and the slides referencing the quarter's results and our outlook are available on Ecolab's website at ecolab com/investor Please take a moment to read the cautionary statements on these materials stating that this teleconference, the discussion, and the slides include estimates of future performance These are forward-looking statements, and actual results could differ materially from those projected Factors that could cause actual results to differ are described in the section of our most recent Form 10-K under Item 1A, Risk Factors, and in our posted materials We also refer you to the supplemental diluted earnings per share information in the release Starting with a brief overview of the quarter, continued new business gains and pricing drove acquisition adjusted fixed currency sales growth in our Institutional, Industrial, and Other segments as well as increased Energy segment sales during the second quarter These sales gains along with product innovation and ongoing cost efficiency work offset the impact of higher delivered product costs, which included a previously discussed $0.04 per share unfavorable currency hedge and challenging end markets These, along with our work to lower interest expense and our tax rate as well as fewer shares outstanding, yielded the second quarter's 5% adjusted earnings per share increase Moving to some highlights from the quarter and as discussed in our press release, on an adjusted basis, excluding special gains and charges and discrete tax items from both years, second quarter 2017 adjusted earnings per share were $1.13. Consolidated acquisition adjusted fixed currency sales for our Institutional, Industrial, and Other segments rose 3%, while Energy sales rose 5% Regionally, sales growth was led by North America and Latin America Reported operating margins increased 30 basis points Adjusted fixed currency operating margins decreased 70 basis points as volume and price increases were partially offset by the impact of higher delivered product costs in the quarter Adjusted fixed currency operating income rose 1% The operating income gain, along with our work to lower interest expense and our tax rate as well as the fewer shares outstanding, yielded a 5% increase in the second quarter 2017 adjusted diluted earnings per share We continue to aggressively drive our growth, winning new business through our innovative new products and sales and service expertise as well as driving pricing and cost efficiencies to grow our top and bottom lines and improve rates We expect improving volume growth and pricing across all of our business segments in the second half and look for that to more than offset delivered product cost headwinds, which should ease sequentially through the second half, and yield strengthening operating income growth We expect full-year adjusted diluted earnings per share in the $4.70 to $4.90 range in 2017, rising 8% to 12% with the second half results outpacing the first half We expect third quarter adjusted diluted earnings per share to be in the $1.36 to $1.44 range, up 6% to 13% In summary, despite a challenging market environment, we expect to deliver strong adjusted diluted earnings per share growth in 2017. And now, here is Doug <UNK> with some comments Thanks That concludes our formal remarks As a final note, before we begin Q&A, we plan to hold our 2017 Investor Day in St Paul on Thursday, September 7th If you have any questions, please contact us Operator, would you please begin the question-and-answer period? Question-and-Answer Session That wraps up our second quarter conference call This conference call and the associated discussion slides will be available for replay in our website Thank you for your time and participation and our best wishes for the rest of the day

2017_ECL

2016

TPR

TPR #Thank you. So why don't I take the cash flow and dividend and then I'll turn if over to <UNK> on the outlet channel. So as our net income grows and we complete the building ---+ the buildout of our headquarter building, you will see a corresponding cash flow growth as we move into FY17 as expected. Our dividends is really a part of our priority for cash. Our priorities for cash are really unchanged, first and foremost, investing in the organic growth of our business. Second priority is being M&A value creating acquisitions. As I said, nothing eminent but we want to remain open and flexible should we find something that we believe will create long-term value for Coach, Inc and our shareholders. Then finally is the return of capital to shareholders with our commitment to the dividend. We look at our dividend annually with our Board in August as we talked about in April 2014. We will look at the dividend in August. That coincides with our year-end results and our outlook for the following year and make a determination at that time. In terms of just the fourth quarter, we're (inaudible) on plan, we're still working towards a positive comp for the quarter. We've seen all the indicators that we saw at the end of the third quarter still maintaining them and we are on plan. I'm not sure what ---+ what I can say at this point. But ---+ Thank you, <UNK>a. Let me just thank everybody for joining us. A very important quarter for us this past third quarter as it marks a return to growth for the Coach brand. I could not be more excited with the momentum in our business. As a team, we are obviously very proud of the evolving perception not only of the Coach brand but of Coach, Inc and our impact in the marketplace. The positive impact of our brand transformation augmented by of course Stuart Weitzman is clearly reflected in the overall financial performance with a terrific inflection across all of our key metrics, with sales, profit and earnings growth for the first time since the fourth quarter of 2013. The turnaround of course that we've achieved to date underscores our confidence in driving sustainable and profitable growth for Coach, Inc over the long term. I could not be prouder of our entire team for the work and commitment that they have put in to driving our brand and the passion that they are showing to win in the marketplace. Thank you, all.

2016_TPR

2015

NTGR

NTGR #Thank you, <UNK>topher and thank you, everyone, for joining today's call. For the third quarter of 2015, NETGEAR net revenue was $341.9 million, which is down 3.2% or about $11 million on a year-over-year basis and up 18.4% or about $53 million sequentially. The sequential uptick in revenue is primarily due to our success in North America where we experienced a robust back-to-school season and strong demand for our flagship product lines such as Nighthawk and Arlo. Additionally, our revenue in Q3 was augmented by higher-than-normal demand from our service provider customers. Despite the higher-than-normal demand, our service provider segment revenue in Q3 is down $37 million year-over-year due to our decision to exit certain businesses that did not meet our financial metrics. During the third quarter, net revenue for the Americas was $219.7 million, which is up 13.3% year-over-year and up 27.4% quarter-over-quarter. We were especially pleased with the performance of the retail business unit and commercial business unit in this region. The retail business unit executed exceptionally well with multiple new products on the shelves during the back-to-school season. We are particularly pleased that our Arlo wire-free cameras continue to be more broadly distributed and have now become the clear number one IP home security monitoring camera in North America retail. Europe, the Middle East and Africa, or EMEA, net revenue was $77.7 million, which is down 28.3% year-over-year and up 14.3% quarter-over-quarter. While the EMEA results continue to be challenged by tough year-over-year comps due to the very unfavorable exchange rates, we are encouraged by the sequential improvement shown in this region. With new products continuously being introduced at higher price points, we expect improvement both in top and bottom line in the EMEA in coming quarters. Our Asia-Pacific, or APAC, net revenue was $44.4 million for the third quarter of 2015, which is down 12.9% from prior year's comparable quarter and down 8.1% quarter-over-quarter. Like EMEA, the APAC region's results are challenged year-over-year due to ForEx headwinds, particularly in Australia and Japan. In Q3, we shipped 6.1 million units. We also introduced 21 new products during the quarter. As always, sales channel development is a key focus for the Company as our sales channel remains a critical strategic asset. By the end of the third quarter of 2015, our products were sold in approximately 38,000 retail outlets around the world and our number of value-added resellers stands at approximately 30,000. Now let's turn to a review of the third-quarter results for our three business units ---+ retail, commercial and service provider. For the retail business unit, or RBU, net revenue came in at $164.1 million, which is up 24.9% on a year-over-year basis and up 24.5% sequentially. The retail business unit had a record quarter in terms of revenue driven by the strength of our Arlo wire-free IP camera, Nighthawk routers and gateway, as well as a robust back-to-school season. Arlo revenue continued to grow as we further expanded the productline's distribution during the quarter and maintained the momentum we've had since launching the product in January. We are now the leader in the consumer IP camera market in North America, Europe and Australia. I encourage you all to join us at our Analyst Day on November 4 in San Francisco where we will provide marketshare data and discuss our strategy in the Smart Home market. Turning to the Nighthawk line of premium routers, gateways and extenders, we recently announced the release of the Nighthawk X8, which boasts record-setting combined Wi-Fi speeds of 5.3 gigabits per second. The Nighthawk X8 features Wave 2 802.11ac Wi-Fi with multi-use MIMO capability coming soon. A 1.4 gigahertz dual core processor for faster connections, the industry's first patent-pending active antennas to boost range and three Wi-Fi bands with quad streams is the best router on the market for homes ready for increasing amounts of streaming 4K video content and gaming. The Nighthawk X8 is available now in the US from major retailers in stores and online at a recommended retail price of $399. The commercial business unit, or CBU, generated net revenue of $65.2 million for the third quarter of 2015, which is down 9.4% on a year-over-year basis and up 3.4% sequentially. As discussed on the prior earnings call, the year-over-year decline in CBU is primarily the result of a difficult small business market climate in Europe caused by currency headwinds. As we mentioned last quarter, we are also seeing a channel shift to online for many of our CBU products. As a result of this shift, our US distribution channel is reducing inventory, which you can see in the associated (inaudible). Our online channel partners carry much less stock, so this channel shift is a revenue headwind. We expect this channel shift to normalize as we enter the year 2016. The commercial business unit continues to be driven by the switching category. We are positioned well as the SMB market shifts towards switches with Web management, power over Ethernet and 10 gigabit speed. Our recent introduction of the industry's first 28-port 10 gigabit smart switch was an instant success. It has joined our prior 12-port version as one of our top 10 switches. We will discuss our success in switching in more detail at the upcoming Analyst Day. Earlier this month, we launched two new business-class wireless 802.11ac access points for SMBs ---+ K12 and hospitality. They are capable of operating in standalone mode or in the new NETGEAR ensemble mode management. Ensemble enables centralized configuration and management by the access point of up to 10 access points as a single group without requiring additional hardware, licenses or support fees. They are truly designed with the SMB market in mind. For our service provider business unit, or SPBU, net revenue came in at $112.6 million for the third quarter of 2015. This is down 24.9% year-over-year and up 19.9% on a sequential basis. We believe this Q3 uplift is a one-time event due to special promotions from some of our service provider customers. We expect we'll be back to the $100 million per quarter level in the coming quarter. As stated on our prior earnings call, SPBU revenues have declined year-over-year as we have exited or turned away certain service provider business that did not meet our profitability metrics. During the quarter, we announced two industry-first mobile hotspots. First is the AirCard [A10S] for Telstra Australia, which sets a world record of 540 megabits per second download speed in Telstra's 4GX mobile data network. The AirCard A10S implements the latest Cat 11 mobile data standard and clearly sets NETGEAR apart as the leader in mobile hotspot technology. We also introduced our AirCard 791S mobile wide for hotspots to Verizon Wireless subscribers in the United States under the brand name Verizon Jetpack 4G LTE mobile hotspot. This Cat 6 device is the first jetpack from Verizon that supports 4G LTE advanced technologies. We are excited to be adding Verizon Wireless to our list of mobile hotspot customers. We will continue to manage the service provider business unit by focusing on higher-margin, strategic customers where newer technologies such as 4G LTE, DOCSIS 3.1 and VDSL are key. As stated, we continue to believe our SPBU revenue will be around $100 million for Q4. In summary, we are pleased with our third-quarter results and believe that we are well-positioned for a successful holiday season in the fourth quarter. I would now turn the call over to <UNK>tine for further commentary on our financials for the quarter. Thank you, <UNK>. I will now provide you with a summary of the financials for the third quarter of 2015. As <UNK> noted, net revenue for the third quarter ended September 27, 2015 was $341.9 million as compared to $353.3 million for the third quarter ended September 28, 2014 and $288.8 million in the second quarter ended June 28, 2015. We shipped a total of about 6.1 million units in the third quarter, including 5 million nodes of wireless product. Shipments of all wired and wireless routers and gateways combined were about 2.8 million units for the third quarter of 2015. Moving to the product category basis, third-quarter net revenues split between wireless and wired was about 77% and 23% respectively. The third-quarter net revenue split between home and business products was about 80% and 20% respectively. Products introduced in the last 15 months constituted about 48% of our third-quarter shipments while products introduced in the last 12 months constituted about 37% of our third-quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. For a full reconciliation of GAAP to non-GAAP financial results, please refer to the third-quarter 2015 earnings release. The non-GAAP gross margin for the third quarter of 2015 was 29% compared to 29.9% in the year-ago comparable quarter and 27.9% in the second quarter of 2015. Total non-GAAP operating expenses came in at $63.8 million for the third quarter of 2015, which is down compared to $68 million in the year-ago comparable quarter and up compared to the prior quarter's total non-GAAP operating expenses of $60 million. Our non-GAAP R&D expense for the third quarter was 6.1% of net revenue as compared to 6.2% in the year-ago comparable period and 7% of net revenue in the second quarter of 2015. As always, we remain committed to driving further optimization in our sales channel, supply chain and support functions, which should result in further operating margin leverage in the future. Our headcount decreased by a net 8 people to 959 during the quarter. Our non-GAAP tax rate was 38.2% in the third quarter of 2015 as compared to 29.4% in the third quarter of 2014 and 50.9% in the second quarter of 2015. <UNK>oking at the bottom line for Q3, we reported non-GAAP net income of $21.7 million and non-GAAP diluted EPS of $0.67 per diluted share. This represents a 6.9% year-over-year decline in EPS. However, note that in the third quarter of 2014 it included a $0.04 diluted share benefit as a result of a year-to-date catch-up that reduced tax expense for the quarter. Our balance sheet remains strong. We ended the third quarter of 2015 with $263.8 million in cash, cash equivalents and short-term investments compared to $202.9 million at the end of the second quarter of 2015. For the third quarter of 2015, we generated approximately $77.1 million in cash flow from operations. We continue to remain confident in NETGEAR's ability to generate meaningful levels of cash. During the trailing four quarters, we generated approximately $157.1 million in cash flow from operations. We are very focused on optimizing the business and generating free cash flow, which gives us flexibility with our business needs, as well as the ability to strategically deploy cash to enhance shareholder value. In Q3, we spent $20.6 million to repurchase approximately 642,000 shares of NETGEAR common stock at an average price of $32 per share, which resulted in a benefit of $0.01 to non-GAAP diluted earnings per share for the quarter. Since the start of our recent repurchase activity in Q4 2013, we have repurchased approximately 8.2 million shares or approximately 20.9% of the fully diluted share count at the beginning of that period. DSOs for the third quarter of 2015 were 73 days as compared to 72 days in the third quarter of 2014 and 78 days in the second quarter 2015. Our net inventory in the third quarter of 2015 ended at $170 million compared to $206.5 million in the third quarter of 2014 and $188.7 million at the end of the second quarter of 2015. Third-quarter ending inventory turns were 5.8 as compared to 4.9 turns in the third quarter of 2014 and 4.5 turns in the second quarter of 2015. Let's turn to our channel inventories. Our channel partners report inventory to us on a weekly basis and we use a six-week trailing average to estimate weeks of stock. Our US retail inventory came in at 9.2 weeks of stock. Current distribution inventory levels are 7.9 weeks in the US, 5.3 weeks of stock for distribution in EMEA and 7.3 in APAC. For the fourth quarter of 2015, we anticipate revenue will be in the range of approximately $335 million to $350 million. We are confident in retail strength during the upcoming holiday season and believe that our new products will be a hit with customers. We also expect service provider revenue will step back to the $100 million revenue range from the elevated $112 million level in Q3. Fourth-quarter non-GAAP operating margin is expected to be in a range of 9.5% to 10.5%. Our non-GAAP tax expense is expected to be approximately $13 million to $15 million, which implies a tax rate of approximately 41% for the fourth quarter of 2015. Operator, that concludes our comments and we can now take questions. No, we did not. We can say at this point in time that we are clearly the number one marketshare holder for both product categories in the United States and we encourage you to come to our Analyst Day where we will prepare more detailed marketshare data us versus our competitors. Yes, clearly, we are poised to take more share in the coming quarters. That is what we believe and clearly that will be propelled by new products and we just introduced the Nighthawk X8 three weeks ago, so I think that would help us to gain more share in the holiday season. Yes, as <UNK>tine mentioned, I think we have some headwinds of our distribution channel inventory destocking and we went from roughly 10 weeks to right now about 8 weeks, so you've got two weeks of destocking. When you take that into account, it is actually growing more than $2 million quarter on quarter on the actual sellthrough. So we are pretty pleased with that. Sure. Sure. So CapEx for the quarter was about $2.9 billion spent for the quarter and looking internally at our inventories, I believe, given the significant increase we had in the revenue quarter-over-quarter, that brought down inventory and looking at our partners' inventories, you saw retail has gone up and they are preparing for the holiday season and during back-to-school and I think also with some of our new products and then we again saw the distribution inventory in the channel go down several weeks this quarter, which we had mentioned in Q2 we saw some of that and we think that will normalize as we walk into 2016. I think we are always going to balance inventory versus air freight and do customer demand and try to take the least amount of risk and yet provide our customers with the products they want. So we always balance that and we have a very careful process on that. It's the first one we did for Verizon in the last 10 years and it's the first LTE-advanced mobile hotspot for Verizon. No, we were not in previously and they never had an LTE-advanced mobile hotspot from any of their suppliers before us coming in. We're actually not going to comment on customer-specific projects, but we actually have launched multiple LTE gateways with multiple operators before. Sometimes it comes in a normal format like what we usually do, which is the modem plus the router in a box. But, recently, we actually used a different format, which is the router and the modems come in separate forms. So the modem is pretty much our mobile hotspot, but then the Wi-Fi router appeared in a cradle and then you slot the modems into the cradle and make it a gateway. So that means you kind of dual use. When you are not in the house, you can take the mobile hotspot around, but once you're inside the house, you can slot it and make it a household gateway. That format is catching on pretty well and we have sold quite a few of them in Australia with Telstra, as well as selling quite a few of them in the Middle East. No, I mean what we have announced ---+ what we are in the market was with Verizon, US Cellular and Sprint. Absolutely, we would like to make Arlo as the must-have Smart Home device for every single household just like Nighthawk router is and we are going to work with any popular platform of a Smart Home out there. We have announced before we are participating in the AllSeen Alliance. We have also actually b we actually went on the same stage with Samsung in the last year saying we will be on their Smart Home platform and now we are on the Xfinity X1 platform. We will continue to make our Arlo cameras to be available on any popular platforms of the Smart Home. And of course, we will be more than happy if our customers use our own Arlo platform to control our Smart Home devices. First is the Arlo camera. So we don't have any parochial preference that it must work on our platform. We would rather work with all the popular platforms out in the market. Yes, I mean, clearly, as we just mentioned we are working toward some headwinds of channel shift. As more and more of our CBU products are sold through the online channel, they don't use the distribution that much. They buy direct from us, so the distributor sees that the portion of our business that they occupy is getting less, so that's why they are destocking. So we have to go through this level of destocking, which we believe will last for another quarter or two. So if you take that into account, we are actually very pleased with the switch sales and even though it is 20% of our revenue, as you probably looked at the previous 10-Q, you will see that this particular segment is very profitable for us. The margin of this segment is higher than either the retail business unit or the service provider business unit, so it is a very important source of profit margin dollars and we're not going to neglect it. Also, if you look at the switch category where we had a tremendous huge marketshare in unmanaged switches, and we invented the Web managed switches and we also are the number one marketshare holder of the Web managed switches, we are not going to relinquish that. And as a matter of fact, we will give you more detail of how fast that Web managed switch market is growing and what our marketshare is and why we are winning so much marketshare, what are the next stage technology of it. We believe that both will move the industry as well as move our marketshare. So please come to our Analyst Day in two weeks time. Thanks. Sure, thank you. Thank you all for joining us on today's call. I hope that you can attend our Analyst Day on November 4 in San Francisco where our management team will discuss the future of the Smart Home and how NETGEAR will continue to be a leader in serving SMBs and further elaborate on what lies ahead for service providers. If you would like to attend, please reach out to NETGEAR investor relations. If you cannot join us in person, then please assess our investor relations website where the event will be webcast at 1 PM Eastern, 10 AM Pacific on November 4. Thank you very much. I hope to see you all soon on the Analyst Day.

2015_NTGR

2017

CBT

CBT #<UNK>, we have had, as part of our specialty carbons and formulations business, a business in specialty compounds in master batches for a long time, more than 30 years. This business is strategic to downstream business where we draw on the strength of our specialty carbon particle technology to develop compounds that need the performance from specialty carbons. You could call it a strategic formulation and channel play where we combine our upstream specialty carbons and the downstream formulation into plastic compounds to create value. This has been part of our Company for a long time, and one where we see opportunities for growth, again given our strong backbone upstream in making specialty carbons and combining those in formulations to downstream to sell. That's the business and how it works. And this investment is geared to continue to grow our position here. In the markets we are in, we are the leader. We've got real strength in Europe and real strength in China, in particular. So, so not something new here. You're right about that. Both the European and North American markets are more established in terms of the vapor emissions. And it appears that those will continue to ratchet, although we'll have to see given the apparent about-face on all of these topics from the Trump administration. But let's see how that plays out. We certainly are in this market today and our product development efforts are geared to benefit from this. But I think it's important, our focused efforts are in markets where this regulation is really being established and where there's, I think, a more legitimate jump ball to win there. We, in the negotiations with our customers, work hard to help our customers understand that this impact was a structural one, and one that really needed to be addressed in order to keep the business healthy and on a good track. So, we spend a lot of time with our customers on that and help them understand that and, as a result, have been able to change the structure of those arrangements in terms of the index and the way that that formula works so that we feel it has a much better track to our actual purchase cost. That's correct, yes. You might remember, <UNK> that some time in the past year or so we had commented on the feedstock situation and how in Europe we felt it was a structural disconnect and therefore needed to be addressed in the customer discussion. That's what I'm referring to, having addressed that. Let me first, <UNK>, try to talk about the feedstock differentials in North America. You might recall that those moved from favorable differentials to unfavorable differentials. And that move was largely related to the opening of the arbitrage between Chinese coal tar and global fuel oil prices. When that opened up, a lot of the Asian carbon black producers switched from pulling feedstock in the Gulf Coast to taking Chinese coal tar because that arbitrage was beneficial. Now, that has all reversed and or view on that is that it's unlikely to open back up because that arb opened up because of Chinese stimulus and stimulus in steel which created more coking and more coal tar. That certainly is not the case today. But what happened is, then, as that arbitrage closed, then people who traditionally bought in the Gulf Coast moved back and the differential started to swing in the other direction. And then there are always some things that can happen here in terms of specific suppliers. And when they have outages or turnarounds, you can find things can move. But I would say, as we look at it, those differentials have returned to the long-term historical norms. That's how we see that one. I don't think so, <UNK>, because we have been talking about this gradually normalizing here for a little while. This is not a recent phenomenon. So, I don't think you'd see anything material there. But we feel that it's in the right place ---+ or, a very reasonable place right now. And the factors that drove the movements we understand well and don't see those swinging in any large way. Hopefully that they stay around that historical norm level. That's our view. Your second question was around the contracts, the tire negotiations in particular in North America. I would say that the North American demand environment was pretty much flat in terms of production over this past year. There were still lingering effects from passenger car anti-dumping duties from China, and then also more recently, the TBR, the duties against truck tires out of China. All of that lead to a certain amount of channel stuffing and, therefore, depressing a bit the overall production environment in North America. While sales may have been more healthy, production was more flat. So, the environment was not as supportive in terms of growth as one might think about in terms of long-term fundamentals. So, as a result, market pricing did move down a little bit. We acknowledge that that was happening, but, on balance, felt that we ended up in a good place here in terms of restoring or regaining share back to previous levels, and at good prices. Yes, sure. Let me start with Reinforcement where, as we were working through the fall period and customer negotiations and had greater clarity about how those were going to shake out, and the volume growth associated with those, we did in fact produce more inventory so that we could ramp up and serve our customers, as committed. That was a certain build in the period that will not recur in the next period. So, that's a bit of the context there. On Purification Solutions, at a high level I think you've captured it well and our view hasn't changed on this one. In terms of the absolute impact from inventory build in 2017 we expect very limited absolute impact. So, that is the case. Now, there may be some movements quarter to quarter but over the full year, we're not expecting significant absolute impact from that. But when comparing certain quarters there will be some favorability there. And on a full year basis, I think we still expect that to be in the $10 million range of benefit. I think in terms of China, certainly on the RM, the Reinforcement side, we probably did see a little bit of benefit from tire producers trying to aggressively export truck tires ahead of the North American duties. But I think there are a couple of other factors playing out here, as well, in China. One of them is that China has continued to pull certain stimulus levers to continue to grow the economy at the rate they are trying to grow it there. So, that has trickled through. And we've also seen some enforcement actions that I think are providing overall support for our businesses, regulatory and enforcement actions. And I'd broadly characterize them as under an environmental umbrella. One of them is that China has imposed strict regulations and seems to be enforcing the amount of weight that trucks are rated to carry. China had been a chronic sort of abuser of that, in a sense, overloading trucks constantly. And with that happening, it means to move the same amount of freight, you've got to have more trucks on the road. So that's a positive factor for us. And then I think the overall environmental enforcement level in China right now, I think is something that I see as different and positive, from our perspective, given the air quality problems in China. I think finally we are seeing what are on the books pretty strict environmental emission standards but we're seeing them being enforced much more. So, as that's happening, I think a couple of things are swinging a bit in our favor here. One is the playing field is a little more level because, as the leader and a global player, we certainly comply with all of the standards and regulations. But now that playing field leveling a little bit. And I think some of our customers, having a preference for Cabot, given our stability and reliability in this area. So, how China enforces these things is always a little bit opaque, but I'm definitely seeing a different story today than we have in the past, and it's a more favorable one. So, I think those are the factors that are underpinning China. Thank you all for joining us again, and thank you for your support of Cabot. And I look forward to speaking with you next quarter.

2017_CBT

2016

DEI

DEI #Not ---+ it's not that easy of math unfortunately. So we can walk you through it, <UNK>, if you want to give us a call. And that's 60% capital investment to 30% capital investment. That is the equity part. Hi, Mike. Okay. There were a lot of points in that roll-forward there. Let me just step back and try to walk you through it. So there was about 1.4 million shares listed net impact. Are you asking for the total number of options that were initially exercised. Is that what you're asking for. So that was ---+ so if you ---+ I mean, I know I'm going to give you very round numbers. Generally ---+ It was about half. So if there was a net negative impact of 1.4 million shares on our diluted share count as a result of the cash portion that was gone to taxes, that means that we retained roughly 1.4 million shares. So that would mean the net ---+ the net value because it's just a profit part of the options was 2.8 million shares among everybody, although half of that was settlement cash which was paid in taxes. Is that your question. That's right. The way the diluted share count works is they calculate the number of shares of stock that would have to be given to settle the profit portion. So if you have an option at $20 and stock is at $30, they figure out how many options it takes to settle the $10 spread, the profit spread. And that's what is in our diluted share count. That portion ---+ that profit portion, because I know that taxes were around 50% and that was roughly 1.4 million shares, generally that portion was 2.8 million shares of which half was settled in cash of ---+ and because half was settled in cash, it lowered the diluted share count. I can tell you on the other side of that we have retained the options. There isn't any change there. We've retained the stock. So you take that other half and then if you go to the ATM and you issue the 1.4 million, you get yourself back to even. Is that your question. It was roughly 1. ---+ it's about half. I can't ---+ I feel like the taxes were 51% or 49% or something like that. It was about half. So it's about 1.4 million shares. Yes. Ordinary income. It's the ordinary income rates, state and Federal, just like your paycheck. All right. We're glad to have spoken with you today, and we look forward to speaking with you all again in one quarter. Thank you.

2016_DEI

2016

SCHL

SCHL #Thank you very much, Nicole and good morning, everyone. Before we begin, I'd like to point out that the slides for this presentation are available on our Investor Relations website at investor. Scholastic.com. I'd also like to note that this presentation contains certain forward-looking statements, which are subject to various risks and uncertainties, including the condition of the children's book and educational materials markets and acceptance of the Company's products in those markets and other risk factors, which we identify from time to time in the Company's filings with the SEC. Actual results could differ materially from those currently anticipated. Our comments today include references to certain non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the Company's earnings release, which is also posted on the Investor Relations website at investor. Now I would like to introduce <UNK> <UNK>, the Chairman, CEO and President of Scholastic, to begin today's presentation. Good morning and thank you for joining the call today. We had a very strong first quarter driven by growth in all three segments. In Children's Book Publishing and Distribution, Harry Potter and the Cursed Child script book helped to more than double segment revenue in the quarter. Sales of the initial print run, which were right in line with our expectations, demonstrate the continued strong enthusiasm and excitement for all things Harry Potter. Nine years after the publication of the seventh book, Harry Potter continues to bring imagination and creativity to our readers' lives and while the Cursed Child trade sales were the clear standout in the quarter, we generated strong results throughout the Company in each reporting segment in a quarter that is typically a smaller revenue quarter for Scholastic as most schools in the US are not in session. On November 18, the screenplay for the feature film Fantastic Beasts and Where to Find Them will hit the bookstores accompanied by licensed publishing titles related to the Fantastic Beasts film and original Harry Potter movies. We are also looking forward to continued strong performance from other recent trade releases such as Dog Man by Dav Pilkey; A New Class, the fourth book in the Star Wars Jedi Academy series; Ghosts by Raina Telgemeier, as well as excellent backlist sales of the original Harry Potter titles. Looking ahead, we also have a very engaging title coming from the number one New York Times best-selling creative team, Eric Litwin and Tom Lichtenheld. Their new Groovy Joe character will kick off this month in the launch of Groovy Joe, Ice Cream & Dinosaurs. These titles are also performing well in our clubs and fair channels where we are focusing on executing our plan to maintain our fiscal 2016 level of revenue while improving profitability on lower costs. We are encouraged with our back-to-school results year-to-date; although it is still very early in the quarter and almost 10% of schools in the US opened later this year than last, shortening the time period in which clubs and fairs operate in the busy fall season. In Education, our customized curriculum solutions grew by double digits in the quarter driven mainly by classroom books. We are expanding our curriculum publishing business because many teachers and principals across the country tell us they prefer to use a combination of engaging print and digital resources such as guided reading and level book rooms for instruction rather than basal reader textbooks. In addition to strong curriculum publishing for pre-K to 8 literacy, we are also building upon decades of serving as a trusted partner in schools by expanding our services business, both professional development and family and community engagement, or FACE services. Our professional development team helps teachers improve their ability to use our pre-K to 8 literacy curriculum programs in the classroom and our FACE team shares proven techniques for helping schools to engage parents in supporting the literacy skills of their children. These are also important ways to drive independent reading and so were a natural extension of our role as the key content distribution partner through clubs and fairs. Our expanded education sales team is successfully selling at the district level, gaining traction in key markets such as Palm Beach, Houston, San Antonio and Portland where our materials are used for core pre-K to 8 literacy teaching and construction. Looking ahead, we anticipate continued growth in classroom books, as well as classroom magazines, which we expect will have a strong second quarter as presidential elections drive interest in our grade-appropriate magazine titles, as well as our Election Skills books. Our International business is also off to a strong start with 23% revenue growth driven primarily by Harry Potter in Canada and by export, trade sales in Australia and direct sales in Malaysia. The impact from foreign exchange was minimal this quarter, so our results show the underlying strength of our International operations. We are the leading children's publisher in many key international markets ---+ the UK, Australia, Canada, throughout Southeast Asia and India, where we are also the number four publisher overall in that country. We are continuing to build upon our role as a key global partner in fostering literacy and learning. As we look at our business from a global perspective, our success is driven in part by our ability to collaborate on international children's book trade and education templates that grow our businesses both in the developed markets such as Canada, the UK and Australia and in the developing Asian markets of Thailand, Malaysia, Indonesia, Philippines, India and China, where we are expanding at double-digit rates. Finally, we are executing our plan to create premium retail space and modernize our headquarters office space with construction already underway here at 555557 Broadway. Our investments to improve our technology systems and operations are also on target as our three-year transformation technology plan is already working to provide better information and support to our global customers. Scholastic's business plan delivers on our core mission of helping children to become strong readers as part of their learning and personal growth. There is an expanding market in schools for literature and nonfiction material that can ignite children's motivation to read and help to build higher-level thinking skills. Scholastic is providing increased support to schools and families to support children's reading as the key to success in school and life and our continued success in this area is also providing a strong return for shareholders as we grow revenues and profits around the world. I will now turn the call to Maureen for a detailed review of our financial results. Thank you, <UNK> and good morning, everyone. In my remarks this morning, I will refer to our quarterly results from continuing operations unless otherwise indicated. Total first-quarter revenues were $282.7 million, an increase of 48% from last year, due to higher revenue in all three segments. Operating loss was $63.1 million versus $79.5 million last year, and loss per diluted share was $1.15 versus $1.46 in Q1 of last year. As you know, we typically record a loss in our first quarter since most US schools are not in session. Now turning to segment results, in Children's Book Publishing and Distribution, first-quarter revenue was $137.8 million, an increase of 104% and our seasonal operating loss improved to $36.2 million versus $56 million last year. Consolidated trade revenue was $116.9 million driven by the exceptional front list performance of Harry Potter and the Cursed Child Part One and Two, the sales for which are expected to be primarily in the first quarter. Revenues from clubs and fairs increased 2% over last year's first quarter as a result of our lineup of strong titles, although this is not a significant quarter for our school-based distribution channels. In Education, revenue was $55.2 million, a 10% increase over last year, and operating loss was $4.4 million versus $4.3 million last year. The relatively flat operating loss is mostly due to a decrease in advertising revenues from consumer magazines and the annualized impact of our expanded salesforce and service team. We continue to see strong demand for classroom books and literacy initiatives. Sales of classroom books and magazines drove our strong performance in the quarter. We remain in a great position to build marketshare in this growing business. In International, revenues was $89.7 million, an increase of 23% over the same period last year, and operating income improved to $3.9 million versus a loss of $2.7 million last year primarily due to the strength of the new Harry Potter title, especially in Canada, local trade publishing in major markets and overall growth in Asia. As we look ahead to Q2, please keep in mind that last year's second-quarter sales were adversely impacted by the labor action in Ontario, which will not be a factor this year. First-quarter corporate overhead was $26.4 million versus $16.5 million in the prior-year period, which included one-time items of $1.4 million. The increase in overhead is related to higher medical claims, our previously announced wage improvement program, facility-related expenses, including swim, space and construction costs, as well as our investment in strategic technology platforms and solutions. With regards to our facility upgrades, construction is underway to create new premium retail space and increase the capacity of our office space at 555 and 557 Broadway building in Soho. Our technology investments, which remain on track and will continue through 2018, will bring significant benefit, including allowing us to better target our markets, improve processes, including product inventory and content management, which will lower our costs over time. Our transition to cloud-based hosted eCommerce platform, which is underway, will also help us to improve operating margins over time and make us faster, better and easier to do business with. We have also identified savings to offset income related to the transitional service agreement with HMH, which now has been terminated. These savings are already included in our outlook and will be reflected for the most part in improved operating income within our business units rather than in corporate overhead. In the first quarter, we had free cash use of $122.4 million compared to a use of $303.2 million last year, which included a large tax payment related to the sale of EdTech. And our cash and cash equivalents exceeded total debt by $275.5 million compared to $244.6 million last year. As you know, the first quarter is typically our highest cash use quarter as we build inventories in advance of the school selling season. This year, cash use was also augmented by a large initial print run for Harry Potter and the Cursed Child and higher year-over-year spending on our strategic technology initiatives. Now turning to the outlook, our first-quarter results were within our expectations and we continue to expect total revenue for fiscal 2017 of $1.7 billion to $1.8 billion and earnings per diluted share in the range of $1.60 to $1.70, excluding one-time items. Fiscal 2017 free cash flow is expected to be between $40 million and $50 million. As a reminder, this includes capital expenditures of $70 million to $80 million and pre-pub and production spending of $30 million to $40 million. As anticipated, the increase in capital spending is primarily related to our headquarters construction plan, as well as higher strategic technology spend as part of our three-year initiative to upgrade our enterprisewide platforms, including for content and customer management solutions and our transition to a more cost-effective eCommerce platform. In summary, we had a solid start to the year and continue to believe fiscal 2017 will be another strong year driven by our core growth opportunities and more streamlined operations. I will now turn the call over to <UNK> to moderate a question-and-answer session. Thank you, Maureen. Nicole, we are ready to open the lines up for questions. Well, trade improved ex-Harry Potter in the quarter. I think, <UNK>, you actually got this pretty correct in your own analysis of our business. We announced that we had printed about 4.5 million copies. Most of those were delivered in the quarter. Well, it's a little shorter selling season this year because schools opened later in the US by about a week, about 15% of schools. So we have to get ---+ between now and November 30 at the end of the quarter, we will have to push hard to get the number of selling days in there. But ---+ and we are starting off well and there is every ---+ we also shifted to our new Demandware system, the eCommerce system and that's working well. So we are optimistic and feel that things are on plan. Bear in mind though, as you pointed out and have pointed out and we reminded you in the script, our plan for this year is to hold our revenues flat with 2016 and improve our profitability through cost reductions in terms of number of fairs delivered and in terms of number of kits mailed. So we are consciously holding our revenues flat while reducing our cost base to improve profitability. Okay, so, first, on the Education question, last year, we added a significant number of new salespeople and service people to really grow and ramp up that business and make an investment in our education business, but that was done throughout the year, so there wasn't much of an impact of the adds in the first quarter of last year. So really what you are seeing is fully staffed beginning this year where we weren't fully staffed at the beginning of last year. Also, consumer magazines, the advertising revenues were down and that's a higher-margin type of revenue and we expect to make that up during the year, but, in the first quarter, it was slightly soft. And then on the overhead run rate, right now, we are up about $11 million in overhead. About half of that is in technology spend and that's front-loaded, so we don't expect to be at that rate throughout the year. In the second half of the year, it will move from expense to more of a capital because they will be put in production. But we will see the impact of the $20 million loss of the service agreement with HMH, so you should expect $20 million added to our overhead over the year because those benefits and those savings will be reflected in the business units. Also, we did forecast for higher medical and higher wage rates and that will also be shown in overhead as well as in the business units. You did see it in the first quarter. It's about $5 million increase to overhead each quarter, but the savings are reflected in the business units. So we completely offset that $5 million in the first quarter through better cost of product, better manufacturing, lower fulfillment costs and lower allocated overhead to the business units. So that is related to warranties and reps and so we've received all the cash related to the TSA, so the only outstanding cash is related to warranties, which assuming there is no claims in November we will get that cash. That opportunity is clearly there, <UNK>. You've always been a great supporter of this side of our business and I think you understand it well. Stepping back, the instructional materials market is still strong. There's some changes in that market as we see ---+ there is a switch to people being really interested in the kind of things that we do, that is reading full-length books, literature, nonfiction that is not in textbook form and we are seeing ---+ schools are not only telling us that they want that; surveys are showing that that's the case as well. As people ---+ there's a bit of frustration with educational improvement and people are looking at what they are doing and saying is there something we can do better here. And so there's several trends. One is the use of aggregations or customized curriculum in the ---+ especially in the pre-K to 8 literacy area where people are, as I said, looking at full books and full literature programs of the kind that we provide. There's some increased use of digital. There's also an opportunity to look beyond the classroom itself and do two things. One, improve the human capital skills of the teachers who are providing the instruction and who are key to any progress that kids are going to make. And so that opens up an opportunity for our services business in professional learning and we are pushing hard on that. And then looking even beyond the classroom and beyond the school, how can we engage the community in helping kids more broadly, that is bringing together some of the elements in the community that support kids through the school, but from sources outside the school. And that's a growing interest in all states and cities as to how that can be done and we are providing a consulting service in that area that is quite promising in terms of how we help schools do a better job of engaging families and communities. So it's a different playing field from what it has been. How fast those things will move is always an issue in education, but I think we are just seeing a different way of people thinking about how do we instruct kids; what materials do we use; how do we organize it all and looking for new solutions beyond the basal textbook. Thank you all for listening to our first quarter. We had a good one. We expect to have a good year. Thanks for your continued support for Scholastic.

2016_SCHL

2016

MS

MS #Why don't I try. I think you know ---+ we obviously, as you said, underwent a pretty radical restructuring both in terms of personnel expenses with targets on our RWAs in the size of that business in light of what we thought the revenue opportunity in the wallet was going to be. We wanted to put together a credible and critically sized business. We wanted to be relevant to our clients. We wanted to support our areas of strength within our ISG business. I think the early returns on that have been reasonably positive. We set out some revenue targets. We hit those two out of three quarters. To your point, we have to do it much more consistently. The fact that we are three quarters through the year and we're at $3.6 billion of revenue and we said we wanted to maintain the revenue footprint that we've seen over the last couple of years. We feel pretty good about the progress and we're on track to meet that goal. As you know, success begets success. I think the consonance of the team is improving. I think it's gelling together. We made a lot of changes and people are starting to get into the rhythm of working together and working differently than we have in the past. As I said, we're pleased with the early progress but we have to do it quarter after quarter. I mean that's a tough question, as you know. Listen, I think what we have tried to do ---+ looking at any individual quarter, month, even two quarters, is sort of very challenging to come up with somatic trends that are sort of long-term. We've seen lots of volatility over the last couple years. So what we've tried to do is put together a business model and a size of a business where we think long term the size of this market is. We obviously have seen the size of the wallet for fixed income and fixed-income products come down dramatically over the last couple of quarters. It looks like it's stabilized. We think we're right-sized for what we think the opportunity is. Thank you very much.

2016_MS

2017

B

B #As our new administration takes hold, and as we look at what the implications are, in general we're very pleased with the pro-business stance being taken. In particular for us, <UNK> what stands to be a benefit is tax reform, as well as the regulatory side in terms of reform there. Early stages, relative to where it will all pan out, in general we are a net exporter. From our perspective, we are also global. We're watching very carefully, and excited about the possibilities of what lies ahead in that arena. Yes, Pete. When we acquired the business, it was below the traditional margins that we had acquired with the prior businesses. As such, we clearly see the opportunity for synergies, as well as the roll-out of the Barnes Enterprise System into that business, with a view to driving the same type of ---+ our goal will be to get it to the same level of performance as the other businesses. No, margin-wise we believe we have the ability to make those improvements and drive those synergies. What is unique about the business or different to the other businesses is that there is a programmatic side of packaging that allows for the molds to be released in large orders, and then to ship on a controlled basis. An aspect of being lumpier from a sales perspective, but not significant in the total scheme of industrial. Relevant to your question on the salesforce, the team has been extremely focused in terms of driving new accounts as it pertains to the capabilities that we acquired through the CRPs. As you recall, there were three programs: the CFM56, the CF34, and the CF6. Relative to the performance as we modeled it, I would say they were slightly below our expectations. But recall that these are 25- to 30-year programs. The team has been making nice progress, and we'll continue to drive for additional customers directly to the airlines, as you highlighted. As you also recall, we have added new leadership over the course of 2016, and the new President of Aerospace has taken a special focus on this particular program, as well with a view to accelerating the rate of which we win those new orders. Not in any discussions relative to any at this point. We're continuously in discussions around potential opportunities with all the OEs, but none that are active in the share performance of the CRP, as we've announced previously. Thank you. Good morning. No, <UNK>, that's reflected in our guidance. Yes, no, we're consistent with that thought as we're four or five months now into the integration of the business, and that's still our internal measure. Yes, as I highlighted in my prepared remarks, orders in the fourth quarter were softer than we had expected, but we've seen that rebound into January. But overall for Maenner, Maenner continues to do a wonderful job, and meets or exceed our expectations. They have put a tremendous amount of effort into the expansion of our Atlanta, Georgia, facility throughout the year 2016. Now we will look, as I mentioned earlier, to leverage that also into the arena with FOBOHA, with a view to having it act as a service center for North America, in terms of the cube technology that's already in the install base, if you'd like. By contrast on the Asian side, I would say that we have made progress on a relatively slower basis as it pertains to expansion of Maenner. But now again, with the new operations that we acquired through the FOBOHA acquisition, we're looking to leverage it going into 2017 for both Maenner and FOBOHA as we embark upon expanding our capabilities there, in particular, hot runner capability as it pertains to Maenner within Asia. I didn't catch the question. Can you ---+. Can you repeat that, yes please. China orders, automobile. Yes is the short answer. We saw a nice pick-up in the second half of 2016 in China, particularly driven by transportation markets. Two of our businesses benefited from that, with Synventive and it's as a result of model changes, saw a nice pick-up in its business, with Synventive having a very strong finish to the year, particularly in China. As we think about that strength, we have seen it roll over into 2017 at the start of the year. Again, these businesses are short cycle, so what it means for the fourth quarter of 2017, remains to be seen. But again, the outlook for light-vehicle production remains positive for China for 2017. Sorry, <UNK>, it might be on our side. We apologize to everyone on the call. Sure. As you mentioned, industrial ---+ one thing overall, we're pleased with 120-basis-point improvement when we look at the adjusted operating margin performance out of industrial year over year. As you recall, fourth quarter of 2015 we did announce some restructuring charges, as well as some consolidation of a few facilities that drove performance ---+ most of that productivity performance for industrial. We saw all of that plus some, that allowed for about 120-basis-point improvement. We went into the year thinking about $7 million in total. In overall productivity, we're actually well into the teens, mid-teens, in terms of their productivity improvements. That helped 2016. As we look to 2017, we're going to continue on the margin expansion side through productivity. You see our overall guidance of 16% to 17%. On the industrial side, we don't anticipate as large a margin expansion year over year in industrial, mainly because the investments and the integration that's going on with FOBOHA; but still to be in the healthy mid-teens. Then most of our margin lift actually does give us more confidence on that potentially moving to 17% will be on the aerospace side. As we work through the OEM transition and continued growth, of our after-market business, both in MRO and RSPs. Relative to the spare parts, 2016 represented probably one of the most steady levels of sales quarter to quarter that we've seen in some time. Again, the primary driver behind the spare parts volume has been the CFM56. To that end, the demographics of that fleet remain excellent in terms of the install base. In fact, the engine was produced last year at even a new record level in terms of production. A large portion of the install base, which is over 20,000 engines, a percentage of them still have to come in for their first engine overhaul. In general, we continue to be very optimistic as it pertains to that particular engine, and the outlook for it as it continues ---+ it's expected to peak in terms of engine overhauls in the mid-2020s. Great, thank you.

2017_B

2015

OIS

OIS #There are three different elements included there. And I would say greater than 50% was exchange rate gain. But there's about three different things in there. It's not just the exchange rate gains (Inaudible - multiple speakers) material. I would just generally say in no given quarter, post spin-off of Civeo have we had exchange rate gains or losses. Correct. I'd keep it neutral. We don't model it ourselves, <UNK>. It's just never historically been that big. <UNK>, we just model at zero, quite frankly. Well, we would like to grow both markets. Now, I would draw one distinction here, which is the sense that the quote unquote offshore deep water market is a truly global market. You know, when I'm looking at the outstanding bids and quoting activity, I'd say there's probably a waiting long term in favor of Brazil and lower tertiary Gulf of Mexico but I've got this in Vietnam, China, Mozambique. It's all over the place. I think the true question is ---+ will shale plays of magnitude develop outside of the United States. And so that may dictate more of the rate of growth in the segment more than anything else. It's not about necessarily desire, but when we were at a peak rig count near 1900 rigs, we were adequately supplying the market in North America, and technology will evolve. Technology will change. We can consolidate. But it's hard today to envision a significant rate of growth in the United States above and beyond where we are, without M&A. So the question is what happens to international shale play development which has been slow to materialize. Well we put in our investor presentation major project awards on a trailing 18-month basis, so you can clearly get color. But there's been for us a significant weighting towards subsea production infrastructure. That clearly seems to be a focus of Petrobras. I would have done ---+ they done a lot of work in the [pre sales] area. They need to bring these fields on production, get revenue coming on. That's the best way to enhance their free cash flow. The cuts that they have had have had less of an impact on our operations. We are committed to Brazil. You know, we're building ---+ expanding in [MACA]. We're building a new facility elsewhere, but staging that according to the demand. What I can say about Brazil, for us, i. e. the products and services we offer, is that bidding and quoting activity remains strong. And they pay us. And that's all I want from my customers. We monitor it. We don't want to develop too much of a concentration with any one customer. But that is not the case right now. Oh, thank you for that. I was going to say. Whoever asked that question, don't look ---+ don't comment on our age here. She you later, <UNK>. Hi, <UNK>. We try to work with our customers, and this is not all about pressuring the service base. I mean their top line was cut in half by the commodity. They're getting some relieve right now. Crude oil pricing and somewhere around. I haven't checked it today, $57, $58 today. So, a little over 30% from the floor. So that's helped. It's not lost in most investors in the space that there have been debt and equity raises which have ---+ shoring up some balance sheets. That's not necessarily pervasive but it's certainly present. I know a lot particularly of the large companies, they realize that they've gotten material price concessions out of the service sector. If you think about it, this is actually a real good time to invest, when you've stabilized your own cash flows and you're shoring up your balance sheet, you've got the service costs down to a fairly low level. But I would just say we've got constructive dialog with our customer base and we were worried abouta lot of our customers and their leverage profile coming in the year. That has eased, unequivocally. We are hearing comments about particularly the deferred completions. I would say the first one ---+ they'll start moving probably in the Bakken. Yes. That's where the concentration of the deferred completions are. And again, it feels like kind of late second quarter we're optimistic that we'll see a little bit of improvement in activity. But the dialog is sympathetic. It'd be one thing if the service sector was making up [same] rates of return on their invested capital. We're not. We weren't before;we're not now. And our customers know that. And I go back to my earlier comment. You know, providing high-quality operations, investing in technology and safety, it does come at a cost. So we're trying to hit that equilibrium that works for our customers but allows us to offer quality services in the field. Yes. It is a great question. It's probably one of the hardest ones to answer. But fields that are already under development, I think we are the beneficiary of that because, first of all, there's not quite as many design elements yet to figure out. Most of the time, once you've gone from field discovery to field delineation, you have pretty good idea of what type of production facilities that you need, what types of interfaces that we're looking at, what type of subsea ---+ and is it rigid risers, flexible risers, free-standing. Those field design elements are somewhat in the rearview mirror, and a lot of interfaces. So, again, that's why I feel better about subsea production infrastructure. What you're really talking about in my view, and all these ---+ you can call them JVs, you can call them alliances, but to my view they're largely designed at the early stage, to get on the front end engineering and design phase, work through interfaces between service delivery customers optimize the vessels that are going to be used so that you get it right the first time. There isn't anybody that operates in this equipment space that doesn't understand that once you get into development and manufacturing, when you have to re-engineer and redesign, because of the installation issues you face, the interface issues, that's where cost overruns come into play. And so all these are geared towards ---+ you know, you've got multiple service providers offering unique different technology. How can we work together at the front end to improve the cost delivery to our customer base. But that's, to me, is a very long-term focus proposition. Thank you. Hi, <UNK>. <UNK>. That is a wide-open question, and if there is a change in behavior, I think it has to come down to a focus on return on investment capital more so than it is a focus on production growth. And hard to tell, we've got so many customers, particularly in the United States, whether that truly materializes or not. There's a good news/bad news. If in fact that's where we get ---+ and you see a lot of these coming together, whether they're JVs or alliances in the deep water space or whether we're talking about Halliburton Baker, but that model speaks to greater consolidation in the market, the need for greater consolidation and rationalization costs throughout the marketplace, such that our customers would become more dependent on a handful, a few large companies. That might be good. That might not be good. Historically it's been a lot of smaller cap companies. Many of my customers will tell you this over and over who have really delivered a lot of the new technology in this space. They're willing to invest in and focus on smaller product lines. So I think it's very healthy to have a broad and highly competitive service space. It's hard for me to predict where we go, but I think what's going to happen is you're going to see a greater rate of consolidation if in fact that picture develops where all we're worried about is service company costs. Thanks, <UNK>. Are you talking about land drilling. In the ---+ you know, we're in narrow markets in the Permian and in the Rockies, and we are currently about 35% utilization and I don't see a trend line change at this point in time. We've got really a handful ---+ I could count them on one hand, the customers that are contracting the rigs that we have working, which again ---+ you do the math ---+ that's 12 rigs working, and the statistic, the total US vertical working land fleet today is about 120. So it's a pretty narrow market we're talking about. And right now I do not see a trend line change in that market. Thank you, <UNK>. ^ Thanks, <UNK>. I didn't think we did at this point in time. I want to thank everybody for joining our call. It's certainly a dynamic time in the market and we appreciate your continued interest and willingness to work with us in a fairly volatile time, to help us get the market understanding right. It's not lost on me that it's gorgeous outside. It's OTC week next week, so I hope to see many of you out there. Take care.

2015_OIS

2017

LNTH

LNTH #Thank you, <UNK>, and welcome to everyone joining us today on our conference call. Performance for the quarter was once again strong with third quarter 2017 revenue and adjusted EBITDA results, both exceeding the high end of our guidance for the quarter. Total worldwide revenues for the quarter grew approximately 9% compared to the same period 1 year ago. Revenue for our flagship imaging agent, DEFINITY, grew approximately 16% compared to the third quarter of 2016, as a result of higher unit volumes. Revenue growth in our TechneLite product was approximately 7% on a year-over-year basis, while Xenon revenues for the quarter were up approximately 16% compared to the third quarter of 2016, both primarily attributable to higher volumes. These strong revenue results during the quarter yielded over a 100% improvement in our net income and an increase of approximately 21% in our adjusted EBITDA when compared to the third quarter of 2016. Combined with the strength of our balance sheet, these results will enable us to make additional investments in strategic initiatives in the future, while continuing to drive positive bottom line results. I now invite Jack to provide a more detailed review of our third quarter results as well as our updated guidance for the year. After which, I will provide an update on some recent events of note and closing comments. Jack. Thanks, <UNK> <UNK>, and good afternoon, everyone. As a reminder, the tables included in today's press release include a reconciliation of our GAAP results to the as-adjusted non-GAAP performance I'll be covering with you today. I'll begin my comments by focusing on our third quarter results as compared to the third quarter of 2016, followed by our revised full year guidance. In the third quarter, Lantheus delivered $79.9 million in worldwide revenue, an increase of 9.4% as compared to the third quarter of 2016. DEFINITY continued its strong performance with worldwide revenues totaling $37.7 million for the quarter, an increase of 15.7% over last year. TechneLite revenue in the third quarter was $26.4 million, an increase of 7.4% over the prior year, while Xenon revenue for the third quarter was $7.7 million, an improvement of 15.7%. Finally, revenue from our other product category was $8.1 million for the third quarter, down from $9.2 million 1 year ago. Excluding the 2016 impact from our Australian radiopharmacy business, which we divested in August of 2016, as well as the impact of Hurricane Maria on our Puerto Rico operations, revenue from our other product category remained relatively flat. Moving below the revenue line, our third quarter 2017 gross profit margin, excluding technology transfer activities, which we referred to in our reconciliations as new manufacturing costs, totaled approximately 50.2%, an increase of 300 basis points over the prior year. This improvement was once again attributable to the increased contribution of our higher-margin products, including the impact of Xenon cost savings generated by the addition of processing and finishing capabilities at our Billerica facility late last year. Operating expenses were $25.7 million in the third quarter of 2017, an increase of $4.1 million compared to last year. This was largely attributable to $1.9 million in higher employee-related expenses and campus consolidation costs, as well as $1.4 million in increased sales and marketing expenses, related to the continued investment in our echo business as well as our nuclear product lines. Operating income for the third quarter of 2017 was $12.8 million compared to $12.6 million 1 year ago. Excluding the impact of accelerated depreciation and operating costs, adjusted operating income in the third quarter of 2017 was $13.7 million, an improvement of 13.8% compared to the prior year. Moving below operating income, third quarter interest expense totaled $4.4 million, a 34.6% improvement over the same period a year ago, as a result of over $31 million in debt principal reduction as well as the lower interest rate of our debt as a result of our refinancing activities completed earlier this year. Net income for the third quarter of 2017 was $8.5 million or $0.22 per diluted share compared to $4.2 million or $0.13 per diluted share for the third quarter of 2016. Excluding accelerated depreciation and operating costs, adjusted net income for the third quarter totaled $9.4 million, an 85.1% improvement over the prior year. Moving on to our quarter-end balance sheet, cash flow and liquidity. As of September 30, 2017, we had cash and cash equivalents totaling $68.1 million. Borrowing capacity under our revolving credit facility was $75 million, making our total liquidity, including cash on hand, $143.1 million, providing substantial support for our operating needs and representing a 69% improvement over last year. Third quarter 2017 operating cash flow totaled $15.6 million compared to $15.4 million last year. In the third quarter of 2016, operating cash flow was positively impacted by approximately $3 million due to the timing of accrued expenses incurred during the third quarter of 2016, but paid in the fourth quarter of 2016. Capital expenditure during the third quarter of 2017 were $3.3 million compared to $2.6 million in the third quarter of 2016. Turning to our guidance for the remainder of 2017. Excluding the impact of the $5 million payment from GE, we are increasing our full year total revenue guidance to a range of $323 million to $325 million and our full year adjusted EBITDA guidance to a range of $86 million to $88 million. Including the GE payment, full year revenue and adjusted EBITDA guidance ranges are $328 million to $330 million and $91 million to $93 million, respectively. In closing, we entered the final quarter of 2017 with significant momentum as a result of our performance over the first 3 quarters of the year and look forward to a strong finish to the year. With that, I will now turn the call back over to <UNK> <UNK>. Thank you, Jack. I would now like to spend a few minutes discussing some key developments that have occurred since our last earnings call. In early July, the Centers for Medicare and Medicaid Services, or CMS, released their proposed 2018 Medicare payment rules for Hospital Outpatient Prospective Payment System, or HOPPS. The 2018 proposed rules include significant changes to reimbursement rates for a number of procedures, including contrast-enhanced echo. As in previous years, during the open comment period immediately following the release of the proposed rules, the medical community together with industry leaders, including Lantheus, worked to inform CMS of any unintended consequences inherent in their proposal. The final CMS HOPPS 2018 rules were published yesterday. On an absolute basis, CMS slightly raised reimbursement levels for both contract-enhanced echos and noncontrast-enhanced echos. On a relative basis, these rates are consistent with 2017 rates. Lantheus remains committed to strong advocacy for appropriate reimbursement of contrast-enhanced echo procedures as well as for the cost effectiveness of the use of imaging agents such as DEFINITY. While on the subject of DEFINITY, during our last call last quarter, I spoke of our multifaceted next generation programs. We are pleased to report that in October, we received approval for a new method of use patent for DEFINITY, which was listed in the Orange Book. This patent will expire in 2037. For competitive reasons, I will not offer any additional details at this time about our program. I can say, however, that we continue to make good overall progress on our next generation programs, and we'll report more on that progress in early 2018. From a worldwide perspective, our DEFINITY China program continues to advance with first patients now enrolled in both the cardiac and liver studies. We expect enrollment in the kidney study before year-end. Also, on our last earnings call, I shared our expectation to launch DEFINITY in Taiwan, and I am pleased to announce that we have recently filled our first customer order sale. We continue to evaluate additional growth opportunities for DEFINITY outside of the U.S. Turning to our nuclear medicine business, we are pleased to announce the extension of our supply agreement with Cardinal Health through 2018. We now have contracts that extend from 2018 through 2020 with 3 of our 4 major radiopharmacy customers and continue to have an active dialogue with the fourth, Triad Isotopes, for the extension of their supply contract, currently scheduled to expire at the end of 2017. Finally, over the last few months, a number of significant weather events have impacted Florida, Puerto Rico and Texas. We operate a radiopharmacy in San Juan, Puerto Rico, which we proactively closed for a period of time during and immediately following Hurricanes Irma and Maria. Our primary concern was for the safety of our employees, and we are pleased to report that all of our employees are indeed safe. Fortunately, our facility sustained only minimal external damage, and we were able to reopen not long after each of the storms. As the region continues to recover, we believe that the number of diagnostic procedures performed in Puerto Rico will slowly return to prior levels. Lantheus' greatest asset has always been its people. And I would like to extend my deepest gratitude to our employees in the affected areas who demonstrated incredible leadership and resourcefulness, working tirelessly in support of our operations, customers and, ultimately, patients. As 2017 draws to a close, we are pleased with the progress we've made to date, and I believe we are only scratching the surface of our full potential, as we seek to continue providing value to our shareholders, while advancing our strategic initiatives. With that, I hope that everyone has a happy and healthy holiday season, and I look forward to providing our next update in early 2018. I'll now open the call for questions. Operator. <UNK>, it's <UNK> <UNK>, and thank you for joining the call. And I'll answer your question, which, again, is an opinion that I'll offer. I would not say that there was widespread awareness at a hospital level about these rules, and I'll explain why. These rules are included, the proposed rates, in a document that is well over 800 pages and covers every procedure that is performed in the outpatient setting. And so if you think about a hospital and all of the other activities they undergo, I don't think there is line item detail awareness. Having said that, there are a group of industry participants, Lantheus included, who paid very careful attention to that. And we were very quick and active and cohesive in our communications to CMS about what we felt was appropriate reimbursement for procedures that offer valuable insight and information in the diagnostic procedures that are involved, and I think that may have been contributable to CMS' final decision. I would say also, just for clarity, this is a process that happens every year. So the same process that we saw this year where there is an initial announcement on proposed rates for the upcoming year, followed by a common period before the publication of final reimbursement rates, replicates on an annual basis, and we are very involved in it and very attentive to it every year. So <UNK>, I will answer an affirmative strong yes to your question about whether we intend to continue our efforts to protect the intellectual property of DEFINITY and of the other assets that are in our next generation programs. I think one of the demonstrations of that is this recently awarded Orange Book patent, which is a method of use patent, which dates out now to 2037, that is added to the armamentarium of patents and intellectual property that we protect for our products, and we will continue those efforts very strongly. If you would like to ask your question more specifically about nuclear contracting, I did announce on the call that we now have an extended contract with Cardinal Health through 2018. The fourth radiopharmacy chain customer that we historically had a relationship with, which is Triad Isotopes, their contract ---+ our current contract with them expires at the end of December. We remain in active dialogue with them to agree to what our relationship will be in 2018. Larry, thank you for joining. As Jack mentioned, the impact of sales or sales loss in those areas was such that it didn't change our performance for the quarter. And those sales ---+ those particular sales were included in our other category. The other item that was impacting that category was the year-over-year difference that was drawn by the sale of our radiopharmacy in Australia. As we look forward, we're certainly aware that the pace and number ---+ absolute number of medical procedures being conducted in Puerto Rico has not yet returned to pre-storms levels, but we're confident over time it will. And as you can see with our guidance, we actually took our guidance up for the year. So certainly, we did not see enough of an impact to have pause or cause to take our guidance down. Are you talking about working business days. The number of shipping business days Q4 is equal to that of Q3. And for the business year 2017, that equals 49 for each quarter. So Larry, there is a slight difference. As compared year-over-year 2017 Q3 versus 2016 Q3, 2017 has 1 less shipping day. For the same period in Q4 year-over-year, it's an equal number of shipping days, 49 in each quarter. That's 2 different questions, Larry. And I'll speak to them ---+ I'll make a statement that applies to both, and then I'll speak to them separately. The statement that applies to both is that our contracting strategy and our sale strategy for our nuclear medicine products is one that's very driven ---+ very much driven on a volume margin basis. And so we look continually at what's the best volume of those products is to flow through our campus, of course, backed by market demands, to optimize our operating costs and, therefore, the margin for those products. I think you see some of those results through 2017 already. And in fact 2017 volumes for both of those products are higher than the corresponding periods in 2016. As we look out to 2018, it's not something that you'll hear me speaking to specifically other than to say our continued attention will be to margins. Margin at above the nuclear medicine kind of products business level as well as to the company level, and our contracting efforts will reflect that. Larry, it's Jack. I'll take that. And ---+ no, I mean, we'll give the guidance at our next call when we provide the full year '18 guidance. And, obviously, the puts and takes, some of the things that have impacted our adjusted EBITDA margin is, obviously, the product mix, our continued work to get more efficiencies on our campus and then sometimes the timing of projects has led to some of that fluctuation in those quarter-over-quarter. So we'll give more guidance on that when we address the '18 guidance. There were changes in the terms, but it's a multiproduct contract. So I'm not going to be specific to changes at an individual product level. We're really pleased with the contracts. The F18, you're right, Larry. The F18 trial ---+ the second F18 trial is in GE Healthcare's hands, very capable hands. And we've been very pleased with the relationship there and with the orderly, kind of, progress of not only transition of information to them, but their ability to kind of incorporate that information and move forward. I think it's fair to say we expect to see that trial begin in Q1 of '18. But we'll have more ---+ we'll share more information as we have it and as we gain approval from GE to share it with you because, again, that trial is in their hands. China is something I can speak to directly because they are ---+ our trial is being conducted there. As I mentioned, we have seen patient starts in both the cardiac and the liver studies. And as a reminder, there are ---+ essentially there's 4 small confirmatory studies that will take place in China as part of the approval process. And they're small, and they're confirmatory. The 4 different studies are cardiac, and then liver and kidney because there, they split apart the, kind of, the definition of abdominal into those 2 organs. And the fourth one is a PK study, which is also required by the ---+ one of the regulatory offices in China for what would be considered an imported drug. Those trials are all well-defined. We expect to see the start of the first patient in for the kidney trial as well by the end of this year. Once they start, unlike Phase III trials in the U.S. regulatory process, these are small and confirmatory studies, so it's fair to say that they would be completed within 6 months with data fully available from them. Yes, <UNK>. Thanks for joining the call. And I think your questions are really good one. I'm really pleased to answer it. I think we should as participants in health care delivery as well as being patients in the same health care delivery system in the United States, we should all be constantly aware that there is pressure for more efficient use of health care dollars and for demands for proof of value for the health care dollars that are spent. And we're happy to take that challenge with our products and with the diagnostic exams that our products service. And I think the work we did over the summer with our peers, and when I say peers here, I mean, not only the companies who are competitive in our space, but I mean, physicians from medical societies and from other parts of health care ---+ the health care delivery chain, and our collective efforts to CMS to demonstrate the value offered by the use of contract agents where needed in these medical procedures, was well heard. And therefore, the value was held when the final rates were stated. I would expect us to be given that challenge every year, and I see those ---+ our obligation to continually prove that the use of our products and those services deliver the value above and beyond whatever cost there is to administer it. <UNK>, it's Jack. I'll take that. So as we've talked about, one of the places we've been and worked very hard to get to is a really strong liquidity position. We do continue to have a good amount of cash in the balance sheet and the $75 million revolver gives us flexibility. We do think the improved stock price gives us additional dry powder, if you will. And what I can say is the business development activities are ongoing at a very good and measured pace, and we do pay attention to it. We're not locking ourselves in any particular strategy, but we are open and focused on a number of different fronts. I think also it's fair to say you're going to hear more about that in early '18, <UNK>. Yes, I would say we don't really necessarily have a definitive sweet spot. I mean, we want to be opportunistic. I mean, I know you've heard this before so don't chuckle, but we worked very hard to get into the place we are at, and so we want to be very careful and purposeful in the deployment of that capital. So as part of that strategy, we are evaluating a number of options, and we're not really locking ourselves into ---+ <UNK> <UNK> has talked in the past about small tuck-in acquisitions or more significant acquisitions or other partnerships. I mean, we're really evaluating a number of things across a wide range of size, if you will. I would also share that we have active conversations out in the marketplace ---+ out in different marketplaces, in fact, to ensure that we're thinking about all the different possibilities of what constitutes a good deal, it's not only by size, but by fit for us.

2017_LNTH

2017

MDU

MDU #Thank you, and welcome to our First Quarter Earnings release conference call. This conference call is being broadcast live to the public over the Internet, and slides will accompany our remarks. If you'd like to view the slides, please go to our website at www.mdu.com and follow the link to the conference call. Our earnings release is also available on our website. During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although, the company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause actual results to differ, refer to Item 1A, Risk Factors, in our most recent Form 10-K. Our format today will include formal remarks from Dave <UNK>, President and CEO of MDU Resources, followed by a Q&A session. Other members of our management team who will be available to answer questions during the Q&A session of the conference call today are: Dave Barney, President and CEO of Knife River Corporation; Jeff Thiede, President and CEO of MDU Construction Services Group; and Nicole Kivisto, President and CEO of Montana-Dakota, Great Plains, Natural Gas, Cascade Natural Gas and Intermountain Gas; Martin Fritz, President and CEO of WBI Energy; and Jason Vollmer, Vice President, Chief Accounting Officer and Treasurer for MDU Resources. And with that, I'll turn the presentation over to Dave for his formal remarks. Dave. Thank you, <UNK>, and good morning. We appreciate your interest in MDU Resources, and thank you, for joining us today to discuss our first quarter results. We are pleased with our company's first quarter performance, and we're positive about the long-term growth potential of our 2 primary business lines; regulated energy delivery and construction materials and services. These businesses delivered strong results for the first quarter of 2017. Consolidated earnings from continuing operations were $35.5 million or $0.18 per share, a 12% increase compared to the $31.6 million or $0.16 per share for the first quarter of 2016. Including the discontinued operations of the exploration and production and refining businesses, we had earnings of $37.2 million or $0.19 per share. Now turning to our individual business unit performance, starting with the regulated energy delivery companies. Our utility business reported earnings of $42.2 million for the quarter, up some 16% from the prior year. Here, our regulatory staff has been pursuing recovery of our investments, which were made to safely serve our growing customer base. Since January 1, 2015, the utility has implemented some $100.7 million in final and interim rate relief, which includes $39.1 million in interim rates. The electric utility earnings were $14.3 million this quarter, up $3.2 million or 29% from 2016. This was primarily due to higher retail sales margins, which includes recovery of investment in a MISO project, final and interim rate increases, and increased retail sales volumes of 6% quarter-over-quarter. At our natural gas utility business, we had earnings of $27.9 million compared to $25.2 million in 2016. This earnings increase was largely the result of higher natural gas retail sales margins due to 21% higher natural gas retail sales volumes across all customer classes, customer growth and colder weather in those jurisdictions where decoupling and weather normalization mechanisms are not in place. Combined utility earnings were offset in part by higher operating and maintenance expense, largely related to higher payroll costs, along with timing of software maintenance costs. Over the next 5 years, the utility expects its 1.1 million customer base to grow by some 1% to 2% annually and plans to invest nearly $1.2 billion across its 8 state service territory. This results in rate-based growth of 4% compounded annually over the next 5 years. This business has many line-of-sight investment opportunities for long-term growth, and we will continue our focus on providing safe and reliable service to our customers at economic rates, while obtaining timely rate recovery. The natural gas utility will continue to focus on pipeline projects to enhance system reliability, safety, along with deliverability. The electric utility plans to finish construction on the 160 mile, 345-kV line from Ellendale, North Dakota, to Big Stone City, South Dakota by 2019. And the electric utility is in the process of completing its 2017 electric integrated resource plan and is evaluating its future generation and power supply portfolio options. This plan will be finalized and filed by mid this year. In December of 2016, the company signed a 25-year agreement to purchase the power from an expansion of the existing Thunder Spirit Wind farm. This agreement includes an option to buy the project at the close of the construction. Purchase of this expansion would increase the company's generation portfolio from roughly 22% renewables to 27%. Construction costs for the project are estimated to be approximately $85 million, as well. Now, I'd like to turn to the pipeline and midstream business. Earnings at our pipeline and midstream business were $3.9 million compared to last year's first quarter earnings of $5.3 million. This decrease, though, is largely driven by absences of our gathering and processing earnings from the Pronghorn assets, which resulted in approximately $100 million in proceeds to the company earlier this year. This decrease was offset partially by lower depreciation, depletion and amortization expense, along with lower interest expense. In addition, we continue to see strong utilization of our natural gas storage services. Storage balances were approximately 4% higher at the end of the first quarter compared to 2016. In October of 2016, the company received FERC approval on its prefiling for the Valley Expansion Project. Again, this is a 38-mile pipeline that will deliver natural gas supply to Eastern North Dakota and far Western Minnesota. This project will connect the Viking Gas Transmission Company pipeline near Felton, Minnesota, to the company's existing pipeline near Mapleton, North Dakota. And it is designed to transport 40 million cubic feet of natural gas per day. The cost of the expansion project is estimated to be approximately $55 million to $60 million. Our Pipeline and Midstream Company filed its FERC certificate application for the Valley Expansion Project just Wednesday of last week. Following the receipt of necessary permits and regulatory approvals, the construction of this project is expected to begin in early 2018, with completion expected later that same year. The pipeline and midstream group is also currently working on Line Section 25 expansion project and our Charbonneau compression expansion projects, involving additional compression that will add a combined 62,000 dekatherms a day of capacity and are both are scheduled for completion here in the second quarter of 2017. Now let's move on to our construction businesses. Our construction service business recorded an increase of 23% in earnings compared to the same quarter in 2016, on increased revenues of 17%. Here, higher electrical inside work and margins in the Western and Central regions, as well as higher industrial construction workloads and margins were positive for the business this first quarter. This business was able to pick up work through backlog during the quarter, resulting in revenue growth and was able to win sufficient bids to hold backlog consistent with prior year of 2016 to now levels at $529 million. Construction services continues to be optimistic about their 2017 bidding environment and is focused on projects with strong margins. The construction materials business was impacted by largely a cold, wet winter that delayed work in several markets. This business reported a seasonal loss of $19.9 million compared to a loss of $14.5 million in 2016. While the cold weather in the Northern tier of the country was a positive for our utility business, it delayed the start to our construction season in those markets. In addition, heavy rains in California and other parts of the west pushed back the timing of when we could begin working in those markets as compared to earlier start that we saw last year. Backlog is down, quarter-over-quarter, now standing at $725 million, and this is largely related to our North Central Region where the impacts of lower energy prices are still being felt. In most regions, backlog has actually increased. One exception is Texas, where good weather allowed the company to get a strong start to the construction season. Even though our backlog is lower when compared to a record backlog a year ago, Knife River is optimistic about the potential opportunities that may stem from infrastructure spending packages that have passed or being considered in many states where we operate. We anticipate more projects being bid from the FAST Act, and we are well positioned to take advantage of these opportunities. National construction indicators have remained largely positive from month-to-month driving improved markets. Although we are not including anything in our estimates related to potential incremental investment and infrastructure spending, we are certainly encouraged by the continued discussion by Congress and the new administration. We see this as being a positive for construction materials and services industries. These indicators, along with our low-cost structure and combined backlogs of now $1.3 billion have us optimistic about 2017. Overall, again, we are pleased with our solid first quarter results. As we look forward, each of our business lines has a bright future. Our electric and natural gas utility is working to safely serve an increasing base of customers, while earning a return on its $1.2 billion, 5-year capital program, driving 4% average annual growth in rate base. Our pipeline and midstream business continues to move forward with the Valley Expansion Project, again, with expected completion in late 2018. And our construction businesses have a combined backlog of $1.3 billion and are focused on adding high-margin projects through the infrastructure spending packages we have seen introduced in many of our states of operation, along with on a federal level. We are pleased about what we've returned to our shareholders in the past through stock price appreciation, along with dividend payments. Our 1-year total shareholder return, as of March 31 was 45%, substantially higher than the indices we compare ourselves to, as well as higher than our peer group. And we have paid a dividend for now 79 straight years, and increased it for the last 26 consecutive years. Based on our first quarter results and our forecast for the remainder of the year, we are reiterating earnings guidance in the range of $1.10 to $1.25 EPS for the year. We are off to a good start for the year and plan to build on this momentum throughout 2017. And we remain committed to operating with integrity and continue to focus on safety and creating superior shareholder value, while following our tagline of building a strong America. I appreciate your interest and commitment to MDU Resources, and ask that we open the lines to questions at this time. Operator. Thank you, Brent. As noted earlier in my comments, our continuing operations delivered strong results for the first quarter of 2017. We are committed to building a strong America and are optimistic about our opportunities in 2017 and beyond. We appreciate your participation on the call today, and we'll keep you posted as we progress throughout the year. Thank you, again, for your continued interest in MDU Resources. With that, I'll turn it back to you, Brent.

2017_MDU

2015

ABAX

ABAX #We are always working, there's more and more every day, frankly. So i guess the short answer is yes. There's more to come. I though we're working on one right now that we hope to sign. Again, it is really a matter of easier access for us, and for the folks in the buying group to really pressure each other to utilize the products that they have contracts with, because they get their pricing, and they get rebates based on that. So it is up to them to try to help drive that business as well. But it's just a good source of leads. It is a good source of access. And we leverage them more and more every day. A lot of these buying groups break off into new corporate entities, where we already have relationships. It is an important part of our strategy. I am not sure i want to comment on that per se. I'm not even sure ---+ Do we know, I don't know that we know who the Top 10 are. Every day. (laughter) Greg, I'm not being smart. It is every day. We try and -create programs based on how the customers like to buy our products. So some people like to pay cash. Some people like to do reagent rental. Some people like to do leases. So we have at any one time, our sales reps can pull five to eight different programs out of their portfolio, based on how that customer wants to buy our products. Nothing gets given away. They buy our products. One other comment on cost of ownership. When you look at blood chemistry, which is probably the most important product in the clinic, when it comes to diagnostics, the Abaxis VetScan has no overhead. That's the biggest cost of running is the overhead. The trained operator. The maintenance. The warranty. Continuing warranty payments you make for maintenance, and all of that kind of stuff. We don't have any of that. That's how we sell our products. We show the customer that without the overhead, you get your result at less cost because we have no overhead. Great. Okay. I would like to thank everybody for tuning in. I would also like to congratulate the Abaxis employees that really did an excellent job this quarter, coming through with fantastic earnings growth. You look at all of the metrics that we focus on here at the Company, increasing the sales, improving the efficiency, and making sure that we have leverage in the business. Make sure that when we sell 11% more, we get more than double that on the bottom line. Most of our employees here are paid on incentives based on the Company's performance, and so clearly, they've gotten that message, and we're really focused as a team here. Everybody pulling in the same direction. I want to thank the Abaxis employees for great performance as well. So we look forward to talking to everybody at the end of January. Thank you very much.

2015_ABAX

2015

UFS

UFS #Right. Let me answer that question. We had a busy maintenance quarter, but when we do that maintenance, sometimes you find things you're not expecting. We didn't find things we weren't expecting. Our startups were good. Sometimes a startup can take longer than you're expecting it to take. That meant our maintenance spending was very tight, versus our expectations, which is obviously a very strong thing. We talk a little bit and I talked in my published remarks about continuous improvement and reliability. We. ve changed the structure a while back in our pulp and paper business. Actually, we took two of our very best middle managers and really have them now focused on continuous improvement and engineering improvement, really looking to get pulp output, so slush pulp output up. Because obviously, that's a free run, if you like, in terms of productivity. That's really starting to pay off. So that systemic improvement, we're looking to really move through the network over the years to come. Of course, on the cost side, we got a nice tailwind from our wood costs, which had been very high due to weather. And as that weather reversed, we were able to rebuild wood inventory, which obviously puts us in a better position when negotiating prices with local wood suppliers, if you have some inventory in place. Those things were really the major items that allowed us to have that strong cost position. Does that help. Okay. That's right. I don't think anything too substantial. We might have to build a little more fluff pulp, I think, just so that we can seed the marketplace around that conversion. Just make sure that we're in pretty good shape. But I wouldn't look to see it build substantially from where we are. Certainly. That's a great question. It's an expected development. After 120 days those temporary countervailing duties come off. It's a routine occurrence, because the timing doesn't exactly fit between the two pieces of legislation. What that means is, one Indonesian producer may be able to ship without duty, because they had no countervailing duties found against them, nor did they have any anti-dumping duties. But of course the anti-dumping duties stay in place. Now if you take a look at what that really means, the anti-dumping duties for some of the major Chinese produces are about 200%. For the rest of the Indonesian producers, they're around 51%, 52%. Obviously, there's only a window here. If you assume that the court finds eventually in February, there's about a three-month window. To get it from the mill all the way here is about a six-week supply chain. Our view is this really doesn't change the dynamics, particularly. Does that help. You're welcome. Thank you, <UNK>. You mean in terms of some of the transactional pricing at the lower end, <UNK>. Is that what you mean. Yes. So the answer to that question is we are beginning to. I think you. ll have to look at this. It's very hard at the minute. I'm not trying to not answer a question. It's hard at the minute to say where this will fall. I think we are going to see clearer in 3 to 6 months, in terms of where the volume shakes out. There's very little visibility of the inventory that's actually sitting in the merchant community and in some of the customers on some of these grades. My view is we see a little bit of the impact probably right now, but hard to tell when that's really going to show through. Absolutely, let's talk about that. What you're seeing right now is the impact of us bringing in manufacturing where perhaps we've used third parties, and beginning to use and get the full ramp up on the machine part that we've built. We've probably got a couple of machines left to go. That ramp up will have less impact than the old ramp ups, because more of the business, if you like, is now in steady-state. In addition to that, our expectation, really, for next year on the top line is that we would grow slightly faster than the market, because we are having success both in our core customers of growing business and in actually winning some new business. <UNK>, good morning. I don't have the detail, but I'll give you what we are planning. At this moment in time because, of course, we own a personal care business. Our thinking here is that the test customer for Ashdown fluff is ourselves. That would mean on an annualized basis may be 80,000 tons to 90,000 tons from that machine. And then obviously, currently some of that is supplied by Plymouth. What we would be doing there, quite obviously, is then selling that into sort of the markets where Plymouth is already strong. And then we are already seeding new customers. I think it's going to take some years, certainly a couple of years, before that machine is running full tilt on fluff. The detail of how that's going to fall in, to be honest, <UNK>; I don't really have at this point in time. And of course we do have the baler there, specifically, to be able to make that balance. But I guess you are aware of that. You're really saying how are you going to move that through over time. Certainly, as quickly as possible. We. d be making fluff pulp for ourselves at full tilt on that machine. Does that help. The project is [160]. I think there is [140] left for next year. My answer is more as of year-end than as of Q3. I think in next year budget or next year numbers you will see around 140 that will be linked to the Ashdown conversions. Thank you. Yes. They are ---+ (multiple speakers) They are fairly meaningful. If you don't mind, <UNK>, because it's wins on private label, we don't really want to give the detail on who it is and what it is and the amount it is. Because obviously that's proprietary between us and the customer. But they have been substantial. If you're assuming the market is going to grow at a certain level next year, we'd certainly be looking to grow faster than the marketplace. Just on timing as to when they appear, some of them are, obviously, happening now. But obviously, in Europe currency is masking that. But really it's from the end of quarter one to March onwards. That impact will come into the numbers. I'm sorry, say again. It's pretty much 50-50. It has been ---+ we have been very successful in the baby business, positioning ourselves with some major accounts. If you recall, that was the business where we struggled a little bit as we bought it. Of course, baby is a much bigger marketplace then AI. We have had some nice wins in the adult incontinence business, but some strong wins in baby that is ---+ will start to come through second quarter 2016. I think, <UNK>, there's normally a little bit of seasonality in Q4 because of weather. Yes, we have ---+ excluding that weather question. I think wood, our forecast is for flat, maybe a little of benefit in Q4. Energy is moving up and down. Difficult, this one, to predict and weather is really impacting that one. Normally, in Q4 it's a small negative, as is Q3. But we will see what El Nino will do to the weather this fall. Thanks, <UNK>.

2015_UFS

2016

BBBY

BBBY #Thank you, Adrienne, and good afternoon everyone. Joining me on today's call are <UNK> <UNK>, Bed Bath & Beyond's Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call may contain forward-looking statements, including statements about or references to our internal models and our long-term objectives. All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today. Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties. The Company undertakes no obligation to update or revise any forward-looking statements as events or circumstances may change after this call. Our earnings press release dated April 6, 2016 can be found in the Investor Relations section of our website at www.BedBathandBeyond.com. Here are some highlights from our financial results: Fourth-quarter net earnings per diluted share were $1.91, an increase of approximately 6.1% over the prior-year period, including approximately $0.06 per diluted share of a net benefit from certain nonrecurring items. Net sales for the quarter were approximately $3.4 billion, an increase of approximately 2.4%, or 2.8% on a constant currency basis. Quarterly comparable sales increased approximately 1.7%, or 2.1% on a constant currency basis. Fiscal 2015 net earnings per diluted share were $5.10, including approximately $0.06 per diluted share of a net benefit from certain nonrecurring items. Net sales for the full year were approximately $12.1 billion, an increase of approximately 1.9% or 2.3% on a constant currency basis, and full-year comparable sales increased approximately 1% or 1.4% on a constant currency basis. In addition, our Board of Directors today authorized a dividend program and declared an initial quarterly dividend of $0.125 per share to be paid on July 19, 2016 to shareholders of record as of June 17, 2016. As we know, retailing is experiencing dynamic change as technology impacts the way consumers are able to make shopping decisions and purchase services and products. Today's call will include a detailed discussion by Steve regarding the steps we have taken to transform our business to succeed in this evolving retail environment. Then <UNK> will review our quarterly financial results and provide some modeling assumptions for fiscal 2016 as well as some high-level comments regarding fiscal 2017. I'll now turn the call over to Steve. Thank you, <UNK>, and good afternoon everyone. We are pleased to have completed another successful year. Our fiscal 2015 financial performance reflects the benefit of the significant investments in our business, steady progress on our strategic initiatives, and the return of more than $1.1 billion to our shareholders through share repurchase. As <UNK> highlighted, we reported fiscal 2015 net earnings per diluted share of $5.10, including a $0.06 net benefit from certain nonrecurring items. Excluding this benefit, we were at $5.04, which marks the fourth year in a row that we\ Thanks Steve. I'll start with our fourth-quarter results. Net sales for the quarter were approximately $3.4 billion, up about 2.4% over last year, or approximately 2.8% on a constant currency basis. Comp sales for the quarter increased approximately 1.7% or 2.1% on a constant currency basis, reflecting an increase in the average transaction amounts and a slight increase in the number of transactions. These results were at the upper end of the model range we provided back in January, which was between relatively flat and an increase of 2%. Comp sales from our customer-facing digital channels grew in excess of 25% while comp sales from our stores were relatively flat. Gross margin for the fourth quarter was approximately 38.6%, down about 110 basis points from last year. The decrease was primarily due to a decrease in merchandise margins. Also contributing were increases in net direct to customer shipping expense and markdowns. For the year, the gross margin deleverage was less than it was in 2014, which is consistent with our model. SG&A for the fourth quarter was approximately 24% of net sales as compared to 23.8% last year. This increase, as a percentage of net sales, was due to, in order of magnitude, technology-related expenses, including depreciation, and advertising expense due in part to the growth in digital advertising, partially offset by a favorable net benefit of approximately 50 basis points from certain nonrecurring items, including a favorable state audit settlement. Net interest expense for the quarter was approximately $24.5 million and related primarily to interest from our debt. Our income tax rate for the quarter was approximately 36%, which was in line with our model assumptions back in January, versus 37.4% last year. The tax rate decreased about 140 basis points as the current quarter includes about $7 million in discrete tax events versus $700,000 last year. As we had modeled, our unfavorable foreign currency exchange rate impact in the quarter was approximately $0.02 per diluted share. Considering all of this activity, net earnings per diluted share for the quarter increased 6.1% to $1.91, or $1.85 excluding the favorable net benefit from nonrecurring items of approximately $0.06. Moving onto the balance sheet, we ended the year with approximately $673 million in cash and cash equivalents and investment securities. Retail inventories were approximately $2.8 billion, up about 3.6%. This increase was due in part to an increase in inventory in our distribution facilities for direct to customer shipments, including the inventory associated with our recently opened Las Vegas distribution facility. Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition. CAPEX for the year was approximately $328 million, relatively flat to last year and below our model of $350 million due to some of the anticipated spend for 2015 moving into 2016. A significant portion of the 2015 spend related to technology projects as well as new stores, existing store improvements, our new customer contact center in Utah, and the new distribution facility in Las Vegas. We repurchased approximately 7 million shares of our stock during the fourth quarter. And as expected, we completed our $2 billion share repurchase program and began repurchasing shares under our new $2.5 billion share repurchase authorization during the quarter. This new authorization was approved by the Board in 2015 and had a remaining balance of approximately $2.3 billion at the end of the year. Since 2004 through year-end 2015, the Company has returned approximately $9.7 billion to its shareholders through share repurchases. So now let's turn to where we are going in 2016. As we have indicated throughout this call, we are managing our business for the long term and making progress on our strategic initiatives. In keeping with this approach, I'd like to provide you with some full-year modeling assumptions: comp sales increase of 1% to 2% with total sales being about 90 basis points higher than the comp; gross margin deleverage, including increases in coupon expense and net direct to customer shipping expense. We do anticipate the 2016 deleverage to be less than that of 2015. SG&A deleverage as a percentage of net sales, primarily as a result of the following items: first, additional payroll startup costs associated with the opening of our Louisville, Texas distribution facility; second, in response to wage increases impacting the retail sector, we are modeling an increase in our investments in compensation and benefits to preserve our ability to attract and retain the best associates. Third, we are modeling store coverage to be consistent with the prior year to reflect the evolving nature of the services our stores provide. We are modeling the full-year impact of these three payroll-related investments to be approximately $0.23 per diluted share. Fourth, we expect to make further investments in technology and in our digital Web and mobile capabilities, which will result in an increase in our technology-related expenses, including depreciation. We are modeling the full-year impact of these tech investments to be approximately $0.17 per diluted share. Additional assumptions for fiscal 2016 include: a depreciation expense estimate of $290 million, net interest expense estimate of $80 million, full-year tax rate estimate in the mid to high 30s% range with continued quarterly tax rate variability as distinct tax events occur. We anticipate less favorable distinct tax dollars in 2016 as compared to 2015. Opening approximately 30 new stores across all concepts, most of which are planned to open in new markets for our various concepts. We also plan to close about 15 stores. CAPEX estimate of approximately $400 million to $425 million, which is subject to the timing and composition of projects and includes some carryover of projects from 2015, as I mentioned earlier. Our technology related projects represent a significant portion of our planned CAPEX and include the continued deployment of new systems and equipment in our stores, enhancements to our digital, Web and mobile capabilities, ongoing investment in data analytics, and the ongoing development and deployment of our new POS system. In addition to technology-related projects, the CAPEX estimate also includes an estimate for the opening of our new distribution facility in Lewisville, Texas and new stores, as well as our program for renovating or repositioning stores within markets where appropriate. Also, we anticipate our current period of heavy CAPEX investment to reach a peak in fiscal 2016. We believe that the level of capital investment required over the next few years should start to come down off of this spending level. In addition to our newly authorized dividend program, we will continue to repurchase shares under our current $2.5 billion authorization. As a reminder, share repurchases may be influenced by several factors, including business and market conditions. As Steve said earlier, our earnings per diluted share have been in the $4.50 to just over $5.00 range since we entered a heavy investment phase several years ago, and we believe we can again achieve earnings per diluted share at the high end of this range this year and, in the event our comp is higher than the 1% to 2% range we are modeling, exceed it. We believe our fiscal 2016 quarterly net earnings per diluted share, excluding one-time items, will have a similar pro rata percent to the total year as they have in previous years with the exception that the percent for the first quarter is anticipated to be somewhat lighter and for the fourth quarter is anticipated to be somewhat stronger, due in part to holiday shifts and advertising changes. Looking to 2017, a 53-week year, as I said, we plan CAPEX to be less than our 2016 peak estimate range as the spend for a few of our larger capital projects such as most of the equipment required for our new POS system will have been completed while still allowing for appropriate investments in areas critical to our future. We also plan to open new stores, mostly in new markets, and close stores as market dynamics dictate. Regarding capital allocation, with today's announcement of the quarterly dividend program, we now anticipate that the completion of our $2.5 billion share repurchase program will occur in the latter half of fiscal 2019 or in fiscal 2020. Of course, the completion date will continue to be influenced by several factors, including business and market conditions. Before turning the call back over to Steve for some final remarks, please note that our next quarterly conference call will take place on Wednesday, June 22, 2016. At that time, we will review our first-quarter results and provide an update on fiscal 2016 as well as answer some questions from the investment community. I'll now turn the call back to Steve. Thank you <UNK>. First off, thank you for taking the time to listen to our call. To summarize, we believe we are making the right investments to position our Company for long-term success. Over the past several years, we have been transforming our Company, and have created an incredible foundation for future growth. We are excited about the opportunities to do more for and with our customers and to strengthen our business as a world-class omni-channel retailer. I want to thank our more than 60,000 dedicated associates for what they accomplished during fiscal 2015. Our foundation has never been stronger. This includes the quality of our people, our merchandise assortments, and our technologies, each of which drives our Company's success. Through the commitment of our associates and the culture they have created, and the greatly valued contributions of our merchandise and service providers, we are looking forward to continuing to satisfy our customers and, in doing so, improving our competitive position in the categories in which we do business. Again, thank you for listening in today. After the call, <UNK>, <UNK> and Ken Frankel will be available to answer your questions.

2016_BBBY

2015

CLD

CLD #Thank you, Jonathan. Next question, please. Yes, there's quite a few considerations before they ask to post collateral. We're actively talking to our surety underwriters. But to date there has been no pressure on our bonding currently. So right now we have no collateral posted. And again, we've been meeting regularly with the surety providers. I think one thing I'd add to that is it's quite clear that surety providers do the work to look at the companies, and indeed the individual mines to actually get a good understanding of them and the risks that may or may not be taking on when they post surety. So we're spending a lot of time making sure they understand where we are and where our mines are and our financial position. And obviously we'll continue to do that, because it's a very big issue and a relevant issue at the moment. I think it is important that they actually do do the work, to not just do a broad-brush approach to an industry. They actually want to understand the assets that they're posting bonds against. I'll look at <UNK> for that. He's (laughter). I think typically it's in the neighborhood of ---+ It was $0.79 of the $9.90. Okay. Yes. Thank you. We focus in a lot of different areas from making sure we have the right labor force out there, be one of the big buckets, our blasting costs, our component costs, and then our outside services cost. We try to do as much of the work in-house with our own people as we can, not only from an actual cost perspective but a quality perspective because we like what we do. So we focus in all the different areas. And if there's not just one giant step change, you've got to try to do it all. But against that you have the strip ratio continue to increase, the hold distance increase, and things like medical costs and everything, they go up. So for every good thing we do, there's always ---+ you're always swimming against the tide, as it were. One thing is clear, though, that Gary and his team is they ---+ there's no shortage of things to improve. And every time we knock off one thing with continuous monitoring, or save things failing, then it gives them more time to find the next thing to improve. And it's an awful lot of detail work in the operations every day, whether it's operation equipment well, maintaining it well, and moving the right dirt in the right place at the right time. When you put all that together, it comes together as a good result. Unfortunately, there's no one silver bullet. Obviously the diesel costs are a big change and they're going for us at the moment. But that's the biggest thing that swings, which is why we separate them out from the cost that we talk about with the 5% to 8% underlying inflation, which is what we've typically seen. But the guys are doing a great job keeping it towards the bottom of that range at the moment. And obviously for the quarter, shipping the tons just brings the per ton rate down in any given quarter. Thank you, <UNK>. Next question, please. Well, I think <UNK>, there's a certain amount of utilities who'll burn our PRB 8800, 8400 and Spring Creek coal. The amount of burn they have each year depends on, obviously, on demand, the competition from gas, whether it's from their own boilers or competing boilers. So the amount they burn unfortunately is going up and down a lot more than it used to a few years ago. So demand is driven by that. And then you've got the utilities look at the amount of coal they get. What we do, seems to do a decent job on costs, and we think we do. The reality is in the Powder River Basin it's a very competitive basin, and I don't think we could ---+ it's not like you could cut your cost ---+ cut your prices by several dollars to grab lots of market share. If you did, you'd have ---+ the other guys would have to follow you down. So I think it's an over-supplied market. We sell it at or around where the market is. We don't have any market powers, as it were, and certainly wouldn't ---+ it's very, very competitive. So the way anything good we do with cost comes through is just in the margin we can deliver when we're selling coal basically at the same price as everyone else. And we'd like to see the prices higher, but it's very tough in a market where demand is being driven down by NGO and regulatory action, and obviously by competition from the gas. That combination makes it pretty tough, and obviously in an over-supplied market than if prices go down to somebody's cost curve, and our margin is sort of at least it's slightly better because we've got the cost, maybe than some other players. But it's not by ---+ it doesn't give us the ability to go and push them out of business. That's not the way the basin works. Thank you so much. Next question, please. <UNK>, you're a detail man, as always. I'm not actually quite sure. I'd say 50/50, maybe slightly more of Cordero, but not much in it. Around about where we are at the moment. It's pretty grim. So yes, the Newcastle price is giving me the (inaudible) we it. And the over-supply in the Asian markets with the China, it means that we're not far off it. It depends. We can sometimes get more dollars when we sell into specific customers in Japan and things. But overall it's pretty close, and whether you get 65% or 70% of Newcastle makes a big difference. But it's clearly a market where there's too much coal and production is being brought off. But as with the domestic market, it takes time to happen. Obviously we're suffering because of that Chinese reduction in supply and also the strong US dollar doesn't help us. So it's about there, but we're ---+ that's why we're obviously talking to the rail and port guys about the best way to manage through this. Yes. What we have said is the core cash cost, and if you looked in our investor presentation we break this out also, is the total costs taking out royalty and taxes, because that's a function of the realized price, roughly 30%, and the fuel and lubes, which being a commodity it just was what it was. So we pulled those two categories out. The remaining is the core cash cost, and that is what annually inflates somewhere between 5% and 8%, but don't take any one quarter and work off that. Yes, and the reason for is that's what we've seen over many years, and its most accurate answer we can give to people like yourselves when you're trying to get your mind around it. It's a mixture of all the things we do. So on the cost ---+ on the increases you've got the strip ratio, you got the hold distances, you've got increasing prices maybe for equipment, certainly labor and medical costs, people costs keep going up above inflation. So you've got all those sorts of things adding up. And then against that you have, this is the work that Gary and his team's try to do to manage the details of the operations to get the cost down. So it's the mixture of those. And overall it tends to come out 5% to 8%. And if we can be closer to 5% for year or two, then I think Gary and his team are doing a very good job. Thanks, <UNK>. Next question, please. Yes. No, we talked about $0.50 per ton on 80 million tons of production capacity. Be about $40 million would be the right, which is generally where we are at this year. And we are managing that with a drive line move. It is lumpy. So if you look back in our investor deck there are periods where you have to introduce a truck-and-shovel fleet, and that can be very significant. But right now at this point, it's really the sustaining capital to keep the fleet healthy. Fairly significant ---+ I'm sorry, <UNK>. The other thing on CapEx, we talk about the fleet, but we don't want to underestimate, I mean, the LBA payments, that's right in there with our CapEx. And we made our final LBA payment in June. That was $69 million, but that's a big milestone for Cloud Peak Energy. We'd historically been paying on average about $90 million a year since our IPO for the bonus payments. So to have that settled and be in a good reserve position, we don't anticipate having any need to bid on coal for many years. Well, we'll see how it works out but we'll still be making sales as we go forward and looking at what we think is available out there. We don't tie ourselves to anyone. We like to be 100% sold. We'd actually like to be a little bit over-sold and give ourselves here flexibility that comes with that. But we'll take ---+ relative prices are very low, and obviously with low gas prices at the moment that's not helping things. So we'll continue to bid to make sure we're comfortable with the range. But we're about where we should be for this time of year. And we'll continue to make some sales and update you in February when do our full-year results. Next question. Well I think ---+ thanks for the question. I think we'll continue to focus on our liquidity, and obviously the actual outlook for going forward is quite uncertain at the moment. It always strikes me that the debt's cheap for a reason. It's because there is uncertainty. Once we're confident enough to ---+ that things are picking up, I'm afraid the thing will ---+ the most obvious sign of that will actually be the debt will go up in value. So I think for us to do it would actually be to ---+ would not be in line with what we say in terms of focusing on liquidity and the financial health of the business. And we'll focus on that. If for some reason we see an opportunity, we take it. But I think at the moment job one, as I said before, is to do everything we can to keep our heads above water. No. Look, it's everything pulled together when you view how things are going forward. So there's no one thing. I must feel like Janet Yellen, I guess, wondering when to increase interest rates. No, there's ---+ when things look good enough, we'll do it. But at the moment, I'll have to say the outlook for coal is real tough. And we're trying to manage through that. But when things are improving, you give me a call and tell me. We'll be all over it. <UNK>, we absolutely have secured debt capacity. We have both first lien and second lien. But 2019, and we're talking December 2019, we've got a long time to see where the markets go and how things become available to us for refinancing. Thanks, <UNK>. Next question. Okay. Well, I'll say what we've always said over the years, and it large surface mines, maybe in the Western United States, maybe up into Canada look more like what we operate at the moment. And we're happy to look at anything. But it's whilst things are very distressed, it is also hard not only to come up financing but also to meet a buyer's expectation of value. That's both on the way down, on the way up in markets. That tends to be the reality. So at the moment there are things to look at. We've actually looked at them, but we've tended to stop reasonably quickly, and one of the reasons just is that the ability to do things when market, financial markets, are so [tough to call], it does restrict your ability to do things quite differently from when there's lots of money flowing around. At the moment it's important to hang onto to what you've got and do the best can with it. So that's where we are at. Okay. Well, look, thank you very much for taking the time to listen into our call. Obviously domestic and international coal markets continue to be tough. I have been very impressed by the way our operations have been able to manage their costs so far this year. And we are learning how to cope with significant swings in production from quarter to quarter, as coal consumption varies. We'll continue to focus on managing our business, our export exposure. As I say, we'll update you as soon as there's something to update you on. And we'll look forward to talking to you in February with our full-year results. Thank you very much for your time, once again. We'll speak to you in February.

2015_CLD

2016

JPM

JPM #Okay. So with respect to equity capital raises, I mean obviously to a degree that would be true, although those companies that were able to access the equity markets are not those that are experiencing the most stress. So obviously all other things equal it's a positive, but I'm not necessarily thinking it's going to take significant steam or the pressure off. With respect to second part of your question I'm so sorry. The C&C. <UNK> will get back to you. I'm sorry, I don't have the answer. Okay. So no, nothing has changed in the card competitive landscape, including in co-brands. It's still very competitive, albeit that we saw a little bit of deceleration in sales growth year over year last year and we've seen that trend back positively for us this year. So we feel good about that and we've been increasing our marketing spend and as <UNK> did say, we launched Freedom Unlimited quite recently and it has been quite recent, but early feedback is very positive. With respect to Freedom with a 50% increases in activity and interest, there's going to be a degree of cannibalization of other products, we would expect that. But so far, so good. And we just like to give our customers choices. And its been favorably received. So the Manheim is down slightly. We continue to believe and expect that it will continue to trend downwards and so [also seeing] it will continue to trend upwards, just given where it is today and also the amount of leased inventory that will ultimately go into the used car space over the course of the next several years. However the fundamentals are still good, the market is still solid. We have pulled back on subprime a while ago. It's a small part of our originations. So other than seeing some delinquencies tick up, as expected, in some of the energy-related states but not very significantly, there's nothing at the moment that's on the burner. For us. I do think you'll see issues in the market. So the MSR P&L for the quarter was a positive $124 million, and they are a combination of BAU and material factors that added up to that, and probably about half of it was a combination of hedge performance and the market. Yes, yes. So purchase applications are up 30%, I think, year on year. We continue to be positive momentum in that space, and we are seeing Spring activity continue to be robust, as expected. Okay. So in terms of run rated, the two biggest drivers of the walk that we gave at Investor Day were the card co-brand renegotiations and the mortgage banking non-interest revenue. I would just point out that while we are seeing some of the incremental impact of card renegotiation, that will play out over the course of the year. But on the positive side ---+ and on the positive side mortgage banking, just given where rates were over the quarter, has been positive relative to central expectations when we did Investor Day. So those two things are worth noting. But we are seeing really quite good drivers in non-interest revenue drivers across the consumer space generally, in debit investments, in fees and accounts, in the sort of 4%, 5% range, and sometimes in the range higher than that. So we are continuing to see exactly what we expected, which is the majority of our businesses will continue to deliver mid- to high single digit growth, and they seem set to do that. The card impact will be what it will be, and mortgage NII will end up down year over year, whether it's $700 million or $600 million we'll see. And so the biggest driver of what the end result will be is going to be markets. Yes. Look, the business is not immune to markets either. So obviously as you look at the performance for the quarter our fees have been impacted by low asset levels. And we also have got the tail impact of some business simplification, just getting the tail of that out of the performance. We are also seeing the benefit of higher rates. So I'd characterize the majority of those negatives on lower fees and simplification as being behind us. So the trajectory, if rates continue to rise, would be upwards. But that's why we said market dependence. We were not expecting our performance to go down from here. Flat to up, but depending on rates. So ---+ I'd just use 32%. We've given a range 30% to 35%. We've been at the lower end of that range. When we performed very strongly we could drift up. If we perform less strongly, we pay for performance and I think we did a good job in the first quarter. We have among the lowest ratio. We're paying our people properly and well. And consistently. That's very fair. And we've talked about it pretty often, that people when they restructure, they restructure out of the things that they were less strong at, less comfortable at, and in many cases they double down where they continue to have strength. And we are seeing that. And that's what we mean when we say there's always someone left to fiercely compete in every part of our business, and equities is no exception. It's not the poster child for that. However, the equities business here at JPMorgan, we've rebuilt our technology platform. We have rebuilt the prime ---+ we've built the prime brokerage, international capabilities. The two of those work hand in glove. And we have every opportunity to continue to gain share and win. And we've done very well gaining share in electronic trading and the prime broker has been built in Asia and Europe where we had weaknesses. So you've seen our share go up and we intend to win it. We have topnotch research, which obviously helps drive the equity business too. That's correct. Give or take, and that's right. Obvious are there's a high degree of variability around it. If we had complete ability to understand it we would lean into those reserves. But it's name specific and situation specific, it would evolve over time. We just wanted to give you an indication that there's likely to be some more costs. It could be plus or minus quite a bit from that because we've had to make stress assumptions in there. But $500 million for nine months, yes. Yes. No <UNK>, I'm not going to make any comments about SNC, except to say that everything that we know and aware of is reflected in our results. Correct. Yes. They changed by a couple of billion dollars on a single name that we like, up. Thanks very much. Wait. Before you all go. We should say goodbye to <UNK> <UNK> who goes on to a bigger and brighter job as CFO of the Consumer Bank, and she did an outstanding job. And she's succeeded by <UNK>, who's going to say hi right now. So congratulations. You guys have done an outstanding job. Thank you. Thank you, everyone. I nearly forgot.

2016_JPM

2016

CPF

CPF #Thank you, Mike, and thank you all for joining us as we review our financial results for the second quarter of 2016. With me this morning are <UNK> <UNK>, President and Chief Executive Officer; <UNK> <UNK>, President and Chief Banking Officer; and <UNK> <UNK>, Senior Vice President and Chief Credit Officer. During the course of today's call, management may make forward-looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to forward-looking statements, please refer to our recent filings with the SEC. And now I'll turn the call over to <UNK>. Thank you, <UNK>, and good morning, everyone. We are pleased to report on another solid quarter for our Company, with net income of $12.1 million and diluted earnings per share of $0.39. Loan growth continued to be strong, supported by the favorable economic and business conditions in Hawaii. Net interest income, non-interest income, and asset quality continue to improve. <UNK> will be providing the highlights of our Company's financial results later in the call. As a result of our consistent profitability and strong capital position, our Board of Directors increased the quarterly cash dividend by 14.3%, from $0.14 to $0.16 per share, payable on September 15 to shareholders of record as of August 31 of this year. We have also been active in executing on our 2016 share repurchase plan, which authorized share repurchases of up to $30 million this year. Year to date, as of June 30, we have repurchased close to 493,000 shares of CPF common stock, or approximately 1.6% of the total common stock outstanding as of September 31, 2015. The remaining stock repurchase authority as of the end of the second quarter was approximately $19.5 million. As provided in our 8-K filed this morning, going forward and in a continuing effort to build upon our Bank's core franchise value, our customer base, we will be realigning our exec structure to allow more of my time to be invested in engaging with our customers and prospective customers, while at the same time strengthening our focus on improving our operational competency. Effective September 1, 2016, <UNK> <UNK>, our current President and Chief Banking Officer, will be appointed to the new executive position of Vice Chair and Chief Operating Officer, where he will oversee our operations and other support divisions, and I will be assuming direct oversight of our front lines of business. <UNK>'s depth of banking experience and management expertise, together with his acute understanding of the end-to-end servicing needs of our customers, will add significant value to strengthening our core operational competencies. We are encouraged by the continued improvement and outlook for the economic climate in Hawaii, particularly in the visitor industry, labor market conditions, and growth in personal income and tax revenues. In the first five months of this year, visitor arrivals increased by 3.1%, and visitor expenditures increased by 1% over the same period last year. Before tax for 2016, our year-over-year increases of 2.2% in visitor arrivals and 2.5% in visitor expenditures. The outlook for job growth and real personal income continues to be positive for 2016, with a projected 1.8% growth in jobs and a 3.0% increase in real personal income compared to 2015. Hawaii's unemployment rate for the month of June was 3.3% compared to the national unemployment rate of 4.9% and is projected to be at 3.2% for 2016. Construction activity continues to be strong and has been a key contributor to job growth, albeit construction permits issued for private and public development projects have been declining compared to peak periods in the previous year. Hawaii's economy overall, as measured by real GDP, is forecast to increase by 2.3% in 2016 following an increase of 2.0% in 2015. At this time, I'll turn the call over to <UNK> to review the highlights of our financial performance. Thank you, <UNK>, and good morning, everyone. Net income for the second quarter of 2016 was $12.1 million, or $0.39 per diluted share, compared to net income of $11.2 million, or $0.35 per diluted share, reported last quarter. Our return on average assets in the second quarter was 93 basis points, and return on average equity was 9.51%. Our loan portfolio grew by $95 million, or 2.9% sequential quarter, whereas our deposit portfolio decreased by $91.5 million, or 2%, during the quarter. <UNK> will provide additional details on loans and deposits later in this call. Net interest income increased by $0.4 million, or 1% sequential quarter, as average loan balances again increased by over $100 million. Net interest margin decreased slightly to 3.29%, primarily due to an increase in premium amortization on the MBS investment portfolio, which negatively impacted the NIM by roughly three basis points. We expect the NIM to remain in the 3.25% to 3.35% range over the next couple of quarters. During the second quarter, we recorded a credit to the provision for loan and lease losses of $1.4 million compared to a credit of $0.7 million recorded in the prior quarter. Net charge-offs in the second quarter totaled $3,000 compared to net charge-offs of $0.4 million in the first quarter. Our allowance for loan and lease losses at quarter end was $60.8 million, or 1.79% of outstanding loans and leases. Other operating income increased by $1.5 million, and other operating expense increased by $1.3 million sequential quarter. The decrease in long-term market interest rates during the quarter had the effect of increasing our gain on sale income, but also resulted in more amortization expense on our mortgage servicing rights. We also had a one-time bank-owned life insurance benefit of $0.6 million and true-ups to our incentive compensation. The efficiency ratio was little changed, at 66.69% for the quarter. In the second quarter, our effective tax rate was 34.3% versus 35.2% in the first quarter. The lower tax rate was due to the one-time (inaudible) benefit that is nontaxable. We expect our normalized effective tax rate to approximate 35% to 36% going forward. That completes the financial summary, and now I'll turn the call over to <UNK>. Thank you, <UNK>, and good morning, everyone. Overall, our business development efforts have been effective across all lines of businesses during the quarter. We continued to make good progress in selected target markets, including the small business and consumer segments. Total loans and leases increased by $95 million, or by 3.9% on a sequential quarter basis and by $398 million, or 13.2%, on a year-over-year basis. Our commercial mortgage portfolio increased significantly, by 9%, over the previous quarter, which included a few large Hawaii-based transactions. Consumer and industrial loan balances declined by 5.8%, with most of the reduction occurring in our Shared National Credits portfolio. Construction loan balances also declined by 2.9% from the previous quarter as a large construction loan project was paid off. The consumer segment realized meaningful growth, with consumer loan balances increasing by 3.8% and residential mortgage and home equity line of credit balances increasing by 2.9% over the previous quarter. On a year-over-year basis, all loan portfolio balances increased, including consumer loans by 22.3% and commercial mortgages by 21.2%. For the second half of 2016, we anticipate that loan growth will continue, and the year-end balances will reflect growth at the high-single-digit percentage level over the previous year. Total deposits declined by $91 million, or by 2% compared to the end of the previous quarter, and the majority of the decrease was due to the outflow of temporary funds that included a large 1031 exchange transaction that came in in 2015. On a year-over-year basis, total deposits increased by 5.3%. The execution of our 2016 business plan initiatives has been on track, and we are well positioned to obtaining our goals for the year. Our continued focus on strengthening customer relationships will be supported by process improvement initiatives, leveraging our information management capabilities, and the favorable business and economic conditions in Hawaii. That completes my summary, and I will now turn the call back to <UNK> for her closing remarks. <UNK>. Thank you, <UNK>. In summary, we are confident in maintaining stable growth throughout the year while acknowledging that we have more work ahead in improving operational efficiency and leveraging our investments in technology. I would like to thank our employees, customers, and shareholders for their continued support and confidence in our organization as we work toward achieving our 2016 business plan goals. At this time, we will be happy to address any questions you may have. Thank you. Thanks, <UNK>. It's a long question. I'll try to answer as much as I can. All right. Our total SNC portfolio, we're probably about in the $185 million range, and we've been trying to reduce those balances as we look at the opportunities more on Hawaii. As we've said before, we're looking more for organic growth. And so as opportunities arise more on the local side, we've decided to temper our activities on the mainland. On the large construction project, it was a project on Oahu. It was a high-rise condominium project that we had a participation in. The project closed successfully, and as a result, the construction loan participation was paid off. In terms of the mix of the portfolio, I anticipate that we'll see continued growth in all sectors. It may be tempered, again, by some reduced Shared National Credit activity. We did purchase some auto portfolios in the first half of the year. We don't necessarily see that as continuing over the next six months unless we see an opportunity. So I hope that answers all your questions. The auto portfolio that was purchased in the second quarter was about $18 million. Again, we saw this as an opportunity. In terms of the activity, the construction activity, we're seeing a tapering off, as we've talked before, but in the high-end luxury market. There's still some activity going on, or starting to go on, in the affordable housing or workforce housing sector. But I think we're going to start to see construction activity, primarily in the high-rise condominiums, start to taper off. Sure. A couple of things drove our decision on the organizational change. The first is the importance of operational efficiencies and continued focus on that. And so <UNK> in his new role will be focused on the end-to-end servicing quality, first, for our customers, but also operational efficiency. And then second, as CEO, I think it is critical that I am out in the market to drive line of sight, not only to our line officers, but our customers. And so with this reorganization, I will be directly overseeing the lines of businesses. I'm going to turn this over to <UNK>. Good morning. I think we're still continuing to see a strong mortgage market in Hawaii, and I don't necessarily expect that to significantly reduce over the rest of the year. We've been quite successful in our originations. It may not necessarily reflect in the growth, just because we sell a large number of our mortgages in the secondary market. I'll turn that over to <UNK>. For this quarter, our provision credit was really commensurate with our growth, our credit quality, what we're seeing with our overall portfolio mix, as well as where we think we are in the marketplace. So it's really commensurate with that, and we continue to assess that from quarter to quarter. <UNK>, this is <UNK>. The approximate amount was $61 million. <UNK>, this is <UNK> again. We're optimistic that we'll see the balances grow over time. What happened in the fourth quarter of 2015 was there was a large surge in balances, and we knew that some of those deposits were going to be temporary. But I do expect that we'll continue to see some deposit growth for the rest of the year. So as I think about the strategy for the Company going forward, we're focused on building deeper relationships with our existing customers, but also bringing in new customers. And so as part of that strategy, we ---+ and I ---+ will drive our officers bringing in the loans and deposits, but more importantly, appreciating the needs of our customers and cross-selling into those needs. And I think a critical part of that is ensuring that the teams are working together, so whether that be our community banking team with our business banking team or our mortgage group with our private banking team. So it's really going to be that collaboration across all of our groups to drive the increase in loans and deposits across all of our customer segments. One thing that we are looking at is our wealth strategy, and I see it as a continuing opportunity for us in this market. So over time, I am optimistic that we will see an uptick in fee-based income related to that wealth strategy. And it goes back to what I mentioned earlier, <UNK>, just in regard to understanding our customers better. So in this case, our higher-net-worth customers and just what their needs are, including their investment needs. At this point, we are stepping back and assessing the group and thinking about our strategy. So having said that, I do think that there likely will be a new or a couple of new hires that we will need to make in that group. Let me address the construction loan first. I think the closing of that project did translate into mortgage financing, so we did a few takeout loans as the construction project closed off and it was sold. With regards to commercial real estate growth in general, we did see a large transaction take place in one of the neighbor islands, and it involved the shopping center complex that we successfully helped refinance out to another lender. So that was one of the big drivers in our commercial real estate growth. Sure, so Aaron ---+ <UNK> here ---+ for other operating expense, you can expect that in the next couple of quarters to be in the $32 million to $34 million range. I think that the opportunity is going to be on the income side, so leveraging technology and the investments that we've made over the last several quarters. Having said that, and particularly with <UNK> in his new role, we are looking at expenses, and we will continue to look for opportunities to streamline where there are opportunities. <UNK>, this is <UNK>. There were a handful of other large depositors that did withdraw funds. And again, as I mentioned before, we had anticipated that, but we knew that those were temporary funds and that they were likely to be withdrawn during the year, just difficult to assess exactly when that happens. And, of course, when these deposits are withdrawn, again, unfortunately, it did lead to a larger-than-anticipated reduction. But again, we knew that that was going to happen; it was just a matter of timing. But the other deposits, the withdrawals that made up for that $90 million reduction, those withdrawals were probably in the low-double-digit range. Right. <UNK>, I'll turn that over to <UNK>. Hey, <UNK>. So on the reinvestment rates, so in the investment portfolio, we actually did not purchase any securities during the second quarter. We put the investment portfolio in runoff mode, and we reallocated the cash flow to fund the strong loan growth that we saw during the quarter. Having said that, if we were to have been buying the traditional makeup of what we typically purchase, I think it probably would have been in the 1.90% to 2% range versus our portfolio yield. That's more like 2.55%. So that would probably be the delta there if we were repurchasing. On the loan portfolio, it's much better news. The new portfolio yields, weighted average rates, were coming on in just that 3.90%, which is right at the portfolio yields. And that's similar to what we saw in the first quarter, so it seems as though we are hitting a trough on the loan portfolio yields. And then finally, the last question was on MSR amortization. We obviously have seen an uptick with the lower market interest rates. However, market rates remain low, so we do think amortization may be at the level that we've seen over the first two quarters. Somewhere in that neighborhood, I think, would probably be a good estimate. Yes. Thank you very much for participating in our earnings call for the second quarter of 2016. We look forward to future opportunities to update you on our progress.

2016_CPF

2016

CRAY

CRAY #Yes, that's correct, <UNK>. Really, <UNK>, really driven from those three processors that I talked about and availability of those components. Well, you know, once we build the machines and deliver them to our customers, of course they go through an acceptance process and then we get revenue at the end of that process. So we'll always have that at the end after we do deliveries. But right now, I would say our main focus is getting those third-party components in, getting them into systems and getting them out the door. And I think our view is there's a lot of work left to do to get that done, both by us but even more importantly by the processor vendors themselves and getting those to us, and then we'll do our thing. So we feel that the biggest focus area right now is for us to get all of the existing contracts that we need to get to our revenue for the year and then get those components in so we can get them out to customers and get them through the acceptance process. Yes, you know, it's very early in the year, as you know, and we still have, clearly, a lot of work left to do. And the good thing is our pipeline is growing. We signed a number of new contracts. If we kind of look, <UNK>, to get directly to your question of where we were this time last year versus where we are right now, it's about the same from a percentage of our overall revenues that we have booked right now. But, the bigger thing is that, every year, our number keeps on growing. Our expectations keep on going up. So, there's plenty of work ahead of us this year to still do. So we are very focused on closing those sales contracts that we need. I'll take the first one and let <UNK> take the second one. We are really excited about commercial. It's a huge opportunity for us and almost untapped even though we've had nice growth over the past few years in growing both our commercial customer base as well as our revenues in the commercial segment. You know, our biggest driver in the commercial markets has really been this huge growth of data. And as those data sets for commercial customers get larger and larger, what they are finding is that their traditional architectures that they are doing their ---+ they are computing on are really not keeping up with the growth of data. And so we've really seen a huge push from them as they start to look at all their data as they think about new ways to process through that data, new algorithms, new methods that they can process through that data, that we are really starting to pick up kind of new workloads or advanced kind of workloads. So for instance, in the energy segment, which is one area that we've been particularly strong in, a huge part of that is, with all of the data now, that they need a faster way to get through that. They need to do it much more in parallel versus in serial processing as they've done in the past. And of course, our systems are really architected to make that go really well. Very similarly, in financial services, they have a huge need for speed and there is a big amount of data that they are dealing with that they really hadn't dealt with before. And they are starting to turn to not only our systems but even new technologies like GPUs and other accelerators to try and attack those problems overall. So, we are seeing this quite a bit across the board. The other thing that we are seeing a lot in commercial is we are seeing us get started with new commercial customers, sometimes at a much smaller system size then we have traditionally been used to. And once we prove ourselves what that system, we are seeing them repeat and re-up and buy multiple systems. I had mentioned of that we had one customer that last year bought 10 different systems from us and another one that bought five around the world from us in different locations. And so we are starting to see a little bit more repeat business from commercial customers that we really don't see from our traditional customer base where they buy one big system every two, three, or four years, depending on their budget cycles. So, it's quite a different feel for us in that marketplace, and we've done a lot of work internally to really help to get ready for that and continue to grow in that area. Yes, it's a great question. You know, we definitely want to grow that number. I've mentioned a number of times that I'd like that percentage to be a third of our business over the next few years. But it's going to be lumpy year-to-year and such. Definitely we have internal goals to do better than 15% without a doubt in 2016. I guess the one thing I would say right now for us that's a little bit of an unknown in the commercial (technical difficulty) revenue for 2016 is what happens in the energy market. That's our biggest commercial market right now. They are having a rough patch. We haven't seen them back away right now. We are seeing in fact the larger energy companies really investing in this area because they think that they can use it and get a strategic advantage during this time, but that's one that we just really monitor a lot on. And I think without a doubt we are going to grow our customer base year-over-year, and we'll just have to see how the revenue plays out, but we definitely have internal goals to keep on growing that number, Rich. Rich, getting on the gross margin thing, a couple of things to know. Remember that in the first half of the year of 2015, our gross margins were depressed in an unusual way. We had some unusual bids where the costs came in a lot higher. We also suffered for being on the early side of some of the new product cycles such as memory and paid a premium price for those early shipments and things. So they hurt us early. As the year went on, we rebuilt and we feel where we are headed for 2016, there is a good opportunity for us to improve margins. And I said 1 or 2 points. And we're also going to get some help on the service side this next year too in terms of what's improvement we expect in gross margins overall. Yes, great question <UNK>. Just overall, when we look at the competitive environment, over the last quarter or so, we haven't really seen many changes. So, the way we see the market today is very similar to the way that we saw it when we first came out with the guidance. So that really I would say just has kind of held firm. We feel, as I mentioned, very confident and comfortable with our competitive position within that market and our opportunities within that space. So that I think, from that perspective, all good. Of course, as you know, in our business, sometimes with very large deals you can get a certain competitor to come out with very aggressive pricing. Typically, we don't go down and play that game. So typically, we've really focused on keeping our margins at a good level. And as <UNK> mentioned, the softness in our margins last year was due to kind of some other factors, not really competitive factors but some of our component costs and different things like that. So, from that perspective, I would say that that's not a major driver. Of course, we are in a competitive market and we always watch that, but I don't think that that's been a major piece of it, and it definitely hasn't changed our view from when we first came out with this guidance a few months ago. <UNK>, just to be clear, you mentioned Blue Waters but did you mean Blue Gene. Yes. So this has all been really positive for us. We've won a number of accounts that went over to Lenovo. And in a few instances, as you know, even IBM has used Cray for some of their opportunities where Lenovo didn't work out for the customers. So it's been a really good opportunity for us and something that we've been able to capitalize quite a bit. We've also won a few of the Blue Gene accounts. In the past, we've talked about KAUST and Argon and just this call we mentioned of the University of Warsaw in Poland, all Blue Gene accounts, and there's more of those to come over the next few years, and so we definitely have opportunities in 2016 at various Blue Gene accounts. So, we feel like we are in a really good position here and that we already have taken advantage of some of that and that opportunity is going to continue over the next couple of years. No, not at all. I think we still view it as a pretty good sized market and a good opportunity for us, kind of incremental to our business overall. I think the one thing, <UNK>, just on that, I think what we have seen, if I kind of characterize it, so I don't see a change in the ultimate opportunity. What I see is that it kind of is spreading out a little bit further. So we were thinking that it was going to be mostly in 2016, 2017 kind of time frame, a little bit in 2015, a little bit in 2017, mostly in 2016. I think we now see it spreading kind of into 2015 as we saw a little bit of win last year there ---+ 2016, 2017 and even into 2018 a little bit. So we kind of see that spreading out. One thing that we are seeing a lot with the big centers is them spreading out their purchases a little bit but buying much bigger systems in each incremental drop. I think a good example is the Los Alamos Trinity system. So, a little bit longer than normal, maybe an extra year on that but then a much bigger systems than we've seen a customer like that purchase. So we are starting to see that trend, which for us overall is a fine trend, so we don't mind that at all. Yes, no problem <UNK>. So, Omni-Path is an exciting new technology. We really view it with our cluster line, so in our CS400 line of products where we now support both the InfiniBand products for Mellanox of course as well as the Intel Omni-Path. We're not sure how that's all going to play out this year, how many customers are going to go ---+ stay with InfiniBand, how many are going to move to Omni-Path. I think that that's really going to play out over the next few months as people start getting real data about how both of these technologies play against each other. When we look at Omni-Path compared to our Aries technology, which is on our XC40 line, we clearly see advantages with our Aries technology, especially at scale and when you have a lot of performance needs and a lot of data that's moving around the machine altogether. So we still feel very strong in our competitive position with Aries. You know, a future Omni-Path product will eventually replace Aries, but we don't see this first generation of Omni-Path being that product. That we see that really playing in our cluster side of our business. No <UNK>. So, the way that we think about the $825 million number is we know that there are a few of those Blue Gene customers that haven't publicly announced projects to upgrade them but are working through procurement cycles that we expect to kind of complete sometime this year and do upgrades. So, I think that we kind of view ---+ we see that opportunity really well. You can imagine we are talking to all of those customers in the marketplace around the world. But ---+ so we see that, that's part of the way that we think about our $825 million. Of course, there's a lot, as we mentioned on the call, there's a lot of work to do to get there, so there are some upside opportunities. There is some downside risk just as normal this early in the year. But what we really ---+ what I was trying to get across to <UNK>'s question is just that we've seen that kind of spread out, so we see customers kind of holding onto their big supercomputers, Blue Gene being one of them, for a little bit longer period of time than they have traditionally, which typically most of the big government customers are on three- or four-year upgrade cycles. We've seen that kind of stretch a little bit, maybe six months to a year or so. And so that's what I'm saying about that opportunity spreading out. But when we see ---+ and giving guidance for our 2016 numbers, we pre-much know what's happening out there with all of those customers and we think about that and our opportunities and our win rates as we come up with our guidance for $825 million. I really think that this ---+ I mentioned a little bit about this convergence between supercomputing and analytics, and I think that's going to be a huge opportunity for the Company overall and something that we are very focused on and well-positioned. I think that the Urika products are doing really well and as I gave a little bit of a hint towards, we've got a nice little upgrade coming in that line later this year that we are very excited about. You were asking really about how does that flow down to our bottom-line. And what I would tell you is, in 2015, as we mentioned before, it was really a double-digit kind of millions of investment, right. So as we look at kind of the revenue and the margin from those wins and we look at the costs that we are spending, it was in the low double-digit millions. And that's where it was for 2015, so in line with what we had told you guys earlier. In 2016, we expect to continue to grow on the revenue side and get that number still being a negative on the bottom line, so it's still an investment area for us, but more in the single-digit millions in 2016. There's a lot of variables that go into it. But we start with what we think we can do in revenue. We think about various scenarios and then we think about what are the key constraints in order to deliver those kinds of revenues compared to where we are and then build a plan around it that will last us for a while. In this case, we do all that analysis, think about the key constraints often having to do with power and cooling, and then we designed the strategy around that, in this case a modular strategy where we can augment at lower cost increased capacity in a facility but start out with enough that will give us the flexibility in case we over-achieve our numbers or have a different mix. When we think about capacity, we also think about peak periods, not just the average, if that's helpful. <UNK>, as we mentioned earlier, over the last four years, we've grown 200%. So even though we did that upgrade to our manufacturing capacity a couple of years ago, we are starting to grow. And as we project out into the future over the next three to five years, that's where we really see that, as we look at our opportunity to continue to grow, that we need to stay ahead of that a little bit and that's where we are looking at it. And as <UNK> mentioned, the design that the guys have come up with allows us to modularly grow that much easier than we have in the past with our existing facility, so we are pretty excited about that. And remember, this wouldn't come online until 2017, as contemplated. No. It's really the latter. It's really just kind of overall revenue growth over time that we see and that opportunity that we see in the market with this convergence of supercomputing and big data and where we believe that we are positioning our Company to take advantage of that that's really going to drive that. So, it's not a specific huge opportunity or two, although there's clearly some of those out there, but it's really more about just the overall growth and what we need to support that with our customer base. Now, we clearly, in the design of it, we consider building very large systems. First, we have $285 million in cash, so it's one more of opportunity that we'll look at and alternatives. And it's still early in the process and we're unlikely to finance the construction outside. But we'll look at some kind of more intermediate or permanent financing as we go along and look at the options and decide and actually take input from others on how you guys view different approaches as well. Yes, we are really saying that, on a non-GAAP basis, about 10%. You know, it can vary little depending on the mix. And then the full tax rate without any NOLs used is probably mid-30s%, maybe between 35% and 38%. Oh, on 2017. It depends on where we are on that. We have ---+ if you do the math, we had $76 million of NOLs, so count that dollar for dollar against income, and then we had $23 million of credits, and divide that by 35%, so call that another 70% or so. And so that's the combined amount of shield we have right now without generating any additional R&D credits. Thank you. I'm pleased with our 2015 results and our progress and prospects for 2016. We are in strong competitive shape and we continue to gain momentum in the market. We are positioned to have a great year and continued success going forward. Thank you all for joining the call today and for your continued support of Cray. Have a great evening.

2016_CRAY

2016

HZO

HZO #Good questions. So the Tampa show and the Atlantic City boat show, which were both very late September last year, were both in October completely this year. And then the Galeon costs ---+ there may have been some incremental top-line benefit, but it would not have been very big because whatever we would have closed last year ---+ because they had it right at September 30. Yes, probably none. Yes, so wouldn't have been very material at all. And then it's probably around $400,000, something like that, if you look at the costs that were expensed just for those shows. Shows aren't cheap. There's an expense that comes with them, so. Thanks, <UNK>. Thank you, <UNK>. Well, <UNK>, I think the big message is that we have new, innovative products that's very exciting. And also our average unit selling price compared to auto ---+ we are in the Bentley market as far as autos are concerned. And so we are not seeing what the auto groups are seeing right now. And some of that could be that it's ---+ a lot of the auto is blue-collar and more middle-class America versus our buyers are more middle-class and people with a lot of discretionary dollars. So we're just ---+ we feel pretty good about it. I can tell you that our customers are still out on the water; they are boating a lot. We just had a huge Azimut event down at the Keys, down at Key West. And I think we had 110, 120 people there attending it and many boats and a lot of excitement and ---+ so our events are doing very, very well and our customers are out on the water. They are boating. Our customer satisfaction is at an all-time high, which is repeat and referral business. And so when you look at those signs, I think we are looking pretty good. Albeit who knows what can happen to the overall economy. We got elections this year and all that noise going on, but we're feeling pretty good about it right now. Well, we're in discussion with several larger dealers and the timing is got to be right. We keep saying that over and over again. Where not going to do it unless it's right for us and right for the people that are joining our family and it's getting right. So I would say that the chances of something happening sooner is greater than it was six months ago or a year ago. And so we will continue to look at them, to analyze them, to review them, to do our due diligence, and to see if ---+ when and if they make sense. And that's the important thing. We are not going to do it for the sake of doing it. We're going to do it for the sake that it's the right thing for MarineMax on the long term. And it's got to make sense for the people that are joining our family. Again, another great question, <UNK>. I actually don't remember exactly what we bought in the quarter. I know that we're up to about $700,000 total of the $1 million that was authorized. And our plan would be is to buy the remaining $300,000 and then we would go back to our Board and request to reload it, which they would have to approve that. The balance sheet is in great shape, to your point. We have cash, we have the capital, we just increased our floorplan to give us flexibility to do a number of different thing. So we feel more comfortable today even than a quarter ago or certainly six months ago about the strength of the industry. So the potential is certainly there to continue to buy back stock and return capital that way to shareholders. Oh, and I'm sorry: Galeon. Really no impact ---+ no meaningful impact to how we finance the Company or to cash. It's inventory that can be leveraged and it's no different than if we were buying a different product from somebody else. So it's ---+ it goes on our floorplan like another product would. It should be pretty close, I would think, like it was this quarter. We're not expecting material changes in store account, unless we make an acquisition, to what <UNK> had said. So it ought to track reasonably close to that, <UNK>. What's happening there, <UNK>, is we bought the marina, so a lot of high and dry and wet slips in a perfect location in Pensacola. We weren't on the water. We are currently not on the water there with our location. It's a landlocked store that we've done very well over the years with. And so our entire operation is being moved to the marina. And so it won't be an additional store account once we get the other store closed, which will happen in a couple months. But what's important to understand there is it's a strategic acquisition for us because we do sell large yachts into the Pensacola area and not being on the water is a hindrance. So this will be a real facilitator of especially larger boat sales there. It's not really moving the needle one way or the other. As we've said before, a lot of the components that going to the products that are European-built come out of the US. And some of the European manufacturers, when the euro was so high, were supplementing the price in order to be competitive here in the US. So it gives them the ability to make a little bit more profit and give us new models and that type of thing. So we haven't seen a reduction in price, but if it continues to strengthen ---+ the dollar continues to strengthen, then we may see some adjustment. We haven't seen it thus far. It's been a nonevent. Yes, I would also comment the Dusseldorf ---+ at the Dusseldorf boat show, no one over there was being aggressive on pricing. Not that we saw. No. Yes, you're right. We did have some inability to close some boats as we ended the quarter last year. I think it is bigger the year before, though, <UNK>. I think last year, it was smaller the year before because the winter much more material than last year. But we did have some of that. In fact, I don't remember the exact dollar amounts that moved from margin to June, but there were some; you're right. Hopefully we don't have that type of winter again, not according to the groundhog in Pennsylvania. We're supposed to have a nice spring and winter, which we would applaud after a couple bad years. That is correct, <UNK>. But understanding we have a very strong team there and they've done an exceptional job connecting with the large boat customer and ---+ but we just increased their chances of doing even more business up in that market; to your point that we can have more boats in the water. We got a greater presence with a high-and-dry marina to capture those customers. And so we see it is a very strategic move and very important for MarineMax and helping our team up there to be able to do even more business. Thank you, operator. And in closing, I would like to thank all of you for your continued support and interest in MarineMax. <UNK> and I are available today if you have any additional questions. So thank you.

2016_HZO