year
stringclasses 4
values | company_code
stringlengths 1
5
| text
stringlengths 15
53.7k
| year_company_code
stringlengths 6
10
|
|---|---|---|---|
2016 | VSI | VSI
#Good morning.
Yes.
I think were talking about, <UNK>, two different things, but you're absolutely right.
First of all, we feel very comfortable with the guidance that we've given on the loyalty program upgrade.
We continue to think that, that's going to be a very important part of our customer experience moving forward.
Separately, we're putting more focus on local market acquisition through our stores as part of our overall focus this year on store performance.
We basically provided a toolkit to our health enthusiasts at the store level, which allows them to be more aggressive in what they're doing in their local community.
That might be sponsoring various different types of sports activities, marathons, linking with various different wellness folks in the market that can help them to make referrals, bringing more programs into the stores where that make sense as well.
Part of that program was to ask our stores to make sure that they're focusing on healthier awards acquisitions, as in signing up new people to the program.
And we found that's been a very, very successful program for us in the first quarter and we're going to continue to move forward with that type of program as we go through the year.
As you asked, do we offer discounts on it.
We have started to put into play some sign-up bonuses as part of that program so that we can incentivize consumers and make it easier for our store health enthusiasts to be able to get people signed up.
We're seeing strong response to those.
Yes, the negative comp was primarily driven by traffic.
Ticket was generally flat to slightly positive year over year.
So it is really traffic.
As we look to the comp guidance going forward, we really do think that the driver of the change in trends will be traffic and not as much ticket.
Yes, <UNK>, even though the sales have been down a bit versus a year ago, we are actually seeing that the pipeline and the open orders is actually increasing with Nutri-Force.
We think it's going to start to reflect through in the numbers.
Realize that part of this is we were going through a fairly substantial level of change with Nutri-Force over the first year since we acquired the business.
We're now seeing the business settle in.
We're getting more reliable on how the business is operating and it's putting the team down there in a much better position to actually sell against our capacity.
We're seeing very good interest in the market.
We expect to see continued strength in that area in the back end of the year.
Thank you.
Okay, so with respect to new-store productivity, as we look at the returns of our new-store program and we look at now the stores that have been open for a year or more, we're continuing to see performance that would result in returns well above our cost of capital.
So, we're continued to be pleased with the overall value that the new-store program is contributing.
Having said that, we have reduced our new-store expectations for the year from our historical trends of $50 million to $60 million a year, down to $30 million as we are evaluating new formats and we'll continue to test the returns associated with this relative to other investments.
With respect to the waterfall on the new stores, it's consistent with what we've seen in the past where that second year of stores open generally we see comps that are in the high 20% and then the following year, it's in the mid to high teens and then down to the high single digits until it reaches maturity generally after 4 to 5 years.
With respect to buybacks, we spent a total of $42 million during the year.
I'm sorry during the quarter.
Our free cash flow, the Q will be coming out shortly, so you'll get the details of our cash flow statement.
But let me just quickly look that up for you.
Free cash flow was $31 million for the quarter.
You're welcome.
I would say as we look at overall performance, where we are seeing weaker performance would generally be in the mature stores.
And specifically, stores that are quite mature, much older.
As we are evaluating capital going forward, we are very focused on what's the right balance of capital and what can we do to make investments in those older stores to drive high return.
That's right.
I think <UNK>, the question was asked earlier about the overall store format work that we're doing and it's important to note that a large piece of that work on new format is really about refreshing the experience in the stores.
Our hope would be that we're going to see good returns from those refreshes that we're doing which will then give us a very, very clear road map for what we need to do to start to address some of the weaker comps that we're seeing in our more mature stores.
Yes, store-level comps generally we would start to see occupancy leverage once we hit approximately 3% on store-level comps.
We've said back in February, and we will confirm again, that we believe that the first-quarter comps would be our lowest rate of comps.
So we do expect an improvement in trend in the second quarter.
We have not specifically said whether we expect that the second quarter will be positive, but we will say that we expect a significant improvement.
Sure.
Yes.
I'd say that what we're seeing online, like a lot of retailers are seeing online, is it's certainly a competitive market.
I think we feel actually pretty good about our pricing.
There's been a variety of different pricing surveys that have been done recently.
We do our own.
We are quite sharp in the terms of the way that we look at pricing and price gaps versus relevant competition.
I think the biggest challenge that goes on online is its a just by nature of the beast, it's a kind of area where you can see a lot of promotions that are flash promotions.
Rapid ones where you see volume sometimes move towards.
That being said, I think we feel really comfortable in the last few quarters of impact on our online business continues to show that we're making steady progress in that.
And it's not just the pricing game.
Part of that's also overall a customer acquisition game and making sure that we're using the best tools and the best approach in that particular area.
I think we're happy with the steady progress that we're making in that area.
We're going to continue to make it a major area of focus.
I mentioned in some of my remarks <UNK>, that I think one of the other big tools that we've not had up until this past quarter, has been buy online, pick up in store.
From the standpoint of a customer looking for a fairly immediate level of satisfaction, that's a pretty significant tool.
We've been quite pleased by without a high degree of promotion or marketing behind it, have been quite pleased by the response we've seen in the market around that.
And we think that the combination of leveraging our bricks and mortar and leveraging our online presence gives us an advantage in the market that we're planning on taking advantage of as move forward.
In terms of leverage or in terms of share repurchases.
We should offline maybe compare our math on leverage because my calculation is about 1 times less than your calculation.
So we can have that conversation.
I think we are pleased about how the month of April went.
I think it's ---+ we don't give out very specific information, but I think the combination of much better execution behind the BOGO program this year, we were in much better in stock position, our stores were ready, execution was just across the board more positive, and we had the benefit of a quarterly loyalty program kicking into gear.
We were happy with how we started the quarter.
That being said, we've still got two months in front of us, so we're taking this one step at a time.
I'm sorry.
Did you say wage.
As we look at payroll, I did mention that we had payroll deleverage in the quarter.
We are seeing an increase in average hourly wage above the standard 2% or so that you would expect to see.
We have embedded more of that trend in our guidance for the rest of the year.
No, I'm sorry.
It's more than 2%.
What we've seen is closer to a 3% close to 4% increase in average hourly wage.
It's not meaningful.
It's not a meaningful change.
It's actually a more efficient program.
But it's not really meaningful either way.
I would say it is an area of strategic focus for us as a team.
I think we want to make sure that we're positioning the Company so that we can do well in tough times as well as in good times.
I think that we feel that there's an opportunity to try take this south of the current number at that.
We are working with AlixPartners in some of those areas.
That being said, I don't have a silver bullet right now that makes it real clear on how to solve that.
But I expect you're going to see some improvement in that over the next few years.
That's a great question, <UNK>.
That's one that I consistently think about as we're going through the job.
First of all, I'd say it's a cyclical category.
I've been in and around the wellness business for 20-plus years and there are periods where there's a fair of degree of innovation and new things that happen.
And there are periods of time where there are less.
We're in one of those troughs right now.
I think it's incumbent on every specialty retailer to make sure that your experience remains special.
I think that one of the challenges that we have right now is, over the last few years, there have certainly been a lot of mass players and online players that have taken notice of this very strong category and the strong customers that shop this category and have taken steps to try to improve their position in it.
We spent a lot of time last fall really doing our research and doing our homework to make sure that in terms of both our customer experience and in our product assortment, we can do a better job of raising our game.
We feel we've got a pretty good line of sight for how we're going to do that over the next couple of years.
I think what you're seeing frankly, is just a critical need to continue to stay competitive in this marketplace.
If anything, what we need to do is we just need to accelerate some of our focus in those particular areas and we think we're going to get rewarded by the customer.
So I want to thank everybody for joining us again this morning.
We look forward to continuing to speak with you and we will speak with you next quarter.
| 2016_VSI |
2017 | A | A
#Thanks for the opportunity to provide more insights here.
So I think there is a macro statement above all three of those market segments, which are specific government policies are driving sustained growth in China.
So the CFDA is focusing on really changing the fundamentals of the Chinese pharma industry, and the Chinese pharma companies are investing aggressively to adhere to the new rules.
Lots going on in terms of the environmental cleanup efforts, consistent with the China five-year plan.
There's been a lot of more publicized work around land and water, for example.
So I'd say the focus in China, both environmental both in terms of water, soil and air analysis, is really, really going well.
I think I may have mentioned this in the prior call, but the real step up has been in the area of soil analysis for remediation of construction areas, and then finally, the growth in food safety continues.
So I really think it's the government policies across those three segments, are really driving very strong growth for us in China.
I think you should just think about this as the nature of the beast.
This space, particularly in the United States, tends to be very lumpy with lots of big deals.
So it just so happened we had some big deals last year, we didn't have them this year.
We are not seeing anything fundamentally different in terms of the funding levels in the United States, beyond, there does seem to be some level of wait-and-see, people trying to figure out where all the new government policies might land here in 2017.
But I wouldn't read too much into the first-quarter number.
Our view was just a byproduct of the timing of deal activity.
Okay, <UNK>.
We've been waiting for that one.
Sure, <UNK>.
I'm going to pass it over to <UNK>.
He's done some high-level analysis on how we think about it.
Firstly, in terms of the cash repatriation, you're absolutely right, it would be a positive.
Not just when it's effective, but also on an ongoing basis, as we continue to generate the lion's share of our cash offshore.
So on an ongoing basis, we would have access to that cash, which is great.
Then regarding the border tax adjustment, yes, we looked at our imports and exports, like everybody else, and we are fairly balanced.
We are very balanced.
So level of imports and level of exports are about similar.
And we export about 70% of the production in the US and we import into the US about 70% of manufactured outside.
So net-net, it will be very neutral.
So there are aspects of the tax reform that we are eager to understand, to know more about, and read all the details, but at this point in time, it's speculation.
Yes, you have a great recollection of the progression of the agencies in China, because as you know, a couple years ago we were pointing to a slow down in this area because of the reorganization.
So I would say we are probably still in the early innings of this.
If you follow the typical five-year plan, this is an area of focus, so I think we are probably still in the early innings of the growth in the food area.
I think it's primarily food safety, but I would tell you what is growing very quickly is the food authenticity.
We're looking for various forms of counterfeiting of products that may be trying to find their way into the market.
So it's still being driven by food safety, but the authenticity side of things is really growing quite strongly.
Both from a government customs perspective, but also our private sector clients also want to ensure some testing is done.
We are overall, I mean certainly ACG was not impacted per se on the new product, things like that, but you are absolutely correct that whenever we introduce new products, it's an opportunity to increase our gross margin, for two reasons.
Number one is, we now design our products using the latest and greatest value engineering techniques.
And then second, because we introduce products that are truly differentiated, we are able to price them, Intuvo is a great example.
So we do, in time, you will see the gross margins going up all the time.
And throughout the year.
I cannot quantify precisely the impact of pricing, new product introduction, and a few other things.
Again, Q1 was a little bit special, especially for ACG, because of the factors that I noted.
Excuse me, <UNK>, I had a little bit difficulty hearing the question.
It's an important part of <UNK>'s genomics business, but we don't provide that level of detail outside the Company, sorry.
But it's a nice business for us.
And I'll just leave it at that.
Yes.
I think you are referring to Gen9 investments.
Gen9 has been purchased by Ginkgo, and Agilent was a shareholder in Gen9.
Overall, we think there is aspects of the synthetic biology market that are going to be quite strong, in terms of growth.
A lot of tools out there with some of our customers in the Bay Area, for example, as well as Ginkgo, so they are using our tools.
Not clear to me though whether our companies will be able to build a sustainable business around R&D services in syn bio, and that's why we went in a different direction in terms of our view of Gen9.
<UNK>, anything else you would add to that.
I would just add that we continue to be a new vendor to the new Ginkgo.
That's right.
Thanks for that.
Thank you, <UNK>.
So on behalf of the management team, I wanted to thank everybody for joining us on the call.
And if you have any questions, please give us a call in IR, and we'd like to wish you a good rest of the day.
Thank you.
Goodbye.
| 2017_A |
2017 | WSO | WSO
#<UNK>.
You want to take a shot at that.
Sure.
Well, for the quarter, and Canada, by the way, is the largest market, obviously, of discussion.
We did see unit growth.
We did see some Canadian dollar growth but not the US dollar basis.
It's not enough for us to get to use a lot of explanation and press releases about with or without currency because of the materiality.
I would say also that the fourth quarter was better than the rest of the year in that market.
In our Latin American markets, we sell in US dollars.
We sell and collect in US dollars.
There's not a currency play per se.
The US dollar becomes stronger.
It's more of a demand play where can they afford to buy US product.
That's correct
That's correct.
A.
J.
.
Just to clarify that $23 million run rate is annualized.
Our approach to that is ---+ first, I should say that much ---+ many of the platforms we developed are now maturing, they are in place.
Our focus is on getting them adopted through the several hundred thousand contractors and technicians and internally.
If and when there are great opportunities that arise that we can deploy or that we can take advantage of and make investments and have strong returns on investments, we won't shy away from that.
Right now the focus is on driving home and maximizing return on what we have invested.
I don't want to be held to a number in terms of spend because it could be opportunistic.
Well, it's hard to say exactly because these continue to develop on top of these platforms.
We continue to tweak and iterate.
That's been our approach since the launch, an iterate approach.
We don't have any current plans for major new platforms, but this is a way of doing business for us now.
You know, this is moving away from being a technology program at Watsco.
It's just being Watsco and being encompassed in what all we do.
Good morning, <UNK>.
Where are you, <UNK>.
I don't know that we can tell you definitely but we like to look ---+ this is such a seasonal business, we like the look through the first half and then talk about what we think is going to happen.
Sometimes, like last year we were not able to do that till the third quarter, but let's say our traditional is we like to look at the first half.
A.
J.
, here's your opportunity to talk about your approach to the salesforce.
That's exactly the point.
I visited probably about a dozen contractors this year so far, and when you sit with them and you explain to them the intent and the context and the spirit of these investments, which is to help make them more efficient in the field and make it easier for them to do business without us.
In turn, as a byproduct of that makes our salesforce more efficient, which is helpful for the customer because then the salesforce can help with more value added type requests; expedite orders, check on orders, bring new business, or go hunt for more business.
So that is exactly the intent of these investments, and it's starting to play out.
Of course, we want to accelerate how quickly we can realize the value of that.
That's a great question because since we are the innovator of this technology strategy, the OEMs had to be part of this because if you look at our 500,000 SKUs that information had to come from them, in some cases at the beginning they were reluctant but as they got more involved with us they cooperated.
I think, A.
J.
, you can confirm this, if we had full cooperation at least in the majority of what we do and others we think that aren't cooperating will cooperate because of such a great opportunity for them.
A.
you can improve that.
Yes.
I would say absolutely.
We have spent time with the senior leaders of our OEM partners and other parts and supplies vendors, and their technical teams and finding ways to collaborate where really it's one plus one equals three opportunities where our investments alone ---+ our investments plus their investments can really create some unique things that can be done independently.
Now we have the talent and the resources to bring that ---+ to make that play out in a tactful way.
Something else is on my mind about that question.
Because we have this 500,000 SKUs, which we believe could eventually double, it's a lot of talk in the press about technology companies like Amazon displacing the traditional businesses.
I don't think it's very easy for anybody to come along and duplicate the product information and the digitation of what we have and the knowledge of the industry that we have.
I think that sort of advantage will accelerate and improve our competitiveness not only against our normal competitors but also against people that might come into the industry.
So to us that's not only an offensive play but it's also a defensive play to develop this technology.
We didn't pay 14 times.
We did not pay double digits.
I'm not sure I understand entirely, but I can tell you that I believe it's important when we visit with wonderful companies that we want to be part of our family, we bring them the technology, we show them.
We think it is an advantage for them to be part of us, to take advantage of that technology, and by the way, it takes a lot of money.
You've heard us talk about that to get this technology.
I think it's an advantage in the M&A world.
Plus, our culture of decentralization plus the fact that when we buy a great company, we respect the sellers and we follow him and we invest in him.
When I say him, it could be a company, it could be an individual.
Our reputation, we've done over 60 of these acquisitions, is very good in what happens post acquisition.
The new thing is this technology that we spend so much money and that we are continuing to spend, we provide to them for them to use against their own competitors.
So, yes, very positive.
Anytime there is a distributor that deals with contractors to an end market, like the one we are in, we have a great asset, we believe.
We have an advantage over others that haven't developed this sort of technology.
Morning <UNK>.
I like that last question the best.
If there is 7 times out performance why isn't everybody using it to outperform.
Again, it goes back to the culture change question.
There are early adopters and then there is the laggers and then there is the 70% between.
I think at this point, we've done a pretty good job getting the early adopters on board.
We are focused now on the 70%.
That's both internally and among our customers, which a lot of the stuff is customer basing.
The internal stuff, which is the supply chain technologies and the order fulfillment, and usage of BI; that's all within our control.
So our leaders know exactly what our targets are and we have big goals in terms of adoption and what kind of value that's going to create when they are adopted.
The customer base, again, we set very aggressive goals in terms of getting our companies to help drive this through their customers and their customers businesses.
I don't think yet we want to share exactly what those numbers are, but they are aggressive.
While we hope that we can accelerate the pace, we are still careful to say we are still in the early innings of all of this as well.
First, let me just a general speaking, that's what we reduce with the branches we've opened over a year.
We have been adding branches.
That's not in that number.
The reduction square footage is not for the sake of reducing square feet.
It's because we are taking math and science and a data first approach to the business.
The facilities, our prophecies and so forth, and optimizing the space requirements and optimizing the prophecies and the branches all for the sake of creating a better customer experience for the 90,000 customers we do business with, or 88,000 customers we do business with.
So these are not ---+ these are all about being a better company.
So I don't believe there should be any disruption to how we serve customers.
I think it's the exact opposite.
We should be able to be better with our customers with a smaller footprint or more efficiently whatever that requires based on the situation, hopefully.
By the way, we had a conference late last year on the topic of technology, which was conducted by Watsco in Miami.
It is on our website.
You can get a much more in-depth understanding of what we are doing technology wise.
Well, thanks for attending.
This is a longer conference than we normally have, and I really like that.
Give us a chance to answer your questions and to deal with whatever issues are out there.
But we are very optimistic.
We feel good about what we are doing and we want to remain as the leader in the distribution of HVAC products.
Thanks again.
See you next quarter.
| 2017_WSO |
2015 | CRY | CRY
#Yes, no.
So if you do the ---+ if you take the first three quarter actual and then take the guidance, that is why I talked about you're going to see ---+ at the low end of our guidance, you're going to see a 7% increase over Q4 of last year and a high end would be a 13% increase over last year.
That is a combination of a number of things.
It is the going direct in France, so we are going to get end-user revenue and profit as well as all the initiatives we put in place for tissue processing.
We basically started that work after the warning letter was lifted back in March.
And we started that initiative and it took a couple months to get things kind of turning.
And that takes about a 90 days because of the way the tissues are processed and the way it flows through your inventory.
So all the work that we did kind of in the spring and the summer is going to really come to roost in the fourth quarter on the tissue side of the business.
As we said, we were disappointed when we gave out guidance in the beginning of 2015 that our tissue margins really took a hit.
And as <UNK> said in his comments, I mean, a lot of that was due to all the quality of things we had to put in place: the consultants we brought in, some of the things that we changed really drove up our cost.
So we try to maintain our very high focus on quality, but the improvements we have seen in these initiatives we kind of kicked off in the March time frame.
So again, I will just go back on the margins.
So we saw a 37% margin in Q1.
38 ---+ this is on tissue.
38% in Q2, 44% in Q3.
Our forecast for Q4 is probably in the 47% range.
So we continue to seek ---+ that is almost 1,000 basis point improvement over 4 quarters and we expect to see that kind of throughout 2016 as well.
Yes.
Yes.
As <UNK> mentioned in his comments, we are seeing them ---+ there is actually very good unit growth on PerClot in primarily in the European market.
The challenge we are seeing in that market is really multiple competitors and prices coming down.
So the unit growth is being offset by the ASP declines from some of these aggressive small players, which, frankly, we don't ---+ longer term, the bigger market is the US.
And they are never going to show up in the US because of the barriers to entry from a clinical and intellectual property standpoint.
I would say both.
I think particularly on the PhotoFix side ---+ I just came back from the pediatric surgery meeting over the weekend and I received lots of favorable comments on this product.
So we're getting hospitals to reorder.
We are also opening new hospitals.
Also, the story on PhotoFix is going to evolve over the next 18 months, I would say, which is, as I said in the comments, we are going to be bringing on a larger product ---+ a larger sheet so it could be used in LVADs.
We're going to be getting the CE Mark so we can launch the product in Europe.
We are also expecting a couple of papers ---+ very positive clinical papers to come out in the next 3 to 6 months.
So that continued flow of new iterations is really going to have PhotoFix on, I think, a nice trajectory going forward.
So I don't think you have even seen the beginning of PhotoFix yet.
ProCol I think is similar, in that there is not as many drivers behind it.
But we continue to open new centers.
We continue to get reorders from centers.
And part of it is just getting the product out.
I think you know very well, <UNK>, in 2015, these value analysis committees ---+ you can't just show up with a product and have it bought the next day.
These things sometimes take a quarter to go through their committee before you can actually get the product on the shelf.
So we will again continue to see these new accounts come on board as well on ProCol.
Yes.
So we are going to be adding, all said and done, about 5 to 6 sales reps in total.
And on a quarterly basis, you're probably looking about $300,000 to $400,000 in incremental SG&A expenses.
Well, I think one of the things you get with John ---+ and obviously with my background as well.
I mean, we both have a lot of experience with big organizations.
I don't think that ---+ I think our sales force, if you look at the US, we have got probably 50 positions.
We are not looking at contracting that at all.
In fact, I think there is opportunity, as we talked about as one of the growth initiatives being M&A.
Anything that we acquire, we may or may not pick up reps along the way.
So we will definitely be looking at ways that we can increase the efficiency and the throughput of our sales organization.
That is something we are going to undertake.
And as it becomes something we want to share publicly, we will do that.
But at this time, I think you can just suffice it to say that we are always looking at things like that.
Yes.
So there's a couple points I would bring up that were in my comments.
We have talked about over the last couple quarters that the contracting IRB, just the process by which to get a site fully up and running, it is pretty daunting again in 2015.
So we have got 5 of the 15 up.
They are at various stages of the process.
I think the other thing that we kind of were a bit surprised by is some of the protocol requirements that as we discuss the protocol with the FDA and then once you put it into practice, there were a number of things regarding blood tests and imaging, where once we got into the throes of the trial, several clinicians just said, I am not going to put my patients through a CT scan at this point with contrast, particularly when they have got ---+ you are having an operation on their kidney and then you want to have them ---+ subjected to contrast.
That was an example of one.
The other one would be blood tests that you need a certain number of days in advance that just doesn't fit with their flow of the patient.
So we are going back to the FDA with some protocol adjustments.
And we think that those kind of, if you will, those kind of blocking points would tend to open up the flow as well as we are asking for 10 more centers.
So I think the combination of all those things, I think together ---+ taken together would put us in a good position to enroll this trial in 2016.
So again, we have got the benefit of time on our side regarding ---+ given the current injunction on PerClot, we certainly have a window of opportunity here to ---+ I don't want to take my time with the trial, but it is not like we got a gun to our head on the enrollment speed here.
Yes.
So we ---+ <UNK> basically gave you the full-year R&D number.
So you can take the first three quarters for 2015 and look at what he gave you for guidance.
And you can pretty much figure out what Q4 is going to be.
No.
I don't think so because if you follow my comments about the trial, we would consider ---+ we would see a significant ramp in 2016 on the actual enrollment of the trial.
So you are going to see the R&D ---+ if you look at this year's number, we expected heavy enrollment this year.
And we have backed that number down because of the reasons I just said.
And so you are going to basically see that heavier enrollment and expense in R&D going into 2016.
Yes.
Again, there is never a ---+ it is not like we sit down and plan these types of things out.
I think there was a number of factors that went into that decision.
Frankly, I wasn't real thrilled with the sales performance for the first half of the year.
And that basically was one of the catalysts.
And I wanted to get more seasoned and experienced leadership on the commercial side.
So part of it is when we're already and part of it is when your candidate's ready.
So I think when those two lines crossed is when we made the move.
No.
Look, I am not going to get into comment about specific employees on our earnings call.
I mean, Dave was a long-term loyal employee of the Company and we just made a decision to go in a different direction.
So that's it.
Not really.
I don't think we have had really any ---+ we have had some over the last ---+ before John got here, we'd had some attrition, but I don't think we have really had any.
Again, John is a very, very seasoned, a strong leader.
A very seasoned, well respected ---+ so I would expect to see the sales team kind of rallying behind him as he gets to know the folks and leads that group.
No.
I will let <UNK> comment, but I think, on a big picture, I mean, 2015 ---+ there were a number of things ---+ and I made the comments in my closing remarks.
There were a number of things that happened in 2015 that we don't expect to repeat in 2016.
There were a bunch of severance ---+ there have been a number of changes at the senior executive level, at the Executive Chairman level, and we don't expect those to repeat in 2016.
We also had the injunction and some little litigation that, again, was a big number in the first part of the year we don't expect to repeat itself.
So again, there is a lot of ---+ and those were in the comments ---+ there was a lot of kind of one-time things this year that we don't expect to repeat themselves.
So I don't know, <UNK>, if there's anything ---+.
Yes.
Just one other comment I will make, too, that we have had several open positions over the last couple of quarters that ---+ for a variety of reasons that we will probably talk about in the future, we have just been delaying in filling a lot of these positions.
So we have had the benefit of that, too.
And along with not filling those positions, we have had reduced travel and support expenses, too.
So there are a lot of factors that are going on that are causing G&A to be not as smooth as you would expect to see on a quarterly basis.
I think the other thing, Jeff, I would comment.
I have been here a year and you never know when you come into a new company what the culture is from a financial discipline and a ---+ how strong the controls are around people's budgets and these types of things.
I can tell you that the finance organization here is very strong.
They have got excellent budgeting and tracking mechanisms.
I know on a monthly basis every one of my direct reports and their entire organization how they are tracking; every one of my people are below their spending.
So it is a very disciplined culture around spending.
And I don't want to be ---+ like I say, penny wise and pound foolish.
We need to spend the money to drive the growth of the business, but we have got very strong controls and financial discipline in place.
Yes.
I know, Jeff, you have been around us a long time and there is no ---+ the soup making is sometimes a messy business.
And we have obviously looked at a number of different opportunities.
And I think the most I could say on that topic is that we are encouraged because there are lots of opportunities.
But we are being very disciplined and we are doing our homework.
We don't want to get into a situation where we acquire something and wish we hadn't.
So when we decide to acquire, we're going to have very strong conviction around what it is going to mean for our business and we will be able to share with you what it will do for us and why we are doing the deal.
And again, I think this ---+ again, once again, shows that the discipline and we are not just going to go off and do acquisitions because we have got the financial wherewithal to do it.
We're going to do smart acquisitions and you guys will be the first to know when we do one.
Yes.
Thanks.
Again, I appreciate everybody joining this morning.
And while I said it in the beginning, I wasn't real pleased with the top line.
I think this is a inflection point for the Company.
We have been kind of eating the French revenue with kind of a zero for the first three quarters.
Now we have got a direct team in place.
We will be driving top-line revenue and margin improvement in that geography going forward.
I just got back from Japan, where we launched the new indication for BioGlue there in our most profitable market.
We have also got, I think, some very encouraging data coming out on PhotoFix and that will continue to ramp.
And I think the other one, the kind of the ---+ hopefully the surprise story here for everyone is the turnaround of the tissue business.
We told you after the warning letter got lifted that we are going to go back in and do a lot of work on tissue and improve supply as well as improve margin.
And we are doing it.
So to get a 1,000-basis-point improvement in margin from Q1 to Q4 I think is a pretty impressive accomplishment.
And we think that will continue into 2016.
So 2016 is set up to be pretty good.
And then at the tail end of it, we are working overtime here on the M&A side.
And we see lots of things we like.
And like I said, we have spent some money, but you should feel good about it because we are being disciplined about it.
And we are going to try to get the right things for the Company going forward.
So I am encouraged about 2016 and look forward to speaking with you guys all at the next quarter call.
| 2015_CRY |
2018 | LQDT | LQDT
#Thank you, <UNK>.
Good morning, and welcome to our Q1 earnings call.
I'll review our Q1 performance and provide an update on key strategic initiatives.
Next, Mike <UNK> will provide more details on the quarter.
Finally, <UNK> <UNK> will provide our outlook for the current quarter.
Though not satisfied, we are encouraged with our Q1 results as our GovDeals segment grew its GMV 27% year-over-year through expansion with existing and new accounts in the U.S. and Canada.
And our Retail Supply Chain Group segment grew its GMV 17% year-over-year, driven by growth with both large and midsize retailers and manufacturers utilizing our sales channels and returns management services.
Our Capital Assets Group segment faced a tough year-over-year comparison because several large commercial sales occurred in the prior year period.
However, GMV related to our commercial CAG business, excluding our DoD contracts, grew sequentially by 51%, driven by growth in our LOT-enabled energy marketplace with multi-energy ---+ multinational energy clients and as many of our industrial manufacturer clients used our platform to sell high-value assets.
During the quarter, we added approximately 300 new commercial and government sellers and approximately 38,000 new registered buyers to our marketplaces.
Our Q1 results also demonstrate the positive impact of our cost-reduction efforts, driven by a more streamlined and efficient organizational structure.
We continue to reduce our expenses, which offset the impact of the wind-down of the DoD Surplus contract during 2018, while integrating our marketplaces and increasing their productivity.
Next, I'll take a look at highlights of our business segments.
Our GovDeals marketplace growth accelerated in Q1, driven by the addition of hundreds of new clients in the U.S. and Canada, including the Commonwealth of Kentucky and the Florida Department of Transportation.
During Q1, GovDeals completed over 51,000 auctions, including vehicles, heavy equipment, helicopters, and even a snow-melting machine was sold for 6 figures.
Our Retail Supply Chain Group segment continued to grow the top line organically, with GMV up 17% year-over-year.
Of note, self-service GMV within our retail segment grew 27% year-over-year as we have increased adoption of our self-service model with many clients to give them more flexibility and control of their sales activity.
Our RSCG team continues to experience encouraging customer interest in our Returns Management service offerings from both midsize and Fortune 1000 retailers and manufacturers, and we expect to expand in this area.
GMV in our Capital Assets Group segment experienced strong sequential growth in the quarter, driven by more activity with commercial sellers in our energy and industrial verticals, offset by our DoD Surplus and Scrap Contracts, which continue to be hampered by lower volumes and declining value of assets received compared to historical trends.
Our Capital Assets Group pipeline with commercial organizations is the strongest it has been in several years, and we expect to see continued improvement as we move through Q2.
In April, Liquidity Services will host our Energy Insights conference, which will bring together clients across the globe and the energy supply chain in Houston to discuss strategies and tools to capitalize on the energy sector market recovery and create value for their organizations.
Our strategy in fiscal '18 and beyond remains focused on the long-term growth of our commercial and municipal government marketplaces on a global scale while capturing operating efficiencies as we complete the integration of our marketplace platform and business functions under our LiquidityOne transformation program.
In fact, we began to see the benefits of driving improved productivity and lower cost during Q1 due to the investments we've made in our LiquidityOne program.
Also, we expanded the beta test of our new commercial self-service marketplace, AuctionDeals.com, during Q1 and have sold nearly 400 items on this new marketplace, ranging from vehicles, heavy equipment, consumer goods and technology assets.
As we've previously announced in December, we've appointed Roger Gravley as Chief Information Officer and expanded his responsibilities to include oversight of our technology platforms, IT operations and services, including the implementation of our LiquidityOne e-commerce platform, ERP system upgrade and new Returns Management and self-service offerings.
Given the planned wind-down of the DoD Surplus contract, we will focus on accelerating the decommissioning of legacy tools dedicated to running this part of our business.
We expect to complete the launch of our remaining marketplaces on our new e-commerce platform during 2018.
Finally, we anticipate the launch of a new consolidated marketplace on our LiquidityOne e-commerce platform by the end of 2018, which will serve as a single marketplace to search, find and buy any asset from any seller across our network of marketplaces.
We expect a single, unified marketplace to drive increased traffic from our buyer base through more efficient marketing strategies and provide our buyers with a more efficient method of sourcing our global supply of available assets from sellers across the globe.
We exited the quarter in a strong financial position to pursue our growth initiatives with $96.7 million in cash and 0 debt.
In closing, continued investments in our people, processes and platform will enhance the value we bring to sellers and buyers and drive our transformation.
As we begin to harvest the investments we are making over the next few years, we are excited about the tremendous potential to grow our business.
Liquidity Services is committed to driving innovation and significant value creation for our customers and shareholders as we execute our long-term growth strategy.
Now let me turn it over to Mike for more details on Q1 results.
Thank you, Mike.
Good morning.
As our first quarter results reflect, we are making progress on our 2018 goals to grow our commercial and municipal government marketplaces and are on track with our e-commerce platform and ERP solution.
At the same time, we are seeing the benefits of our realignment in 2017 of our TruckCenter and our IronDirect businesses and also the reorganization efforts this last fourth quarter and first quarter of fiscal year 2018 to reduce our overall cost structure, create efficiencies across the business and streamline our technology, corporate, sales and marketing functions.
Regarding our fiscal year 2018 outlook, as impacted by the DoD Surplus Contract, we have defined and are executing on the wind-down plan and expect to sell through all remaining inventory by April and complete most of the wind-down of contract-related expenses by May, including a reduction in headcount to warehouse locations and multiple field sites.
We do not anticipate profits from the Surplus Contract starting with this upcoming second fiscal quarter of 2018.
However, for fiscal year 2018, we expect to generate cost benefits of $12 million to $14 million as a result of our reorganization efforts.
These benefits, combined with the benefits from the realignment of our TruckCenter and IronDirect businesses in fiscal year 2017, will offset the impact of the Surplus Contract compared to fiscal year 2017.
Turning to our fiscal year 2018 LiquidityOne initiatives.
We expect our overall time line to remain on track, and our associated spending is expected to be in the $1.5 million to $2.5 million range per quarter for the remainder of 2018.
Our second quarter fiscal year 2018 results year-over-year comparison reflect: one, favorable results in our RSCG segment as we continue to add new seller relationships and benefit from higher volumes received from the strong holiday season for retailers; two, in our commercial business within the CAG segment, while expected to be in line with second quarter fiscal year 2017 top line results, including some project-based sales, we expect a bottom line improvement as a result of the recent cost reductions; and three, we will continue to see strong growth in our GovDeals segment.
Offsetting these year-over-year overall pipeline improvements is the GMV reductions from the Surplus Contract as we are selling through our remaining inventory, which is low-margin, low-value property that is expected to yield lower GMV and much lower returns on a comparative basis for that contract.
Also, our DoD Scrap Contract is expected to have comparatively lower performance related to reduced property flows and lower value mix of assets.
Management's guidance for the next fiscal quarter is as follows.
We expect GMV for Q2 of 2018 to range from $150 million to $170 million.
A GAAP net loss is expected for Q1 2018 in the range of negative $8.4 million to negative $6.1 million, with a corresponding GAAP loss per share for Q2 of 2018 ranging from a negative $0.26 to a negative $0.19 per share.
We estimate non-GAAP adjusted EBITDA for Q2 of 2018 to range from a negative $5 million to a negative $3 million.
A non-GAAP adjusted loss per share is estimated for Q2 of 2018 in the range of negative $0.23 to negative $0.16.
This guidance assumes that we have diluted weighted average shares outstanding for the quarter of approximately 32 million and an effective tax rate in the single digits.
We will now take your questions.
Sure.
So we are very buoyant in the addition of new client relationships in both the retail supply chain, I'd say, industrial supply chain and in municipal government market.
Well over 300 new accounts signed during the December quarter.
Let me go through each area, <UNK>.
The municipal government market, which is a market that we've been in, really, since the inception of the company, is one where peers heavily influenced the adoption of best practices with 11,000-plus clients at the state, county, local level who largely attend similar conferences and are asking their peers how they're solving issues related to property management, asset disposition and other matters.
We're really well positioned there as the leading player in that channel.
And we continue to add clients, both from a geographic perspective, a type of client ---+ from transportation, schools and universities, large administrative services throughout government.
We've expanded geographically, West and Northwest, in the United States.
We've expanded north of the border to Canada.
So I think this is just broad-based secular growth driven by the efficiency of our model, the adoption of digital approaches to solving the needs of government and the efficacy of driving higher recovery rates on the platform.
As our supply grows, our buyer base grows and so forth.
On the industrial supply side, the industrial supply chain is very disruptive.
People are changing their approach to holding assets.
Property, plant and equipment and entire factories are being relocated, in some cases, downsized, and we're benefiting from that trend.
As I noted, we have the strongest pipeline in the Capital Assets Group commercial business that we've had that I can recall.
And so we're working with Fortune 100 companies, Fortune 1000 companies and even small, midsize businesses that are trying to leverage the liquidity created on our marketplace platform.
The industries covered in this part of our business include the energy supply chain, which has benefited over the last 90 days from some recovery in energy prices.
I think buyers are joining in the improved sentiment that businesses have to spend money and invest partly due to fiscal reform, tax reform and availability of ---+ energy prices justifying drilling and activity.
So energy is strong.
We also serve the biopharma/health care market.
There's lots of innovation happening there, which necessitates rebalancing asset portfolios.
We work in the electronics manufacturing semiconductor supply chain, and we're involved with many large global projects there.
The reach of our global marketplace is very important because often the buyers are not in the same country or even continent as the seller, so our cross-border capabilities there is very important ---+ are very important.
We work in the consumer packaged goods market, very dynamic market, lots of growth and repositioning of plant and equipment around where consumer demand is.
So those are some examples of what broad-based growth we have in industrial.
On the retail side, undoubtedly, this is peak return season.
And seasonally, it's the high period for our retail supply chain marketplace, and our Liquidation.com channel, for example, is benefiting from that.
We've seen adoption of our services not only with, let's say, top 50 retailers and manufacturers but, increasingly, in the middle market.
And we're working with many companies that are, let's say, very niche-focused e-commerce players who don't have the benefit of a large physical brick-and-mortar store network or distribution center hub network.
So we're providing that network with respect to returns management.
We're providing our software, our services and our distribution facilities to create value for these online ---+ I would say, native online players who never had brick-and-mortar operations.
And we expect that macro trend to be beneficial to our business as the secular growth of online shopping continues to grow.
And the metrics around the return season, depending upon who you talk to, National Retail Federation, I believe, quoted over $90 billion of returned goods just from the holidays, something like $300 billion of returns annually expected in 2018.
So this is something that is certainly a driver for what we do, which is remove the friction from the retailers and manufacturers, recovering value, reducing the number of touches(inaudible) on these goods by leveraging our distribution centers and our software.
And I think what's interesting for us is that our Returns Management platform is now being demoed to be used with clients in their own facilities as a service, software-as-a-service.
So we're excited about that.
I think that covers all of it.
On the headcount, I'd say we're still aggressively hiring in certain categories, particularly in the software development, engineering area.
I think we've taken headcount down in the warehouse sector, specifically with the DoD wind-down that we have.
Where are we trending versus overall plan.
I think we're, perhaps, slightly below the annual target as we take our time on the engineering and software development hires and make sure we have the right cultural fit.
I think headcount, overall, <UNK>, is down year-over-year.
And as far as the growth of our business relative to breakeven, obviously, you have costs that are constant with a business of our size publicly traded.
So at the margin, if we were to sunset a long-standing program like we are DoD, we're not going to make dramatic changes to some of those areas of our business.
However, as we grow, we're growing a lot of service revenue streams, which are attractive, high-margin service relationships that have multiyear attributes to them, and that provides very attractive aspect of our growth.
So we will continue to manage product volume and move sales to the marketplace, but we're bundling a lot of our, let's say, core liquidation activities with value-added services related to returns management, value-added handling of the merchandise.
And eventually, the data that we create for our clients can ---+ will be valued in how they manage their own supply chain.
<UNK>, this is <UNK>.
Our headcount is down over 100 on a quarter over ---+ over the same quarter last year.
Correct.
I think sales, marketing, engineering are the areas for growth.
We are getting back-office efficiencies as we consolidate systems with regard to operations, finance and other, say, back-office functions.
And of course, the Surplus Contract headcount will be reducing between now and the end of the spring, as I noted, because we're still executing on that.
Yes.
Those rates will move a little bit as we have seasonality in the business.
For example, in the March quarter, a seasonally high quarter, so we'll get some leverage on the sales function.
But I think generally, the band that you see between, let's say, Q1 and Q2, would be representative of the full year.
Yes.
And we've gone ---+ first of all, as revenue grows, the numbers are going to change quite a bit just as they fluctuate as a percent of revenue.
We've also done some things to create more variable expense that will help us eliminate that, having the fixed cost base.
So as we go forward, we're also looking more and more where we can create areas where we might view them as ---+ especially in our operations, where there may be more fixed costs that we can turn down into variable.
So just from a cost perspective, the costs that we've taken out in our restructuring are costs that are permanently out.
Sure.
Consignment is a trend that has continued to increase with our clients.
So we're over 75% consignment on a consolidated basis today.
And as we sunset the DoD Surplus Contract, we would expect that number to continue to grow as a proportion to the total.
And let me just add.
Let me just add.
The Surplus Contract, a contract that we ran successfully for many, many years, is a contract that we would have certainly liked to retain, but the contract terms were so onerous.
And it was a 100% purchase model relationship, so you had to buy the inventory, being contractually obligated to take any and all property flow, whether it was high value, low value, single lump sum price.
So we know, in many, many of the commodity categories, you're underwater as soon as the property is referred to you, much less when you have to then apply labor, marketing and sales.
And you are obligated to stay in that contract for the duration.
There's no termination for convenience by the contractor.
So you could be losing millions of dollars on that contract, and you have to stay in it with the federal government.
So while we would have liked to secure it, we felt bidding any higher on that contract would have been damaging to shareholders.
So we've turned our attention and our focus on our balance sheet, on growing much more attractive, high-potential areas that use the consignment method primarily to grow.
Sure.
Well, let's just focus on surplus.
Surplus is a smaller, smaller percentage.
So the commercial business would represent the vast majority of the CAG segment as you move into Q2, <UNK>.
So your question ---+ yes.
What I'm saying is, in Q2, DoD Surplus is winding down, right, becoming a smaller part of that CAG segment.
And once we ---+ both in Q2 and beyond, the vast majority of that business is commercial.
| 2018_LQDT |
2017 | STBA | STBA
#Thanks very much, Rob.
Good afternoon, everybody, and thank you for participating in today's conference call.
Before I can begin the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors, which is on the screen in front of you.
This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.
A copy of the first quarter earnings release can be obtained by clicking on the Press Release link on your screen or by visiting our Investor Relations website at www.stbancorp.com.
I'd now like to introduce <UNK> <UNK>, S&T's President and Chief Executive Officer, who will provide an overview of S&T's results.
Well, thank you, <UNK>, and good afternoon, everyone.
As announced in this morning's press release, we reported net income of $18.2 million or $0.52 per share for the first quarter of 2017, which is a 13% increase over our first quarter results of last year of $16.1 million or $0.46 per share.
It's also an increase over our fourth quarter results of $17.7 million or $0.51 per share.
Highlights for the quarter once again include loan growth, disciplined expense control as well as expansion in net interest margin.
For the quarter, portfolio loans increased $135 million or 9.8% annualized.
The majority of our growth was concentrated in our commercial lending division and was distributed across our 5 markets of Western Pennsylvania, Northeast Ohio, Central Ohio, South-Central Pennsylvania and Western New York.
Again, our success this quarter in growing the loan portfolio really is attributed to having a team of experienced bankers who excel at developing long-term relationships with clients and, in addition, the favorable economic conditions in our various markets.
Now these higher loan balances, along with the increase in short-term interest rates, positively impacted net interest margin, which expanded by 5 basis points to 3.5%.
Net interest income increased by $4.2 million or 8.5% over the first quarter of 2016 and $1.4 million or 2.7% compared to the fourth quarter.
Controlling our noninterest expense continues to be a focus throughout the organization.
And while we are pleased to report the $36.8 million expense is in line with expectations, resulting in an efficiency ratio of 53.83%.
We did close 3 branches in the first quarter, which now puts our average deposits per branch at $89 million.
And in addition, we will continue to evaluate other opportunities in all of our operational areas throughout the company for efficiency gains throughout the year.
Asset quality remains stable for the quarter, with net charge-offs declined to $2.1 million or 15 basis points annualized.
Nonperforming loans increased by $3.3 million, and as a result, we increased specific reserves by $2.5 million, so our ratio of NPL to OREOs is now 0.81%, and the allowance of ---+ for the loan loss reserve to loans is 0.97% of total loans.
Overall, delinquency for the quarter decreased by 1 basis point to 0.92% of total loans.
The increase in nonperforming loans was driven by several legacy credits in our C&I portfolio that we elected to reorganize through the bankruptcy courts.
We anticipate resolution of these credits in the third quarter.
I do want to bring your attention an event that's going to positively impact us in this quarter.
We will be taking a gain of approximately $2.6 million as a result of our holdings in Allegheny Valley Bank, which closed in their merger with Standard Bank on April 7.
Our ownership in the combined company is now 6.5%.
And finally, our Board of Directors approved a dividend of $0.20 per share at our meeting on Monday, which is a 5% increase over the dividend that was paid in the same period last year.
So at this point, I'm going to turn the call over to our Chief Lending Officer, <UNK> <UNK>.
Thanks, <UNK>, and good afternoon, everyone.
As <UNK> mentioned, commercial loan growth was strong again for the quarter and represents a continuation of the success we experienced in 2016.
Driving this growth was an increase in our commercial real estate portfolio of $116 million and a $21 million increase in our C&I portfolio.
Included in the CRE growth is approximately $20 million of owner-occupied real estate that is a direct result of our efforts to grow C&I relationships throughout our markets.
Our commercial construction outstandings were flat quarter-over-quarter.
From a regional perspective, during the quarter, our Western New York LPO experienced $69 million in net loan growth and now has $242 million in outstandings.
Northeast Ohio saw a growth of $23 million, and Central Ohio saw a growth of $22 million, bringing our total Ohio LPO outstandings to $698 million.
In South-Central Pennsylvania, we experienced net growth of $21 million, and our Pittsburgh C&I team continues to provide solid growth as their outstanding balances grew by $19 million.
Other factors impacting our C&I activity for the quarter included an increase in line utilization rates from 41% to 43%.
Floor plan commitments and outstandings were relatively unchanged from year-end at $240 million and $154 million, respectively.
As a result of the very strong activity experienced in Q1, our pipeline is down slightly from year-end, and we continue to forecast a mid- to high single-digit loan growth rate for 2017.
We believe this growth is achievable without adding additional staff and without expansion into new markets.
It's important to note that our unfunded commercial construction commitments declined by $63 million during the quarter and have reduced by nearly $100 million since the first quarter of 2016.
This reduction is the result of the completion of construction for a large number of projects and a slower replacement rate for new deals as we actively manage this concentration.
In conclusion, our commercial and business banking teams do an excellent job executing on our relationship banking strategy, and our results reflect those efforts.
And now <UNK> will provide you with some additional details on our financial results.
Yes, thanks, Dave.
Net interest income improvement in the first quarter of 2017 compared to the fourth quarter of 2016 of $1.4 million was due to an increase in average loan balances of $143 million, combined with higher short-term rates.
Loan rates improved by 11 basis points.
And for the first time in years, we saw our new loan rates higher than paid rates for the quarter.
With this turn, we are more optimistic about the net interest margin, which expanded by 5 basis points this quarter versus prior.
We are currently in the process of updating our models.
But going forward, we expect the net interest margin pressure to subside and come less from the loan and more from deposits.
And while we saw our overall funding costs increase just 4 basis points this quarter, competition has been increasing, and we are seeing more customer activity.
Customer deposit growth was lower than expected in the first quarter, with most of the overall deposit growth coming from brokerage CDs.
We saw some net customer deposit outflowed early in the quarter due to normal repositioning by our customers, combined with some seasonality in a number of sectors, including public funds.
But they rebounded strongly in March to put us in positive territory for the quarter.
We continue our deposit gathering efforts through numerous channels, all of our available geographies and from all of our customer segments.
Our goal remains to have customer deposit growth match our loan growth.
Noninterest income, excluding the security gain, decreased by $296,000 compared to the fourth quarter.
There were some seasonality and fewer days impacting service charges and debit and credit card fees.
These were offset somewhat by our insurance division, which received their annual profit-sharing from the carriers.
The security gain this quarter came from our portfolio of equity securities.
With the accounting change in 2018 requiring a quarterly mark-to-market through the income statement, we will be evaluating our holdings over the next few quarters.
At quarter end, the equity portfolio had a market value of $11.4 million, which included $4 million of unrealized gains.
And as <UNK> mentioned, we will be realizing about $2.6 million of those gains here in the second quarter.
Noninterest expenses increased by about $1.2 million from the fourth quarter.
Salaries and benefits were higher due to incentives and annual merit increases.
The remaining variance was relatively small and reflected normal timing and spending differences.
And on a go-forward basis, we continue to expect our expense run rate to be in the range of $36 million to $37 million per quarter.
The tax rate for the first quarter was 26.9%, which is in line with our full year expectation.
Our risk-based capital ratio has improved this quarter despite strong loan growth as we were able to reduce risk-weighted assets through lower HVCRE exposures and a change in our BOLI investments.
Thanks very much.
At this time, I'd like to turn it back over to the operator to provide instructions for asking questions.
Sure.
On ---+ just on our margin outlook, we're redoing some of the models, but ---+ especially the second Fed jump that was a little bit unexpected.
We re-running that through our models.
But for us, that cross of having the new loan rate above the paid rate and our expectation, we believe that, that should continue going forward.
And for the longest time, we would see continual decreases in the loan rates because of that turnover.
And with that out of the way, I mean, that helps to stabilize that net interest margin and actually provides some opportunity for pickup, depending on the timing of any future Fed increases.
(inaudible) on the deposit side to the extent we can keep the funding costs under control.
We have just seen a much more active environment in our markets anyway with specials, particularly on the CD side and also special money market rates and a lot of pricing that's not on rate sheets, basically.
And we're seeing that from all different competitors, both banks locally and also some of the market participants that are nonbanks.
So in particular, there's groups that provide deposit services for public funds that have been much more aggressive in their pricing as well.
I think the latter.
I mean, I think we should be able to manage that a little bit better and, hopefully, get some ---+ actually some improvement, driven by the loan pricing, the better loan pricing that we're seeing, which should cover, we think, whatever happens on the deposit side.
But there is some ---+ we have some concern there just because of our loan deposit situation.
We do want to keep pace on the funding side, which may lead us to be a little bit more aggressive.
It's Dave <UNK>.
Yes.
So the first quarter was a little hotter than what we had anticipated in terms of loan growth.
It's going to take a couple quarters for the constructions fundings to work their way through.
So the decline in the commitment level is foreshadowing some lower growth in that portfolio, but that's going to take a couple of quarters to work its way through.
And we continue to drive for better balance between C&I and CRE growth.
This is Pat <UNK>.
I think going into second quarter, we're definitely expecting provision to be about the same level as it was in the first quarter.
And as far as losses and ---+ which helps kind of drive that, we still expect full year losses to be in the low 20 basis point range.
This quarter, again, you had ---+ some of the lift in the provision was just ---+ we took the specifics, so if and when we would take a charge, we wouldn't necessarily replace those in the provision, but it may take a quarter or 2.
Yes.
So I'll let Pat answer that, <UNK>.
Yes, <UNK>.
So we essentially had a handful of some credits that eroded.
We were watching them.
We were in negotiations, and obviously, they tended not to go our way on this round.
They opted to file for protection through bankruptcy.
And we don't expect those to be kind of resolved until sometime in the third quarter because of the bankruptcy schedules.
So again, with those credits, we had some ---+ an increase in specific reserve of about $2.5 million, which took us up to about $3.5 million of specific reserves.
I would expect those to sit there for ---+ or at least the majority of them, perhaps for another quarter.
But again, we're still saying that on our run rate for charge-offs for the year, we're still expecting to be in that low 20 basis point range on losses.
Each of them were different.
Though I think one of them, maybe our larger one was ---+ is driven by commodity pricing type of scenarios.
And that one we thought we were going to have a good resolution, then something popped up kind of in the middle of our negotiations and they opted to file for protection.
So.
.
We had some ---+ obviously, some downgrades, upgrades, it was very fluid.
But we did experience some additional downgrades in that special mention type of category for the quarter from several credits.
And again, it is not one thing in particular.
Some are older loans from the legacy portfolio.
Each of them kind of has their own little nuance of story to it, which is ---+ kind of makes it a little tougher for us to pinpoint.
Yes.
And then the other point I would just make there, none of them are attributed to oil and gas.
That's right.
Honestly, <UNK>, it's a mix of both.
There's a bunch of smaller credits in there, and there's obviously a couple of larger ones.
I'm not going to get into all the details of the specifics of the credits, but there's a handful of just about everything in there.
And again, this is a nuance of the way in which we manage our portfolio and our credit risk management practices and in the way we tear the portfolio apart and take a look at it on a quarterly basis.
It's Dave.
So in January, we saw some pretty significant payoffs.
We saw some modest growth in February and then very strong growth in March.
Some of that growth I was anticipating to occur in the second quarter, so we ended up with stronger results than what we had anticipated.
This is <UNK>.
I mean, the 106%, realize it has been growing lately.
I mean, it's something that we'd like to see stabilize at least around that level.
And because of that position ---+ and you're right, I mean, it does put a little bit more pressure on us to try to maintain pace and to potentially be a little bit more aggressive.
So that is why we ---+ while we're pleased with what's happened on the loan side, we're cautious about margin going forward because of the position we're in from a funding standpoint, our need to maintain ---+ or to perhaps be a little bit more aggressive on the deposit side.
I would just add to that, Dan.
Certainly, deposit gathering is a focus throughout the organization.
And I think comparing fourth quarter to the end of first quarter sometimes is a little bit challenging because there is some seasonality in there, on the commercial deposits and public funds.
And then quite frankly, we had probably about $60 million of probably 4 or 5 different customers in early February that we just had some high dollar CDs that were maturing, we elected not to reprice.
I mean, it was ---+ <UNK> alluded to it.
It got pretty competitive, so we kind of let those go out the door.
But when you look year-over-year from March to March, we're up about $310 million or so in what we consider customer deposits.
And the good thing, too ---+ so that's about 6.7%, 6.8%, almost 7%.
And the good thing is the mix of that we like is the bulk is in DDA and in our money market savings products, which are core accounts and CDs are actually down maybe $20 million or so year-over-year.
So again, I think it's a good observation, something we're going to stay on top of, and we're going to continue to try and drive the core deposit growth across the organization.
I think, right now, if you look at our organic growth rate, it has been very good.
And so right now, the primary usage is just going to continue to grow the balance sheet.
If that would slow up a little bit, then maybe you take a look at some buybacks or ---+ down the road.
But I think those will be down the list.
But M&A, we like to keep a little powder.
If there's any M&A activity, I would say, things are kind of quiet right now, but we were ---+ I think we're comfortable with the capital levels that we have to support our growth objectives.
I think there's always going to be a mismatch, but ---+ there may be a little bit of a softening, like you say.
I think what you're seeing, the Allegheny and Standard kind of a merger of equals to try to get some scale, the (inaudible) was another one with a couple of banks in the center part of the state, kind of same thing, to get those both up to about a $1 billion size level.
So I think some of the smaller companies starting to feel the effects of some of the regulatory pressures, some of the need to spend on IT and some of those things, which I think is what's driving some of the M&A and ---+ but again, we like how we're positioned from an organic growth perspective.
I talked about the great teams of bankers and the great markets, but I mean, it's reality.
It shows up in our numbers, and so we don't feel pressured like we have to go out and do a deal to ---+ just to get bigger.
So if something comes across our desk, we want it to be a great fit and really add a lot of franchise value.
So we're going to go ---+ we'll be cautious on the M&A.
I think if you're in the footprints that we're operating in right now, Western Pennsylvania, there could be a couple potential companies that would certainly get our attention.
If we would round out some of the investment that we've made in Central Pennsylvania or even over in the ---+ with the folks in ---+ our LPOs in Ohio are very active.
And if we can find the right partner out there to really augment what they are doing, I think it would be something we'd definitely take a good hard look at.
Well, again, I just want to thank everybody for joining us in today's call and appreciate your support of S&T Bank, and we look forward to talking with you next quarter.
Thanks again.
| 2017_STBA |
2015 | ZBRA | ZBRA
#Thank you.
Thank you.
And thank you, everyone, for joining us today.
That concludes our call.
| 2015_ZBRA |
2017 | NTAP | NTAP
#The goal we established was last year, and we said from Q3 2016 to this going out rate of Q4 2017 we'd save a gross $400 million.
And then after some strategic investments, which include SolidFire, it would be a net of $130 million.
If you impute my guide for OpEx, you can almost get there on an annualized rate between Q3 OpEx of 2016 annualized and the guide I gave for Q4.
You can almost get to the whole $130 million.
And when you add the savings associated with the services work we've done, you can more than get there.
I haven't guided ---+ we haven't guided anything beyond that at this point.
But as I said, transformation will still exist as we go forward.
Thanks, <UNK>.
I think in both of those cases our perspective is the long-term winner as we have demonstrated in the All-Flash Array market is the one that can take an architecture and serve the mainstream customer segment.
There have been lots of companies that have gone after the early adopter segment with a subset of the features that enterprise customers really want and have failed in the long run.
And so first to market doesn't necessarily mean the big winner, right.
I think what we are trying to do with the hyperconverged segment is the same track record that we've demonstrated with the All-Flash Array segment, which is customers want mature enterprise data management features.
They want performance consistency and scalability so that they don't have to have operationally a siloed environment.
And hybrid cloud is really the architecture of the data center going forward, and they want true hybrid cloud integration.
So we think that by offering those capabilities to customers, we will redefine the hyperconverged market, just like we did to the All-Flash Array market.
Stay tuned.
Thanks, <UNK>.
The transformation of NetApp is yielding solid results with a return to top line growth and increasing profitability.
We are expanding our opportunity by addressing an increasing range of strategic customer use cases.
We've completely refreshed our portfolio of hybrid and All-Flash Arrays, delivered an industry leading storage efficiency guarantee to the market, expanding our cloud based services and soon we will introduce a next generation hyperconverged solution.
All of this underpins our growing confidence in the future.
We hope to see you in April at our investor event where with will talk more about the evolution of NetApp to lead in the next era of IT.
Thank you.
| 2017_NTAP |
2018 | PRAA | PRAA
#Well, folks, I know we had 2 extra callers in queue.
15 years of being public, this has not happened to me before.
So I guess, unfortunately, we'll end the call here.
And unless you have questions for us, we can pick them up and answer them off-line, but ---+ oh, wait.
We've got people popping in.
Thank goodness.
No, they're gone again.
Folks, bear with us.
We're going to get this figured out, looks like.
(technical difficulty)
Yes, so last quarter, I provided a pie chart.
And off the top of my head, it was about 38% tenure over, call it, 13 months on.
I didn't provide it this quarter because it's a short period of time and we added so many people.
It didn't materially change.
From my perspective ---+ again, I don't have the chart in front of me.
I think we're up in the 65% range or higher.
We might even got higher than that back in the 2016 time frame.
So ---+ and I also believe from memory that the productivity of say, a 3-month rep versus a 13-month rep is like 6x.
Five or 6x, yes.
So I am ---+ and in addition to that, they're also significantly more compliant because they're used to dealing in this environment.
So I am, again, to be a broken record, dedicated to increasing tenure and figuring out ways ---+ and this is what I tell folks when I talk to them.
I'm trying to figure out ways to let people's lives happen and let them have this job and be reproductive and ---+ because that's a win for everybody, from the customers to the company, investors and just ---+ and of course, regulators when they hear our call.
So I would say my target would be to at least meet or exceed historical peaks.
Yes, I mean, it varies, obviously, case-by-case.
But in general terms, 6 to 9 months probably is a good benchmark to anticipate sort of return on those investments.
Yes.
<UNK>, this is Chris.
I'll say that I think generally the sellers continue to become more and more selective of the companies to which they sell.
And we've seen that materialize recently where we talk a lot about our differentiation in the industry in terms of our risk profile and how we go about doing business and obeying the law and our operating structure.
And we're seeing that, I think, really resonate where sellers think about who they're awarding business to.
And I think over time, this regulatory environment has played to our advantage and will continue to do so.
But the sellers are as careful as they've ever been about the quality of the accounts that they sell in terms of data quality and also to make sure that their accounts land in the hands of good operators, too.
So again, I think that's the trend that we expect to do nothing but strengthen over time.
Yes, I'll flag that down as best I can.
Yes, it was mid-last summer when we heard that.
Again, I think that ---+ as I always say, we never talk about who we buy from.
We never comment on specifically headlines, and that's important for us.
It always has been for the past 15 years.
It's always possible for a headline to pop up.
The value proposition ---+ and maybe I'll talk about that, that we provide is that we've been doing this ---+ PRA is to celebrate its 22nd anniversary.
Steve Fredrickson and I are probably celebrating our close to 25th year.
I lost track how long we've been working together.
We've got, what, nearly 15 million accounts in the U.S. We're aggregators.
We are, again, I think super-efficient collectors.
And I would say our competitors in the U.S. are also very efficient collectors.
We have a great competitive market here.
We all know what these portfolios are worth, and I think we drive greater value for the sellers.
And a seller may choose to test that out, and that's probably not a terrible idea for them, but hopefully, we will prove and our competitors will prove that ---+ United States, certainly, that we will drive a better NPV than their other solutions.
Yes.
The Q will be out.
I don't have the exact number off the top of my head.
But over the last probably year to 18 months, the trends have been towards fresher and fresher paper.
I think that component of fresh as a portion of the U.S. Core for the first quarter is probably north of 50%.
And I think that's probably relatively consistent with where we were in the fourth quarter.
So I expect that based on everything that we've talked about, we expect that, that's probably a level that we'll stay at for some period of time.
Yes, this is Chris.
I would say that there's a pretty good difference on average between those 2 placement levels and vintages, but I think generally, things have been pretty stable from a pricing standpoint.
Yes, I think the decision on individual legal investment within the quarter is really based as an output of the scoring models.
And so as the accounts are worked, those that meet the criteria for going into the legal channel will go into some sort of separate group that works in pre-litigation and we apply that strategy.
So the investment that gets made is really more around how does that individual account score and what's the return on investment.
Once that investment's made in any particular quarter, as I said in response to, I believe, it was <UNK>'s question earlier, it's kind of a 6- to 9-month time frame roughly of when we'll start to see cash collections coming in related to those investments.
Yes.
No, it's continuing to build.
The mix of accounts we bought over the back half of the year are working their way through the process, and we're starting to see that ---+ if you will, that pre-litigation portfolio start to build.
And <UNK>, this is <UNK>.
For the sake of other people in the phone, just in case they don't know what you're talking about.
There was a time when we were buying smaller balanced accounts.
It was ---+ they tend not to qualify as easily at the legal channel.
And it was in the back half of '17, we started to buy larger balance accounts.
So that's the source of <UNK>'s question.
So I'll let Tiku jump in if I say this wrong, but you're probably reading too much into it.
But Tiku, do you have any other color on that.
Nothing more than I think just reading too much into that.
I think you just ---+ you have just slightly different statistics that you've given, kind of.
That's all.
I don't think we can comment if it got worse or it got better.
I just think it's competitive at the moment.
Yes.
I kind of indicated in my script that CCB, which is really the bulk of what remains thereafter selling government service and PLS last year, they had a pretty sizable quarter for them.
So I wouldn't take this one and run rate it on a go-forward basis, but yes, it was a little higher than what we would expect on a run-rate basis.
No.
Obviously, we're just really anxious to turn the dialers back on.
It's been so long since they've been on.
It's hard to even remember the day, but I don't have any updated data.
It hopefully should be ---+ as I said, they're in the breadbox.
But we're doing a good job penetrating portfolio.
I think the reps are excited.
And in fact ---+ like I said earlier, I talked to our great top collectors today, and I read them part of the script that I read to you about the request for declaratory ruling that's called for the FCC, asking them to define that a dialer actually has to actually use random or sequential dialing.
And I think they were really excited to hear that.
So we'll see how it goes.
And we'll let you know, and you'll be able to watch the press in there yourselves as well.
Yes, the NFR at the end of the period, $149.2 million.
Yes, cash collections on those pools was $17.5 million in the quarter.
Yes, I don't think we've given that disclosure out before, so I don't have it on top of my head.
I think in terms of yield increases in the quarter, we had obviously a super quarter for the U.S. Core business.
You can see from the tables in the supplemental disclosures that there was a concentration in some of the newer vintages.
And we did let cash in, increasing our estimated remaining collections on the owned portfolio during the quarter.
Roughly half of that increase for the quarter was focused on the '15, '16, '17 portfolios in the U.S. And that's what allowed us to increase yields so significantly in the quarter.
Now on a go-forward basis, again, as I said in my prepared remarks, I wouldn't expect that level of deviation from our sort of base revenue estimate, but overall performance of cash collections against expectation is ---+ sustained performance is what's going to give us confidence to raise yields again.
Well, thank you, everyone, for listening to our call this afternoon, and we look forward to speaking to you again next quarter.
Operator, you may disconnect.
| 2018_PRAA |
2017 | GIS | GIS
#Thanks, <UNK> and good morning, everyone
Let’s jump right into our fiscal ‘17 financial performance starting with the fourth quarter results summarized on Slide 9. Net sales totaled $3.8 million, down 3% on a reported and organic basis
Total segment operating profit totaled $673 million, up 4% in constant currency
Net earnings increased 8% to $409 million and diluted earnings per share were $0.69 as reported
Adjusted diluted EPS, which excludes certain items affecting comparability, was $0.73. Constant currency adjusted diluted EPS increased 14% versus a year ago
Slide 10 shows the components of total company net sales growth in the quarter
Organic pound volume reduced net sales growth by 7 points and was partially offset by 4 points of positive mix and net price realization
Now, let me turn to full year fiscal ‘17 financial results
Net sales totaled $15.6 billion, down 6% as reported and down 4% on an organic basis
Total segment operating profit totaled $3 billion even, down 1% in constant currency
Net earnings decreased 2% to $1.7 billion and diluted earnings per share were $2.77 as reported
Adjusted diluted EPS was $3.08, up 6% in constant currency
For our North America retail segment, organic net sales declined 4% in the fourth quarter, an improvement over the third quarter trend as we saw better performance in measured and non-measured channels
Full year organic net sales were down 5%
At the operating unit level, U.S
snacks posted net sales growth of 1% in the fourth quarter, an improvement over last quarter led by growth in Annie’s, Nature Valley, and Larabar, which offset declines in Fiber 1. Cereal net sales were down 1% in the quarter, with growth on Lucky Charms, Cinnamon Toast Crunch and Cheerios offset by declines on Chex and Kix
meals and baking net sales decreased 1% in the quarter, with growth on Totino’s hot snacks offset by declines on Pillsbury refrigerated dough
The full year net sales decline for U.S
meals and baking was due to the divestiture of Green Giant business in fiscal ‘16 as well as declines on soup and refrigerated dough
Canada constant currency net sales increased 2% in the quarter, with growth on Old El Paso and Betty Crocker
Full year Canada constant currency net sales declined 2% due entirely to the Green Giant divestiture
yogurt net sales declined 22% in the quarter and 18% for the full year
Constant currency segment operating profit growth increased 9% in the fourth quarter behind benefits from net price realization and reduced media expenses
Full year constant currency operating profit declined 2% reflecting the impact of the Green Giant divestiture
Fourth quarter organic net sales for our Convenience Stores & Foodservice segment were comparable to last year
This was the third consecutive quarter of sequential improvement
Full year segment organic net sales declined 3% with 2% growth on our Focus 6 platforms led by mid single-digit growth on cereal and yogurt, offset market index pricing on bakery flour and declines on frozen dough products
Segment operating profit grew 6% for the full year, driven by lower input costs and benefits from our cost savings efforts
In Europe and Australia, organic net sales decreased 9% in the quarter and 4% for the full year
Remember that last year’s fourth quarter included an extra month of results for Yoplait Europe as we aligned that business to our fiscal calendar
Excluding the difference, organic net sales would have been up low single-digits in the quarter led by growth in Häagen-Dazs and Nature Valley
Constant currency segment operating profit declined 26% in the fourth quarter and 9% for the fiscal year, impacted by the difference in reporting periods
Excluding the extra period, Europe and Australia operating profit was down mid single-digits for the full year due to currency driven inflation on imported products in the UK
In our Asia and Latin America segment organic net sales grew 8% in the fourth quarter including a double digit percentage benefit from an extra month of results from Brazil as we aligned that business to our fiscal calendar
Good growth in China and India was offset by the continued challenging environment in Latin America
Full year organic net sales increased to 3%
Segment operating profit declined $5 million in the quarter reflecting higher SG&A expense
For the full year segment operating profit increased to $84 million from $69 million a year ago
Turning to the full year joint venture results on Slide 16, CPW’s fiscal ‘17 net sales grew 3% in constant currency with growth across all regions
Häagen-Dazs Japan constant currency net sales increased 8% for the full year driven by continued momentum on recent innovation
Combined after tax earnings from joint ventures totaled $85 million for the year, down $3 million versus last year primarily due to unfavorable foreign currency and an asset write-off for CPW, which were partially offset by volume gains on Häagen-Dazs Japan
Constant currency after tax earnings were down $5 million
We delivered on our cost saving goals for the year with cost of goods sold HMM savings totaling $390 million and aggregate savings from our previously announced projects totaling $540 million
These cost savings more than offset inflation which rounded down to 1% for the full year and help to drive strong margin expansion
Full year fiscal ‘17 adjusted gross margin was up 50 basis points and adjusted operating profit margin increased 130 basis points to 18.1% of net sales
Turning to the balance sheet, our quarterly core working capital increased 9% year-over-year as the timing of receivables and higher inventory balances were partially offset by continued progress on accounts payable
Despite the increase in core working capital this fiscal year end, we made significant progress in reducing core working capital over the last 5 years
Since 2012 while net sales are up mid single-digits, we have driven core working capital down by over 50%
And importantly, we expect our receivables and inventory balances to normalize in fiscal ’18. In addition, we still see opportunities for further benefits from payables which together should drive down our core working capital this year
Full year operating cash flow was $2.3 billion, down 12% from the year ago, driven by the higher core working capital balance, changes in income taxes payable and lower incentive trade and advertising costs
Fiscal ‘17 capital investments totaled $684 million as a result full year free cash flow was $1.6 billion or 86% of our adjusted after tax earnings
Over the last 3 years our cumulative free cash flow represents 97% of adjusted after tax earnings above our 95% conversion target
And we expect fiscal ’18 cash conversion to be above that 95% as well
We paid $1.1 billion in dividends in fiscal ‘17 and dividends per share were $1.92, up 8% from last year
Net share repurchases totaled $1.5 billion and we reduced average diluted shares outstanding by 2% for the full year
Slide 20 highlights our key assumptions for fiscal ‘18, industry trends in the U.S
in the last few quarters have been challenging and we are not planning for a significant turnaround in those trends this year
We expect our organic net sales trends will steadily improve from the first quarter to the second and improve again in the back half
We estimate we will deliver cost of goods sold HMM savings of approximately $390 million, which will more than offset input cost inflation of 3%
And we will generate $700 million of savings for our previously announced projects of roughly $160 million above fiscal ‘17 levels
Turning on Slide 21 you can see a summary of our fiscal 2018 guidance
We expect organic net sales to decline between 1% and 2%
We plan to increase media investment for the year
We project total segment operating profits to be in the range between flat and up 1% on a constant currency basis
As <UNK> mentioned upfront, we plan to expand our adjusted operating profit margin in fiscal ‘18. We expect both interest expense and our adjusted tax rate to be in line with fiscal ‘17 levels
We are targeting a net reduction of 1% to 2% in average diluted shares outstanding
We expect full year adjusted diluted earnings per share to be up between 1% and 2% in constant currency with EPS down in the first half reflecting lower sales and the phasing of our cost savings initiatives and brand investments
EPS will be up in the second half as sales trends improve
We estimate foreign currency will be $0.01 headwind to full year adjusted diluted EPS in 2018. And finally as I mentioned earlier, we are targeting to convert more than 95% of our adjusted after tax earnings to free cash flow this year
Now, I will turn over to <UNK> to provide more color on our fiscal ‘18 plans
So, <UNK>, as we have talked about in the call, there is several things contributing to profit improvement next year, HMM at $390 million will exceed our inflation, even though inflation will be elevated in F ‘18 versus F ‘17 and 3%
And we have another $160 million in cost savings – incremental cost savings coming through
In addition, while our price mix will be less of a contributor in ‘18 than in ‘17 it will still be a positive contributor
So, we have those three positives
It will be offset by volume declines still in the year and that will be particularly felt in the early part of the year
In Q1, for example, we expect our organic sales to closely near what we saw in ‘17, for example
And then we will see investments
An investment will span a number of areas
We have talked about media being up and that will certainly be one
But we are also investing in things like taking Yoplait to more cities in China to expanding our Häagen-Dazs stick bar business, geographic expansion in Europe, building capabilities like e-commerce and SRM and getting started on our process transformation work
And these will show up – they won’t all show up in media and I want to make that clear, while media will be up, many of these investments will be seen in COGS or in SG&A, but that will be – that is embedded in the guidance
And then as you mentioned, incentive, which I think next year is going to be about $45 million to $50 million drag
So, the combination of those things allows us to be comfortable with the flat to plus 1 SOP
The EPS will expand a bit more, because it will benefit from the share reduction of 1% or 2%
And that’s really the biggest driver between SOP growth and EPS growth next year
And the other thing that I would add <UNK> is that there is momentum we have take into consideration and as you saw F ‘17 unfold, we saw some negative momentum in Q2 and Q3, we began turning that in Q4, but it doesn’t turn overnight and so we will continue to see that momentum improve as year unfolds that’s why I indicated earlier Q1 we don’t expect to see a lot better performance than in Q4, but we expect Q2 to be better and the second half to be better still
So our expectation is that we exit F ‘18 on much better footing than we are today and certainly that will help us get to that guidance
<UNK>, I appreciate the positive comments on our pricing as we said we got a little ahead of ourselves in some cases and hurt on the volume side
But we are pleased that we need to get the pricing in place it was an important contributor this year being ‘17. I won’t bring up precisely the price and mix, but one other things that you see in the pricing is that as we did less merchandising and we had more base line it was a positive mix from that standpoint and it’s also positive mix from a product and category standpoint that helped as the year unfolded
Looking forward, we still expect to see price mix benefit in F ‘17 – it’s F ‘18. Thank you, <UNK>
As I said for the total company it would be less than in ‘17 and it’s really driven by North America and we expect it to be positive, but lower and as <UNK> alluded to it’s really about getting in the right zone on some key brands and particularly Pillsbury and Progresso
But we expect the other segments actually to be up on price mix in F ‘18. Our Convenience and Foodservice business will see a stronger bakery flour pricing as that recovers, we are going to be pricing for some higher inflation which includes the Brexit impact in the UK and higher dairy inflation and obviously in Asia and Lat-Am have a lot of the emerging market inflation that comes through us in pricing
So we expect price mix to still be a contributor in ‘18 albeit at a slightly lower level than we saw in ‘17.
<UNK>, I think you should think about – I think as we think about our investment in you have <UNK> and I think you are referring to media, but we would say more broadly is we expect our investment behind our brands to go ahead of our sales levels
And you are seeing that in F‘18 and I think it is more or less for ‘19 and ‘20 you should assume the same
Well, Chris, I am not going to, I guess, quantify it for you, but again as I listed to <UNK>’s question, we have some margin improvement pluses coming through in HMM over inflation in the cost projects and in price mix and even offsetting some of that with volume declines, I mean, there is still a pretty significant gap between that and the earnings expectations we have for the year and that gap is really filled by the investments that we expect to be making
| 2017_GIS |
2017 | EL | EL
#Thank you, Dennis, and good morning, everyone
Our company delivered an excellent performance in the third quarter
Our business accelerated, driven by many brands, channels and markets that experienced strong momentum
In constant currency, our sales rose 9% and adjusted diluted earnings per share increased 28%, both of which exceeded our expectations
The outperformance was generated from stronger organic sales growth, largely in China in travel retail channel; a better-than-expected performance of our newest brands, Too Faced and BECCA, as well as disciplined expense management
When fiscal 2017 began, we said our sales were expected to accelerate every quarter, culminating in a robust second half
As we look to the fourth quarter, our sales growth should increase farther, enabling us to deliver our financial and sales target for the full year and position us for a strong start in fiscal year 2018. Our success this quarter came despite continued external macro headwinds in certain areas
, foot traffic continued to decline in brick-and-mortar department stores, our largest domestic channel
And Macy's closed 68 stores, as expected
In certain other countries, we faced difficult economic or political climates, particularly in the Middle East, Turkey and Latin America
And the continued strength of the dollar impacted our reported results
Globally, we encountered stiff competition from both established and upstart brands
The fact that we have achieved a strong performance against this backdrop speaks to our successful strategy, which is anchored by our increasingly diversified business model and multiple engines of growth
We also are benefiting from our choice to stay focused on a dynamic prestige industry that has been growing steadily for many years and continues to grow faster than many other household and personal care centers
As global prestige beauty undergoes rapid change, we are embracing new opportunities, accelerating penetration of the fastest-growing channels, reallocating resources to the leading business drivers and pivoting for the future in our industry
Consumers' appetite for beauty products is intensifying, particularly in the luxury arena and in makeup, which fuel outstanding growth in our high-end brands and continued double-digit growth in our makeup category
In addition, we enjoyed superb growth in the fastest-growing beauty channels, with travel retail, online and specialty multi, each rising strong double-digits
By geography, we grew strong double digits in certain emerging markets, notably China
Altogether, we generated higher sales in every region and in our three largest product categories, fueled by an acceleration of our hero products, new product innovation and increased social media presence, new digital initiatives and greater penetration in the fastest high-growth channels
At the same time, we continued investing in priority areas and capabilities and our Leading Beauty Forward initiative
Our diverse portfolio of brands continues to be a strategic advantage
We leveraged each brand in the most appropriate prestige distribution channels to target different consumer segments
This approach yielded outstanding results for our luxury brands including Tom Ford, La Mer and Jo Malone
Each generated double-digit sales growth in constant currency in every region
La Mer's new hydrating serum and brightening mask were well received and benefit from an increase in travel in Chinese consumers around the world
The brand gained share in Asia-Pacific and maintained its leading position in luxury skin care there
Among our largest brands, Estée Lauder achieved the solid growth globally for the second consecutive quarter, with higher sales in skin care, makeup and fragrances
The brand was well positioned to capitalize on increased travel and consumption from Chinese consumers, which favorably impacted its business in travel retail, the UK, and Asian markets and lifted its skin care sales
Estée Lauder's makeup category excelled in Asia-Pacific with increases in face, lip and eye products
The Estée Lauder brand continued to support its two key hero franchises, Advanced Night Repair and Double Wear, with new products combined with more effective marketing and communication
The investment paid off
The two highly desirable product lines reached the new consumer, posted positive growth in every region and increased double digit for the fiscal year-to-date
Around the world, Double Wear is the best-selling prestige foundation in many markets such as the U.K
and attracts consumers across generation to the brand, including millennials
We have successfully created a new growth engine with our luxury and artisanal fragrance brands and they continued to advance strongly, while at the same time improve the profitability of the entire fragrance category
Jo Malone and Tom Ford accelerated rapidly, particularly in travel retail and we also see great potential for our newer fragrance brands, Le Labo, Frédéric Malle and By Kilian
This is the first full quarter that reflected a contribution of our newest brands, Too Faced and BECCA and their sales exceeded our expectations
We also started to extend their presence internationally
Adding these brands to our portfolio accelerated our penetration in both makeup and in the fast-growing specialty multichannel and increases our reach with millennial consumers
Indeed, many of our brands are expanding in fast growing channels to reach new consumer
Since today, they have wider choices of where to shop for prestige beauty products
In this regard, we are excited our M
A
brand will launch this month in Ulta Beauty, one of the fastest growing specialty multi-retailers in the United States
Ulta's consumer are devoted beauty enthusiasts and have been requesting the brand
will first be available on ulta
com starting next year, followed by about 25 stores beginning in June, with more than 100 doors planned by the end of December
The locations will feature dedicated M
makeup artists in a boutique-like setting, allowing M
to provide it exceptional artistry services
Expanding into specialty multi globally is integral to M
C's strategies to grow its consumer base, continue to raise awareness, become more accessible and drive incremental sales
is the number-one prestige makeup brand worldwide, it is in less than 3,000 doors, a fraction of the location of most of its direct competitors, in some cases, in even less than 15%
continues to make great inroads in specialty multi internationally
In Brazil, for example, M
is the leading brand on sephora
com and will open in some of the retailers' top brick-and-mortar stores this August
is increasing consumer reach by opening more doors with Douglas, as well as other specialty multi retailers including KICKS in Sweden
Our Estée Lauder brand launched in Ulta last fall in 30 doors and successfully tapped into a new audience
During the first three months, more than 40% of consumers who bought its products were new to the brand
And over 65% of the new makeup consumers were millennials
With strong sales results, Estée Lauder plans to roll out to more Ulta stores
Clinique's experience in Ulta has been terrific and it is building on its business there with more in-store boutiques
By the end of fiscal 2017, our three largest brands will have strategically expanded their consumer reach in the U.S
specialty-multi channel
Several of our other brands have achieved strong sales in the U.S
, specialty multi, including GLAMGLOW, Smashbox, Tom Ford in Sephora and Darphin in Bluemercury
During the quarter, we launched Jo Malone and La Mer into a few key Sephora doors, including its largest one that recently opened in Manhattan, and also on sephora
Initial response has been terrific
Both brands are recruiting new consumers from these efforts
Internationally, our business has also performed well in many specialty multi retailers, including Mecca, Boots, Douglas and (11:18)
More specialty multi retailers are entering Korea, and Clinique and Origins have expanded their consumer reach to some of these new locations
Clinique and M
has launched in specialty multi in Thailand with fantastic results
We had outstanding results in travel retail, led by our business in Asia-Pacific
Our vibrant retail sales showed the strongest quarterly growth in over three years and far outpaced passenger traffic growth in the quarter
Sales increase in every product category
Makeup sales surged, led by M
, Tom Ford, and several other brands
Higher skin care sales were driven by Estée Lauder and La Mer in the greater number of Chinese and other Asian travelers
And in fragrance, which still leads total beauty sales in the channel, we achieved the superior results and share growth, led by Jo Malone and Tom Ford
We believe there will be strong demand among consumers for our newer luxury and artisanal fragrance brands in travel retail as we roll them out, enabling us to further penetrate the channel's most important category
We also continue to expand the availability of our other brands that aren't widely distributed in travel retail, and brought more brands into more high potential airports
Our sales from our e-commerce channels continue to grow at an exceptional pace, up 30% globally, more than twice the growth of e-commerce in general
Sales rose double-digits across brand, retailers, and third-party sites, and also grew double digit in every region, driven largely by increased traffic, order size, and conversion
Mobile-driven sales rose significantly and are now a larger portion of our total mix
We entered Hong Kong, a new market for our online business, with a brand size from GLAMGLOW
And in China, our online sales soared, led by our brands on Tmall
plans to launch on Tmall this quarter, which should provide more fuel for our China business and allow M
to reach new shoppers in smaller Chinese cities who don't have access to its products in brick-and-mortar stores
Globally, we continue to successfully launch additional brands online in more markets
Department stores are striving to provide consumers with strong experiences they can't get anywhere else
International department stores remain strong, particularly in Europe and China
We continue to work our – with our U.S
department stores to create in-store and omni-channel excitement and innovate with product, services, merchandising, and education
We are devoting additional resources to the top doors and promoting in-store events on retailers' websites where, as I just mentioned, our business had been brisk
Research shows the consumer who shop both in-store and online spend more than those who buy in just one channel
We are being proactive with department stores to design strategies to reinvigorate traffic, while addressing productivity challenges in brick-and-mortar
Now, let me turn to our recent and upcoming innovations
Across our brands, we are focused on the biggest global opportunities, which in Clinique's case means its core products, like moisturizers
Its initial launch of Fresh Pressed serum and cleanser with concentrate Vitamin C was a global hit that garnered terrific attention and demand, and validated the brand's strength to leverage the initial success with a more extensive rollout in the coming months
The serum is used with the brand's moisturizers, which increases their sales as well
Fresh Pressed helped drive improving retail trends for Clinique in China and travel retail
In another move to strengthen its position in moisturizers, Clinique just introduced a supercharged hydrating formula of Moisture Surge, developed from proprietary (15:45) technology that is expected to elevate the best-selling franchise
Clinique marketing will focus on the instant benefits of Moisture Surge, which has been growing in most markets
Estée Lauder will begin introducing Advanced Night Repair Eye Concentrate Matrix in July
This product, which contains innovative technology based on scientific breakthrough research, repairs the visible signs of aging on eyes to make eyes look refreshed, and features a custom designed massage applicator
It is one of the brand's highest scoring products in testing with consumers
For example, after four weeks of usage, almost 90% of women said their eyes looked more youthful
It will be supported by a 360-degree campaign, based on strong insights from consumers around the world
In makeup, we are very excited about Estée Lauder Double Wear Cushion Compact for Asian market, which will be supported by strong investment in China, and Pure Color Love lipstick, a global launch that is aimed at younger consumers
M•A•C new Next to Nothing sheer Face Color is a lightweight foundation that makes skin glow
It is being supported with a major social media campaign that is already helping fuel M•A•C sales this quarter
In fragrance, Jo Malone launched Star Magnolia cologne, which is expected to have wide appeal, and Tom Ford created SOLE DI POSITANO, which evokes my fragrant (17:28) Italian coast
With the help of our Leading Beauty Forward initiative, we continue to reallocate resources faster, and cut cost deeper, to invest in talent and capabilities that will drive our business in today evolving beauty landscape
This includes social media, digital technologies, retail operations, and analytical expertise
To help leverage both new and existing brands, our brands continue to increase their social media activity and capabilities to engage consumers across numerous digital platforms using influencers, brand ambassadors, and other compelling voices and technologies
For example, Smashbox collaborated with a popular influencer to help promote its Cover Shot Eye Palette, and the collection became one of the brand's largest launch ever
And in China, the Estée Lauder brand significantly lifted its makeup sales by leveraging a combination of in-store and social media campaigns
This kind of digital content created by influencers and third-parties is measured in terms of earned media value
In the third quarter, M•A•C remained the second largest beauty brand among prestige and mass makeup players in earned media value in the U.S
, as measured by Tribe Dynamics
M•A•C has improved its earned media value share in makeup in each of the last three quarters
Our brands are also creating inventive digital experience for consumers
For example, a cutting edge technology used by Estée Lauder and Smashbox lets consumers virtually apply different lipstick shades, either in real-time or in (19:16)
Our performance this quarter further demonstrated our company strategy, built on multiple engines of growth and leading to agile resource reallocation, when need, is sustainable and working
Our company has the most desirable portfolio of prestige brands in the industry
And we are (19:38) to strategically deploy them brand across fastest-growing channels and consumer segments around the world
Importantly, we have the highest quality workforce with extremely capable people committed to our company's success
At the same time, we are reducing costs, redesigned for better sales growth leverage, and reallocating our resources to make priority investment in the most attractive areas that are expected to drive our growth in both the fourth quarter and next year
As a successful high growth company in a growing industry, we have continued to increase our global share in prestige beauty
And as we enter our fourth quarter, we are further building momentum to deliver another year of strong profitable growth
Now, I will turn the call over to <UNK>
So the growth is very, very strong in these two brands
So, it's very strong double-digit growth in each one of the two brands and in every segment they're operating
And what is driving the success is actually same-door sales is a success, which is driven mainly by same-door sales and for the moment, a very small initial distribution deployment
These two brands are really strong and consumer demand is exceptional
And their recent launches are among the most successful launches in the entire marketplace
And on top of that, for us, the great news are that they attract really new consumers that in the past we were attracting less, particularly Too Faced attract more younger consumers in our portfolio which is great extra business for the company overall
And importantly, they have dramatically increased our penetration in Specialty Multi in the U.S
And this will continue internationally, which is a very important objective because as you all know, the Specialty Multi-Channel globally is one of the fastest growing channels in our sector
I'll start with answering the ULTA question
So Clinique is very successful in the ULTA channel
And what we have learned is that when Clinique is exposed with all the strengths of the core (32:42) portfolio and the strengths of services to a good growing traffic, the brand responds very, very well
And Clinique is growing both makeup and skin care aggressively in every ULTA door in which the brand is deployed
In terms of what we can learn for M•A•C – by the way, as I said in my prepared remarks, we plan to increase gradually the number of Clinique doors in ULTA in agreement with our retail partner
And, as far as the learning for M•A•C, absolutely we have learned a lot for perfecting our upcoming M•A•C execution; also from the Clinique experience
In particular, we have learned the importance of the service aspect, of making sure that the brand is deployed with all the necessarily SKU, assortment SKU, and decorations of the SKUs to the consumer, is the concept of a curated assortment that really fit the consumer, which has been a big learning that will be absolutely applied to every one of our brands
The good news, that is true for Clinique based on your question, but is true for every other – our three big brands
We really attract new consumers and a lot of millennial consumers
So the cannibalization is very, very limited
This consumer, our consumer that were not shopping in the brands before in a large majority, or they were lapsed brand users, because they were not anymore going in channels that – where the brands today are distributed
So the large majority of the business is net extra business
So on the total M•A•C growth, no
We're not seeing a big change
Overall, it's still between 4% and 5%; probably closer to 4% in this moment than to 5%, but still in the range
And – but what we have seen a change – we see a change continuously is where the growth is coming from
And the growth is coming from – by category – is coming more from makeup than in the past, as you know
And by recently, in this quarter, the growth is again coming from Asia more than in the previous quarters
And then, certain emerging markets have been more challenged than in the past, like, I don't know, Brazil or Turkey, obviously, and a few others
And so, we see a variation where the growth come from
But what is interesting is actually the total growth is still between 4% and 5%
So, let me start from this last question, is – no, is what I said
You should not model it differently; is 25 by June and then 100, and you can assume that the 100 will be equally split, because it's a matter of capability opening
And the opening will be more aggressive as of September, obviously, because of organization and capability things
But this is the total number that we're planning for at the moment
What was the?
Ah, the earned media value of M•A•C
So what was driving the improvement of the earned media value of M•A•C is, first of all, the M•A•C activation of many more influencers
And the activation also of M•A•C makeup artist has influenced themselves, which is a unique model created by the M•A•C brand
Meaning M•A•C is, obviously, activity is external influencer, (39:17), but also, many of the very valuable makeup artists of M•A•C influence themselves
And being enabled by a lot of great quality asset to support to do this job around the world, and particularly in the U.S
The other thing is, activity in this, is M•A•C is back launching hero products
And as you know, a lot of these media value is driven by exciting new products
For example, Next to Nothing launch, which I mentioned in my prepared remark, is an activity which is creating a lot of conversation in the social media arena, which is helping support the brand
We believe this strength will continue
The M•A•C brand is very active among the various changes they're leading in the U.S
market and internationally in increasing the numbers of hero products that will be passed of their deployed portfolio of innovation
So, let me start from this line
I think we said it in prepared remark and everywhere we comment on this new distribution
The new distribution is bringing new customers
And so we have absolute evidence
That's why we have tested our way first with 30 doors, then in certain areas internationally, the same
We have done this very gradually with a lot of attention
And there is – the large majority of consumers are new to the brands
This is true for new distribution, both online in specialty and this is true for a lot of our new innovation which is focused on segments where we have strategic opportunities or strategic gaps
And that's actually been the big strength
And the other information we – that I have already shared but I want to further clarify it is that the large majority of these new consumers are millennials
And that's true in all these things that we have
We have year-end data that comport all these learnings and then based on this data, we made decision on distribution evolutions around the world
And then in term of profit dilution of the new distribution, M•A•C is very dependent from traffic
And so if we – where we are able to create good sales per door, M•A•C is a profitable brand
And so our priority is to stay focused on really making M•A•C a good brand with great sales per door in every single distribution channel and that will make M•A•C – will keep M•A•C as a very profitable brand
And in term of the overall dynamic, I want again to clarify the – M•A•C exposure to, in this moment, the declining brick-and-mortar department store traffic is the key issue we are trying to solve
M•A•C has enormous demand and attention from consumers
It's a very desirable brand
Wherever M•A•C is exposed to traffic, it's performing well
And that's the key issue we are trying to work on
As we said, we have many international pockets where M•A•C is booming
And we need to address the U.S
issue as we have discussed
And I hope you see many of the pivoting activity that we are doing to achieve this goal as fast as possible
Our growth algorithm is 6% to 8% and we are obviously on this trend
And the key point is this industry is not a zero-sum game
All the big companies are growing
And depending by quarter and by year, some are growing a bit less or a bit more, but we all are growing
So the key point is that there is a strong category growth and there is space to grow for a lot of big companies
And they believe that small brands are diluting the growth of big companies is clearly not demonstrated by the facts, because big companies are growing, are growing their brands and enriching their portfolios
If there are some smaller brands which are doing very well, some of them get acquired by the big companies when they have the right rate of return
And so I believe actually this is an environment where many big companies can grow and can grow at the same time in this amazing part of the industry which is prestige beauty
Now, what do I attribute in the short-term in the last six months, nine months? Our growth be below some of our competitor is frankly 80% U.S
department store traffic
We are the company which has the highest exposure in percentage of our business and in our big brands to U.S
department store traffic
And then there are other – many, many other areas of the world where frankly we are growing faster than many other companies
And the last point I want to make, we are building market share
So in a market we continue to grow 4% to 5%, we continue to grow market share
This was evident also in the recent Unimonitor (52:02) report for 2016 calendar and is obviously proven by these first quarter numbers where we are growing in constant currency 9% versus the market which is probably closer to 4%
So we keep growing market share
We keep growing well in all over the world and we do have an issue to solve – to address, which is that U.S
department store traffic and our high penetration of this channel
And we are pivoting to reinforce this channel and at the same time diversify our business in the needed way
Okay
So let's start again
M•A•C is – there've been some recent research issued that M•A•C is the number one brand loved by teenagers in this market in the U.S
, and just been published a research on this
All our consumer data showed that M•A•C is among the preferred brands among the millennials and, frankly, all generations
So M•A•C is a business built to be really very sensitive to traffic
And that's the key thing we need to do
The brand is in excellent shape, very desirable
And as I said, to demonstrate this, there are markets around the world where the brand this quarter has been growing 40% or 45%, despite the competition being the same
And so it's a very specific opportunity
Said that, there is definitely a lot of new competition, and every big brand has to face this new competition
On this, I would like to make an – to do an observation
What we see in the data is that this increasing competition, done by an ever-increasing number of brands, is an increasing competition in the momental (55:06) trial
That is, we don't see increasing competition in the area of loyalty and in the area of retention and repeat, which where the profit is
Let me explain this
We have, for example, in all our big brands, take Estée Lauder with Advanced Night Repair, take M•A•C with Studio Fix, the big hero products in this moment are getting more success and increased repeat, despite the increased competition
What is tougher is to get the attention at the trial moment, because of the many small brands , there's more activity out there (55:42)
But I would like you to think that the trial moment is not the profitable moment
Trial is an investment
Repeat is a profit
And so at the end, the profitable brands are still the big brands with great hero product, great repeat, and not many small brands that generate a lot of noise on trial, because unless they get the repeat, they will not be sustainable
And so, we are very focused on a sustainable, long-term profitability strategy for our brands, and that's the way we are addressing the issue at M•A•C and the opportunity for all our brands
So, the second question was specialty-multi, which is an opportunity for many of our brands, and I mentioned many of them in my prepared remarks, exactly to give you maximum exposure to all the pivoting we're doing
Instead of repeating them, I would like just to clarify one point
Every brand has a unique distribution strategy in the Estée Lauder Company portfolio
So, we don't do things by channel
We do things by brand
So, there are brands which are designed to win well in specialty, brands which are designed to be in multiple channels, and brands that are designed to be more exclusive in a certain channel type
And our broad portfolio brands give us the possibility to play this growing multichannel portfolio globally in an excellent strategic way
The last question was on online, and yes, we see a very different pattern in purchases online
Purchases online tend to be younger and tend to be, frankly, very profitable, because consumers are very loyal when they get into it
There's a lot of good repeat
But most importantly, the online sales allow us to reach consumers that sometimes we cannot reach with brick and mortar
This is particularly true in emerging markets
I just gave the good example of China, where a good launch of M•A•C in Tmall that will happen this quarter, we know, by all our analysis, that will expose millions of Chinese consumers in cities of Tier 3 or Tier 4, that today cannot buy the brand, to be able to buy the brand
This is true for many other brands in our portfolio, and many of our online activities around the world
Okay
I'll start from the Lauder and Clinique question, and <UNK> will take over
So, first of all, Lauder is growing, so it's not stabilized
Lauder has been growing in a very exciting way, in my opinion, this quarter
And this is the second quarter in a row where the Lauder brand is growing globally
What is driving that is successful innovation that is hitting new consumers, combined with an amazing work on relaunching hero products, and that's the key point
I mean, Double Wear is a fantastic foundation product that millions of consumers around the world love
But still, there are millions of consumer that never tried this product
And so, the ability of the brand to continue win with winning hero products is the key learning, and this is working very well
And, for example, we have learned that Double Wear in specialty-multi attracts Millennials, despite being a foundation that's been there for many years, and being a fantastic product for many years, attract new Millennials to the brand better than maybe specific Millennial launches targeted to Millennial
So we are now ready to leverage these new discoveries on Lauder and continue the acceleration
The third thing which is helping the Lauder brand is that the Lauder brand is more exposed, positively exposed, to the Chinese consumers and to the Asian dynamics than the Clinique brand, for example
The Clinique brand in the country is more exposed to U.S
department store than any other brand in our portfolio together with M•A•C U.S
But globally, Clinique is more exposed in total
So the key point is that Lauder benefited from the comeback of growth in Asia and it being part of one of the brands, driving the comeback of skin care in Asia
And so the research of Asia, Asia skin care is obviously helping the Lauder brand and in our opinion will continue to grow – to support the growth of the Lauder brand
The learning for Clinique are the same, is more hero products, more activity on innovation that on top of building specific new products, build existing hero products, the Pressed Fresh Vitamin C launch is an example of that
Vitamin C is a new product per se, but at the same time create regimen with existing moisturizer of Clinique and so sell and build hero products and we have tested these successfully in the last year
The art of learning for Clinique is that also Clinique need to accelerate the entrance in growing channels
So also Clinique is further accelerating the expansion in the successful specialty multi-channels where it's playing and online
And so we will continue to do that and, sorry, the last thing on Clinique is the makeup
Clinique is also working to further activate their makeup innovation and activities in fiscal year 2018 that should further boost the brand
| 2017_EL |
2016 | KMT | KMT
#Good morning.
I am going to let <UNK> answer that question.
He is closest to it.
Sure.
In our industrial business we get very good access to inventory information at our distributors in Asia and very strong support from our distributor customers in the Americas in the form of point of sale data.
We did see a slight amount of destocking in distribution in the quarter for industrial.
I think about $2 million versus over $20 million in the first half.
There has been a significant reduction more positive for us as February and March that was definitely nearly zero.
We have very good data that shows with our sales into the channel was being supported by the sales of our customers into the end markets.
You know I think the aggressiveness in the company needs to start this afternoon.
It is always going to be this afternoon.
We are going to keep the pressure on improving the speed of execution in this company every day.
So it will take some time to get the new organization in place effective.
Although I think less time than people think because I think it will be a very natural transition for the organization.
How long will it take us to get to double-digit margins.
That is a really good question.
I am not going to be able to answer that question for you today.
But I think double-digit margins are clearly possible with our existing revenue base about where our existing revenue base is.
Whether or not I can pull that off in 2017 with a lot of the changes underway, we are going through our planning process right now and I probably would say that is a hard road to achieve because I have got to recover wage increases, I have got to recover bonuses that weren't paid in 2016, and we have got to recover some additional costs that are embedded in our organization.
So I have got to offset those.
So it will take some work to do but certainly it is not that long but we are going to be working on trying to get there as quickly as possible.
Let me answer the latter part and I will turn it over to <UNK>.
It is my desire and I think it is the company's view that we really can capture a lot more business among our major customers.
We have the top 100 customer list.
That top 100 customer list is a great list of tremendously successful companies.
We want to build our share of wallet among those customers.
If we do that I think whatever dislocation that there might be by shortening our product line, making changes in our manufacturing operations a little bit, I think we can more than offset.
So the first part of the question I think, <UNK>, I will turn it over to you.
<UNK>, we have set a goal to move the majority of these smaller customers to an indirect model within 12 months.
We have already started the process and have already met with customers to start this discussion.
But again the customer in the end will help us make the decision on how they best buy, what the best model to service their business is.
There are some very loyal customers that utilize our engineering services.
They utilize custom solutions and much of their buy that are sub suppliers to those very large customers that <UNK> talked about that we are going to begin to focus very heavily on, that will continue in a direct model even if they do buy lower amounts per year from us.
This isn't a one solution fits all.
We have already begun to meet with our bars and our large national chain here in the Americas and they support this initiative completely.
So we have jumped into starting the process probably in the last four weeks.
I am not sure we are going to see our inventory metrics change a whole heck of a lot in the near term.
We have got to get some raw material efficiency in our organization.
We have taken quite a bit of inventory out of our company.
I want to get our revenue growing.
If we get our revenue growing I think our efficiencies will drop to the bottom line on inventory.
<UNK>, many thanks for that question but we do not provide forward looking information on that so we will report obviously as we go through the year 2017 on those numbers.
Obviously you can back in to it but ---+ because most of the information is available to you.
I would like to not comment on it as a percentage of revenue and more just in the range of about where it is today for now.
If it goes up a little bit it will go up $20 million but it is in the $130 million to $150 million range.
We will continue to focus on collecting our receivables faster and making sure the inventory turns faster and extending our payables.
So this is a continued focus from the company.
We will try to move our working capital lower but obviously depending on how the sales numbers evolve there may be less or more progress.
The way I would answer that is, a lot of our future free cash flow is going to be driven off of the amount of progress we are making on profit.
Alright, <UNK>.
Thank you and I appreciate everybody's participation today.
We have probably gone a little bit longer than the company normally would.
Please follow up with <UNK>, <UNK> <UNK>, myself, <UNK>, the rest of the team.
We appreciate your interest in Kennametal today.
Thank you.
| 2016_KMT |
2016 | BBY | BBY
#I'll let <UNK> take virtual reality and I'll come back to you on the share repurchase.
Virtual reality is a very exciting technology.
I bet you all have seen that we were the exclusive place where you could try the Oculus in our stores.
So a lot of excitement there.
The impact on the business this year is going to be very marginal.
So I think exciting from a consumer and PR standpoint, very small, at this point, from a revenue standpoint.
<UNK>, on the buyback, why didn't we buy more shares in the first quarter.
It really is the way our pattern has been since we've been buying shares back.
Remember that we, because of year-end earnings releases, there's that period in the middle of the first quarter where we are of out of the market until we get our information out there.
So we're always going to be a little bit lower probably in the first quarter.
You guys can probably expect that, because that will always probably be the case.
And then of course, we are absolutely committed to our $1 billion repurchase over the next couple of years.
So we are all-in on that.
<UNK>, thank you so much for your comments.
This will go to the heart of all of our Blue Shirts, the fact that we're telling them that we're seeing it is great.
The fact that you're seeing it is just terrific.
And I want to publicly again recognize their work.
The work on developing the engagement and proficiency in the stores has been a key area of focus for us, and I have to give credit where credit is due to Shari Ballard and her team across the country in driving that.
What is the form that it takes, is your question.
It's a number of things.
The most impressive thing is at the individual level.
The philosophy is that the performance of Best Buy is really the sum of the individual performance of each individual associate.
The way you lift the performance of Best Buy is by getting more of the associates to be very proficient, very engaged and to achieve their individual sales targets.
As you know, we're not commissioned, but we're driving performance.
The form it takes in the stores is through daily coaching.
Every morning when you check in as an associate, you spend time with your supervisor looking at the results and getting a one-on-one.
And it's absolutely you world class, coaching about how you can get better at your job.
The individual associate looking at the performance will look at whatever things that can get better.
They may get some ideas from their manager and then check ins during the day and then check in at the end of the day.
It's a systematic approach.
Now on top of that, we're increasingly focused on lifting the product knowledge.
Because proficiency is selling skills and product knowledge.
We're moving to certify the associates and raising the bar if terms of what's expected.
All of the executive team at Best Buy is certified to sell 4K TV and high end networking equipment, showing that it's part of the job.
If the bosses cannot do the job, then it's not a good company.
So there is ---+ and of course, it goes to all of the associates.
So it's really beautiful to see.
We believe there is a lot more room to drive performance on that basis.
We look at, with Shari, the percentage, and her team, we look at the percentage of associates who are achieving the individual sales targets.
We see a lot of room for improvement, and that's a continued focus.
So the way it manifests itself is that a store gets the traffic it gets.
That's not within essentially the control of the store, but they're focused on what we call value-add, which is the difference between the traffic and then the comp stores in the stores.
And with a given traffic, you can get different results.
And so with the same amount of payroll, you can get different results.
So we think that this is another gift that will keep giving and truly a remarkable set of accomplishments so far.
So Shari, congratulations for your work.
But beyond Shari, well done to the entire Best Buy team across the stores.
Couldn't be more proud.
So I need to conclude the call.
I want to thank all of you for joining us today.
Again, a very strong quarter.
Again, want to congratulate all of our teams.
We are, as you can see, we're very excited to have the opportunity to continue to work on our key priorities and with the opportunities that I related to that.
I want to join everybody, of course, on the call in congratulating <UNK> and Corie.
I know Corie is very much looking forward to meeting all of you and working with all of you.
I know <UNK> is very much looking forward to introducing.
As a reminder, <UNK> is not going away.
She's going to be here until the end of the year in an advisory role.
She'll introduce Corie to each of the investors and analysts and work with Corie to make this an incredibly seamless transition.
It's going to be one of <UNK>'s legacies to have successfully on-boarded ---+ chosen and on-boarded and groomed and on-boarded Corie.
So very exciting time ahead.
Thank you so much for your attention.
You all have a great day.
Bye, guys.
| 2016_BBY |
2016 | DUK | DUK
#Thank you, <UNK>.
Hi, <UNK>.
We've spent roughly $500 million to date and we'll be spending accelerated clips as we go forward.
So we'll be determining what, based upon levels of prior spend, that will impact our filing criteria.
Typically we would not try to recover costs that have not yet been spent.
So that's why you build up a spend pattern a little bit and then make recovery applications there.
And I think, <UNK>, it's important when we talk about $500 million, in the Carolinas we operate four utilities.
So it's North Carolina, Duke Energy Carolinas, Duke Energy Progress, South Carolina, Duke Energy Carolina, Duke Energy Progress.
So that spend would be included in four different sets of rate cases as we go forward.
So we're in an NOL position on our federal tax basis is what we were talking about.
And so cash taxes, if there are cash taxes to be paid, will be deferred into the future.
We would suspect that we would have a taxable gain on the sale.
But the level of taxes recognized depends upon the sales price and so forth and have various tax mechanisms put in place.
But whatever tax liability we get from that will be deferred due to the NOL positioning.
No, we have not.
<UNK> morning.
I would point back to the slide that we included in our February call that laid out the components of the growth.
Certainly the utilities ---+ regulated utilities are an important part of that.
And it's a combination of wholesale growth, investment growth and modest load growth.
Our commercial business will contribute.
Piedmont and the gas platform will contribute.
We see Piedmont as growing at a faster rate than 4% to 6% and the pipeline investment will be growing at a slightly faster rate.
So I would refer you back to that slide.
I think it's the ---+ probably the best depiction of the details around how the 4% to 6% unfolds over the next five years.
I think we continue to look for ways that we can deliver investment for customer in our electric business.
The one thing I would point out, if you look at the profile of Duke over the last 5 to 10 years, our growth has been more heavily weighted toward generation, which means we continue to have a lot of potential in distribution, grid, transmission and customer, that we'll continue to find opportunities to put capital to work over the next five years.
But I believe that trend will continue into the future.
Renewables are another area that I think will continue beyond the five year period.
Right.
I would add that we see our regulated rate base growing at 5% over our five year time frame.
And ultimately, that's a way to think about an earnings base.
And now the timing can vary depending on rate case timing but that's the earnings based growth we see.
Thank you.
<UNK> morning, <UNK>.
About $300 million a year.
That's correct.
And thus far we've taken back about $1.5 billion through the repatriation effort that we put together in late 2014.
So, <UNK>, you might remember we declared a $2.7 billion dividend.
The $1.5 billion that <UNK> indicated has already moved against that dividend.
So we had $1.2 billion left and I believe we were targeting to move that between now and 2021.
Or something like that.
So it was not ---+ what we had accomplished was a very favorable structure transaction that gave us an opportunity to move $2.7 billion in an advantaged way.
And we were going to move at $300 million a year against that between now and 2021.
Certainly accelerated ---+ an accelerated $1.2 billion.
Right.
It accelerates it and would be greater than $1.2 billion.
They are in the neighborhood of $2.4 billion, $2.5 billion.
0.
5%.
You have a good memory.
Alright.
Thanks so much.
So I want to thank you all for your interest in investment in Duke Energy.
We look forward to continuing to provide updates on all of these matters as we go forward.
And of course the IR team is available today for any follow-up questions.
So thanks again.
| 2016_DUK |
2016 | FHN | FHN
#Thank you.
Good morning, Steve.
Yes, generally speaking, yes.
If you recall last call that we had, that's what we had discussed.
And we had said, think about $8 million to $10 million of incremental costs from TrustAtlantic, and so that would be probably in the $860 million, $870 million range, something like that.
And so, that's what we're ---+ that's what we're shooting for.
It could fluctuate depending on what we just talked about, which is fixed income, variable comp, but we think that that's a good level for us to strive for.
Steve, this is <UNK>.
As we've demonstrated over the last six, seven years, expense control is clearly one of the most leveragable levers that the industry has, and that we have, and we maintain a strong focus on controlling costs.
And at the same time, we've continued to make significant investments in our technology.
And as <UNK> noted in his comments, in people, we're very focused on controlling costs.
We think that we can maintain cost in a flat sort of range in 2016.
And we think, in addition to the things that <UNK> has mentioned this morning, using our profitability tools, looking at what it costs to deliver products and services, and the disaggregation of the business, we think that gives us additional avenues or windows to help us keep those costs under control, as we move into 2016 and beyond.
We're continually looking at where we want to be in terms of asset sensitivity.
We don't have any specific plans right now, besides what we did in the fourth quarter, which was incrementally grow the securities portfolio.
We did some bond swaps to extend duration on certain parts of the portfolio, which we think will be helpful and moderate asset sensitivity.
But at this point, since we did get an initial move, we want to wait and see a little bit more about how quickly those moves come, and we'll adjust accordingly.
We had more opportunity to moderate it if we want to, but we're good with our position right now.
Steve, I'll just add to that.
You may remember from what we said in the third quarter, the context around us reducing that asset sensitivity.
Now we believe that it was entirely appropriate to raise rates in December, and we think it's entirely appropriate that the Fed continues to increase rates.
The context we tried to put around it is, is our view that interest rates would get above the 200 basis points of move, it was embedded in there, was fairly unlikely.
We see this cycle somewhere in the 1% to 2%, maybe at the high end 2.5%, at the high end before the next recession or whatever causes rates to trend down.
So we just don't think that in this cycle, rates are going to go significantly up more than the 2% or so.
So we try to take off some of the excess, or the high end of that.
We benefit most from the first few moves, as I'm sure most in the industry do.
So we don't have a view that rates aren't going to go up, and that rates ---+ or shouldn't go up.
We firmly believe that rates should go up, and we're optimistic that the Fed will continue to move.
We just have reduced that sensitivity to what we think is sort of the outlier rate [moves], which are beyond 2%, 2.5% in this cycle.
Sure.
Yes, it's <UNK>.
Certainly, some of it is, for sure.
But if you look back on ---+ I think it's slide ---+ slide 6, where we give you a view, adjusting out notable items to a pretax income walk forward, you'll see our net interest income was up $26 million over 2014, and that had no hikes in it.
That is net growth on our balance sheet, from strong growth in the regional bank, offsetting anything that's happened in non-strategic.
So our bankers have demonstrated the ability to net grow.
Now rates would certainly help, but we're not necessarily waiting for that.
And the reason that you've heard us using the term positive operating leverage is we think that aligns with our philosophy around the Bonefish, that we're going to pull levers that we can as the opportunity arises and control what we can control.
So if we do see a better rate environment for us, and that translates into higher revenues, we'll still remain disciplined on expenses, but we'll be able to invest and have expenses grow less than revenues, but still be able to net grow the business.
If those rate increases don't materialize, like what we talk about earlier on an earlier question around expenses.
Flattish expense levels to 2015, I believe is pretty good performance, given wage pressures that we've seen particularly through our front line talent, regulatory costs, et cetera.
So I feel pretty good about our ability to do that, and manage through that in the right way.
Good question.
I would assume a tax rate probably in the 30% to 34% range.
I won't get into all the mechanics, unless you want to call offline about how you calculate effective tax rates.
But clearly, when you've had large ---+ larger one-time items, it really kind of distorts that rate.
But 30% to 34% is really what you should be thinking for 2016.
Yes, <UNK>.
Part of the reason that we saw a little bit better net interest margin in the fourth quarter was actually that we did have strong ---+ continued strong commercial deposit inflows.
They actually weren't as strong seasonally, as what we had anticipated.
And so, the net result was, while we did add to the securities portfolio, knowing that we had excess cash balances that we were confident in, we actually didn't add to the securities portfolio as much as we would have thought.
So right now what we're looking at, is making sure that we understand the core deposit trends, particularly on the commercial side, which can go in and out a little bit more, before we extend ourselves any further from a securities perspective.
<UNK>, this is <UNK>.
I'll add to it.
We're very comfortable with our sensitivity position, as we've described it.
And I guess, structural speaking, we don't believe in the [carriage] rate It doesn't ---+ you can make some money at it, but it doesn't always end well.
And we think using that portfolio to manage our interest sensitivity, and to manage our liquidity and our collateral needs is our primary objective.
So it's unlikely that, given levels of deposits or otherwise, that we would look to put more duration on through the securities portfolio.
I'm very comfortable with our sensitivity position the way it's structured today.
And we may change that over time, but today, we're very comfortable with it.
Good morning, <UNK>.
Yes, sure.
So let's call it 1 to 2 basis points on the move in LIBOR, for this quarter is probably the best guess.
And then deposit competition, I'd say it's still rather benign.
We hear across our markets ---+ some community banks, some credit unions that are doing certain things, they were doing them even before the Fed raised rates.
So we haven't seen a lot of movement at all in our markets, particularly from the larger competitors that could really move some balances around.
So that's been a positive for us.
And so hopefully that will continue, but we've got ---+ we've got ample plans to be able to react to competition as appropriate.
Good morning, <UNK>.
Correct.
Sure.
So as we've talked about in the past, probably the number one driver, if you boil it down is market volatility.
We can represent buyers or sellers.
And so, whenever there's increased volume and volatility, we can do well, whether it's good volatility or bad volatility, so to speak in the market.
So that's probably the main driver.
The second is, clarity around rates, and we alluded to it in our opening comments.
But since people felt more and more confident as we got to mid December that the Fed was actually going to raise rates, that actually helped people understand where they wanted to be invested and how long.
And so, we saw a little bit of a pickup in activity from people feeling a little bit more certain, at least in the short term, about how they wanted to position their portfolios.
What's happened this year so far, with the flattening of the longer end of the curve is certainly not helpful, so that's probably a headwind to any activity.
But again, that's offset by whatever volatility we'll see.
And with the markets doing what they have done, you can imagine that there's been more volatility.
So I go back to what <UNK> said is, we were at [$850,000] for the quarter, a good increase year-over-year, probably not back to the $1 million to $1.5 million range yet.
But the range that we saw in the fourth quarter plus or minus a little bit is our operating assumption at this point.
Good morning, <UNK>.
Hey, it's <UNK>.
I'll start.
If you actually look at the regional bank dollar amount of reserves, it's gone up.
And so, our coverage has stayed relatively steady in the regional bank.
And so, while we've continued to see positive grade migration in the bank, while we've continued to see loan growth, we've tried to realistically look at our reserve levels there and maintain those, accounting for the incremental loan growth, but also seeing opportunities to moderate that reserve as well.
But we feel comfortable about where we are there.
If you look under the covers of where the reserve coverage has been coming down, it's in the non-strategic portfolio that's had less than $5 million of charge-offs, and even a quarter or two of recoveries, in a portfolio that's running off.
And so, that's where we're ---+ that's where we're getting the net benefit of a reduction in reserves.
But we have active dialogue about maintaining healthy reserves, particularly as we're growing loans in the regional bank, and we feel comfortable where we stand today.
Not that great, in meaning.
It means that ---+ (multiple speakers)
Low numbers are great, and it means [insignificant] (laughter).
Chris, this is <UNK>.
The accounting around loan loss reserves has become very mechanical over the last several years, in my view to a fault.
And so, it's almost an implied degree of precision that doesn't exist in reality.
And I think ---+ now we try to balance that out with, what is a practical view, where credit trends are headed.
And then the second point, we've talked in a number of different ways about the economy continuing to move forward.
And as we look at emerging problems and credit portfolios, we just really don't see that many.
We think that that the economy continues to move forward, that credit quality is strong.
And clearly, at 4 basis points of losses with ---+ a lot of that driven by one net recovery, that is pretty great.
But we really do think that credit trends continue to be strong into 2016, that the economy continues to move forward.
And that coupled with what we're hearing from our customers that, that they're optimistic, and they're borrowing money and they're still looking to invest.
That although, we've seen a dislocation in the oil markets, commodity markets, and we're seeing some dislocation in China and internationally, we think the economy can continue to be pretty steady.
And as a result, credit quality will be as well.
Hey, <UNK>, it's <UNK>.
I want to make sure I understood.
Were you asking about first quarter margin.
Okay.
Yes.
I think ---+ what I expect sitting here today is, our first quarter margin to be relatively steady to where we were in the fourth, maybe modestly up.
That's what we currently have forecasted for the quarter.
First quarter ---+ first quarter net interest income and margin, <UNK>, is always impacted by day counts, and the contract of billings on loans, and et cetera.
And so, first quarter is always a little squirrelly, but you ought to see some continued benefit of the Fed increase that we had in the fourth quarter.
<UNK> highlighted 1 basis point or 2 that we saw, because of LIBOR ramping up.
With the resets on LIBOR being 30 and 90, it takes a while to work through the balance sheet.
So all of that, it sort of fits into what <UNK> just described
Yes.
And the other thing I would mention is first quarter, if you look back and see the big changes ---+ <UNK> mentioned day count, the other is excess balances at the Fed.
And so, it'll be dependent on what kind of deposit flows that we get, But again, I think, hopefully we can keep it relatively steady [the fourth].
Okay.
Thank you, Kate.
Thank you all for joining the call this morning.
We're very excited about our 2015 results, and encouraged about our opportunities in 2016.
Thanks again, to our colleagues.
If you have any questions or need additional follow up, please reach out to any of us.
<UNK> will be available throughout the day as well.
Thank you all again, and I hope you have a great day.
| 2016_FHN |
2016 | UNM | UNM
#That was the only one.
There is not another group policyholder in our portfolio that has that feature.
No.
It's <UNK>.
I appreciate the question, and you are correct.
We're trying to price forward for where we believe we need to be from an interest rate perspective.
So when <UNK> talks about being very comfortable about maintaining that target loss ratio of 80% to 82%, it's because we put the price and [ruminal] actions in place and feel good about the health of the business.
I think the reason you don't want the margin to erode is because that's earnings.
And so I don't think you ---+ you don't want to see your earnings erode.
You want to be able to maintain that margin, and the way to do that is to price business based on the current environment you are selling it in.
Yes, and what I'd add real quick ---+ it's <UNK> ---+ is this pricing strategy links to the value proposition in the market, and so for us it is about keeping clients for the long-term and growing those relationships.
So sustainability of pricing is really, really important to us.
We always want to be on balance, conservative, so that we don't end up in a situation where we're trying to play catch-up and disrupting relationships.
Yes, I think it's a fair question.
And what we have seen over the last couple years actually is good management across the board by our teams on the expense side, and we think about it as relative to our overall base.
So the team has done a really nice job, and that expense ratio has come down.
I don't see that as a major driver in terms of how we take profits forward or how we are running the company.
I think it's something we've been doing very consistently, and it's nice to see some of that come through over different periods.
But make no mistake, we are investing in our business, as well.
And so when you think about the acquisition that we did, what we are putting into our systems to connect better with our customers, we're making a lot of investments in our business today.
So don't think of us as an expense story.
It's much more a balanced efficiency, and investment back in the business.
No, I think actually it will stay pretty consistent, might even come down a little bit lower.
One of the things we benefit by, as well, is scale.
So as our premium line is growing and the business continues to grow, we can do so a little bit more efficiently.
So it's flat to slightly down.
You won't see it tick back up.
And I'm talking about longer-term trends, not necessarily what's going to happen fourth-quarter or any particular quarter.
<UNK>, you want to start.
We have got a lot of runway, is the quick answer.
We average three benefits per client, and we feel like certainly we've got five, six, seven relevant products dependent on the client.
So there's good opportunity there.
And you actually highlighted one of the other big opportunities.
So the long-term trend in the market is from employer-funded to more employee choice, and so deepening penetration into the employee base is really important.
And I'd say a big chunk of our product and marketing efforts has been around increasing participation in employee-elected plans, and we see today on a 100% voluntary plan, you may have one in five employees fully participating.
And so we see a lot of runway there to find good sustainable and profitable growth, as well.
So that's on the US side.
I think I would add as well, you've heard from Peter on the UK side.
Now with their dental business, they will be expanding their portfolio.
But I also want to give <UNK> <UNK> a chance on the Colonial Life side, which has seen tremendous sales growth, to talk a little bit about his efforts to expand the portfolio.
<UNK>.
Thank you, <UNK>.
And I think the question's around growth from existing customers.
At Colonial Life, about two-thirds of our sales each year come from existing customers.
We have a national footprint, benefits counselors who can go out and re-enroll existing customers each year, which is a major competitive advantage for us.
We are also seeing very strong growth in new customers, which bodes well for the future as we go back out and re-enroll those customers, as well.
We feel great about the sales success we are having overall.
It is very broad balanced, as <UNK> said in his comments.
We have leading indicators that suggest that the strength we've seen recently in sales will continue.
A lot of new people on the ground having good success, a lot of new offices with good success and also making investments in our existing offices.
A lot going well currently and encouraged about the future.
Great thank you, <UNK>.
Operator, any other questions.
Great.
Thank you, Karina.
Thank you all for taking the time to join us this morning.
We look forward to seeing you at our outlook meeting to be held the morning of December 15.
Until then we will talk to you soon.
Thanks.
Good-bye.
| 2016_UNM |
2017 | DDD | DDD
#No, we are not going to break it out for you.
We're not going to break it out for you, but the materials segment was.
.
This is true.
But Vertex is part of the materials, but it's not ---+ our core business material growth is not flat.
So I'm giving you 2 facts.
(inaudible)
You're looking at the wrong number, my friend.
You are.
It's $38.5 million in materials last year.
And $42 million this year.
They're both in the [Q].
So a good $4.4 million.
So that's a separate question, yes.
So in Vertex that we acquired, some of them are conventional materials, and some portion is the 3D printed version of it.
The 3D printing version of our materials for the NextDent is very similar margin profile as ours, but the conventional ones are not.
So that's the one core reason.
And the second core reason, there is a mix there.
Just mixed within our own materials.
I wouldn't worry too much about it.
Yes, we did.
I don't think we want to talk more about that stuff but I think we have ---+ all the opportunities are incremental.
I'm very, very confident to say that.
I'm talking about in general.
Yes.
You can see a lot of people ---+ when I showed the total cost of operation comparison just with our SLA machines, just look at that.
What we are talking about that ---+ let's go to the chart because that's important to really understand the chart that for a traditional SLA, you will ---+ with a 1 Figure 4 with 16 engines, you have 225 more printers you need when it is a traditional SLA.
Just look at that.
So the productivity of this machine with 16 engines is so far different that the kind of capability that we are talking about.
And that's the reason.
A lot of people talk about other company technologies.
There is no comparison here when you have 16 engines and then you have automation.
You're going to do the productivity ---+ 1/3 of cost, of a traditional SLA.
And the reason I did this thing is because I'm comparing with my own technology, so I know what I'm talking about here.
So I don't have to give any other comparison with other technology.
So I just want to be clear that when you have that kind of an improvement in productivity and total cost of operation, you're going to have completely new use cases.
So just want to be clear, this is all going to be new use cases, and that's why I'm very excited about it, not just replacing our existing technology.
Once you get to this type of total cost of operations, it's an accelerant for our ability to move out of the manufacturing into applications spaces that wouldn't make economic sense or haven't made economic sense historically.
So this ---+ you should think about this incrementally, for sure.
Yes.
I think ---+ I'm not going to comment specifically on where our OpEx is going to end up or what our margins might do for the balance of the year.
But I do think you have to look at ---+ you got to look at linearity here in terms of ---+ we said earlier in the conversation that our linearity first half to second half, from an earnings point of view, will be very similar and will have similar linearity from a revenue point of view, first half to second half.
So our first quarter results were within our planning parameters for Q1.
So one of the ---+ so we're trying to help a little bit.
We're not giving quarterly guidance, but we're trying to help a little bit in terms of expectations [first/second] half here.
And our plans and the results reflected in the first quarter are reflective of our OpEx plans as well.
So there's no concern there.
I don't think we are concerned at all.
We fundamentally believe that the cost structure we want to do on the cost of sales, again, is very important.
I want to state that.
And not really rely on OpEx to drive the EPS growth, and the revenue growth has to come from the innovation we are doing, the moves that we are making in terms of really driving the new product introductions and the coverage model that we are working on.
So I think you look at the top line growth, the cost structure, what we are doing in cost of sales and I think you will get to the same point that we are guiding.
Yes.
And we'll provide color along the way relative to OpEx vis-\u0102\xa0-vis our own expectations and where we can talk about elements that could move it around a little bit throughout the course of the year.
But we're investing in IT.
That has started at the beginning of the year.
We've made near-term investments in go-to-market, which we already believe we're benefiting from.
So we'll talk about that throughout the course of the year in our quarterly results.
But we're not ahead of ourselves from an operating expense point of view.
We're ---+ our Q1 results were very balanced relative to our expectations.
Yes.
So I think there are 2 key applications.
This is ---+ that's very similar to any area of manufacturing, right.
If you have a complex part, and then you want to take it into production, then the Figure 4 will be a great technology.
And the second one is custom parts, and that's where the dental is.
Because I said there are 7 billion human beings, and they have 32 teeth.
So 210 billion custom parts business.
So I really think those are the 2 core applications I believe, and when you have production volume, Figure 4 will be the right kind of a technology.
I also believe, in some cases, where ---+ so I'll give you another use case.
So we find a start-up, and I need 1 million units.
And I don't want to do a molding version of that.
I want to go directly to the production process.
Because of that kind of a volume, Figure 4 will be also a very good technology to be in a production line because now, you're going to reduce the time to market.
So you can go from prototyping to production in a compressed time.
You can save probably 16 to 24 weeks of the development process time.
And for a start-up, that's a big deal.
So I think my view is ---+ those are just simple use cases I've been telling you.
What I'm finding is more we connect with the customers, more use cases that we are finding whether Figure 4 will be applicable.
And the reason I'm very excited is the total cost of operation because up to now, in plastics, the technologies were there, good for prototyping, but this conversation on production doesn't happen with the design engineers, it happens with the manufacturing managers.
And manufacturing managers are going to talk about what's the footprint, how much space it's going to take.
What's the labor content.
What are the ---+ how many operators we need.
And showing the total cost of operations, I really believe, is the only way to be able to convince the manufacturing manager on the floor, say this is the production technology.
And for the first time, with Figure 4, we have production technology.
And we've spent ---+ the team spent a lot of time building the analytical capabilities to do end-to-end TCO-type modeling, and we can bring that into discussions with customers and be able to evaluate how this would look like for them in a Figure 4-type environment.
Because traditionally, people are just talking, I'm 16 times faster, around 10 times faster.
[That's the limit].
It's a batch process.
You've got to really talk about saying, okay, how many machines you need to do million parts.
And if you need 225 machines, that means it'd be kind of millions of dollars of capital that you need.
So the whole conversation needs to be a complete conversation on total cost of operation.
And that's why I'm excited.
Yes.
It's not ---+ I'm focused on applications, not on agnostic on applications because it has to be something which makes sense for additive manufacturing.
We are not going to just replace some molding machine for a traditional parts because then the volumes and the cost structure is very different.
But it's a complex part that they need in volume, and they can't do it or the traditional processes, their yields are very low.
And we have a very, very good application here.
Also, the custom parts, because usually you can't afford to create a mold for every custom part that you need.
And then third part is the time to market.
So I think what we are doing is, we are looking ---+ we're having a conversation customer by customer and understanding their need, the part volume that you need and then figure out the material that you need and then build out using 1 engine, 2 engines, 4 engines, 16 engines for automation post processes.
And that's the process.
Not really.
I think the focus I have on really understanding the total cost of operations because materials is very important component of it but not everything.
And my view is we should look at the overall equation, one.
Two, I think that our current material pricing is in line with what I believe what we need to have.
So there is no real need in looking at material pricing.
Yes.
So I think there is one distinction.
Figure 4 really works when you have a small part, 2 inch by 4 inch.
I just want to be clear ---+ 13 inch.
So when you have a big part, then SLS and SLA technologies are the right technology.
So I think that's the beauty of really having the technology focused on small parts.
And that's why SLS and SLA are long-term technology because my view is, the positioning is very clear.
If you want very good quality part, big part, then SLA is a great technology.
If you want a functional part, big part, then the SLS is the right technology.
If you want a small part, which can do both great quality of the part, durability and the functional part, and then productivity is the key, then the Figure 4.
So I think that positioning is very important.
So that's why all these 3 technologies will coexist.
And my view, we will be able to really drive, based on the right kind of application, a right kind of a technology.
Now our MJP technology, MultiJet printing technology, is also important because they are very much into production into certain key verticals, like jewelry.
In jewelry market, essentially, we are the leaders.
And these SLS, SLA technology will not be as applicable.
But certain applications that we have where people are trying to get an entry-level product for prototyping, the MultiJet printing is also very, very important.
So the way I would look at it is based on the customer need we need to have the right technology.
Absolutely, absolutely.
So think about it.
When it's the prototyping, you're talking to the engineering department.
You're talking to design engineers and you're creating more shapes, more ways.
But when you say, aha, I have a technology not only does the great thing in prototyping, but we can take it to the production, that conversation can't be just with the design engineers.
Because the production manager or the factory manager, they need to really say, aha, this thing, now I can put it.
You see a lot of technologies that we had, why they'll not enter production that easily because there is a different kind of measures that you're going to have when you want to make into production-ready technology.
And they look at the footprint.
The capital.
The capital budgets are going to be huge.
They need to look at in automation.
Will it fit into my ERP.
Meaning, you also need to make that into industry 4.0, meaning you need to have the right kind of uptime-based technology.
And that's why ---+ this is not just about the printing technology.
You've got to have the right software workflow and then connecting them with their ERP systems.
So you need to really look at the connectivity and the IT-based approach that you will take, which is very different.
That's the reason we are having this conversation with the production managers and IT managers when we talk about implementing Figure 4 into that environment.
Yes, we are not giving that.
I think essentially, what I said was Figure 4, materials and our metals are going to be our growth driver.
And of course, healthcare and software is already.
But they're going to be the additional growth drivers for 2018.
My view is, we got to grow in 2018, and double-digit growth in '18 is something that we are looking for, for our revenue.
We are not breaking it down specifically on that.
I think what I fundamentally believe, and I think I've talked about it, right, that we need to bring our printer revenue into the positive territory, we need to bring our on-demand manufacturing into the right kind of a growth rates.
And then continue to grow our healthcare and software and materials business.
And we are very confident that we'll be in the 2% to 8% kind of numbers.
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 at www.3dsystems.com/investor.
Thank you.
| 2017_DDD |
2016 | LANC | LANC
#Thanks, <UNK>.
And good morning, and thank you for being with us today as we review our fourth-quarter and fiscal-year 2016 results.
<UNK> and I will provide comments on the quarter, year, and outlook for fiscal 2017, with <UNK> joining us to respond to your questions.
Fourth-quarter net sales increased 2.4% to $284.5 million, and earnings per share reached $1.12 versus $0.93 last year.
Sales growth was driven primarily by volume and pricing within our retail channel.
Olive Garden brand shelf-stable salad dressings, croutons, and our frozen breads and pasta all contributed to our retail sales growth.
We were pleased to see the growth in our frozen brands, with effective consumer promotion and somewhat easier comparisons to last year as the growth drivers.
Food service channel sales were flat for the quarter and were impacted by pricing coming back closer to normal after the impact of unusually high egg costs from earlier in the fiscal year.
Our customer rationalization effort was also felt to a greater degree this quarter, and we saw less limited-time-offer promotional activity versus a very active quarter a year ago.
Retail sales mix for the quarter grew 140 basis points to 51.1%.
Segment operating margin improved 230 basis points to 17.5%, largely due to improved sales mix, favorable ingredient costs, and lower freight costs, plus a bit of favorable pricing.
Our consumer and trade spend was up in the quarter, including some increased product placement costs to support the introduction of our New York Bakery Bake & Break garlic bread.
While it's still early, we have been pleased with the initial acceptance of this new product.
For the full year, we are pleased to report a record in net sales of nearly $1.2 billion, net income of nearly $122 million, and earnings per share of $4.44.
Net sales increased 7.8%, including the benefit of the Flatout acquisition, and 5.3% excluding it.
Volume, the Flatout acquisition, and pricing were all contributors to sales growth.
Retail sales mix for the year grew to 52%, up 80 basis points from last year.
Retail channel sales were helped by continued growth in our Olive Garden brand shelf-stable salad dressing, our Marzetti and Simply Dressed refrigerated dressings, and croutons.
Food service channel business was largely driven by growth in our national chain account business.
For the full year, segment operating margin improved about 140 basis points to 16.5%, with volume growth and pricing along with lower input and freight costs the key contributors.
Looking at retail sellthrough data from IRI for the 52 weeks ending July 10 of 2016, we maintained our leadership position at all six of our key categories.
Our fastest-growing category, refrigerated dressings, saw our Marzetti and Simply Dressed brands show good sellthrough growth, although they have given up a little share as new entrants and more competitive activity have developed in that space.
We picked up share in frozen garlic bread, croutons, and flatbreads, while losing 1 point of share in frozen dinner rolls.
With that, I'd like to ask <UNK> to make some comments on the balance sheet and related items.
Thank you, <UNK>.
Overall, our balance sheet continues to remain strong, and not much has changed since our last earnings call.
I will comment on some of the larger line items within our balance sheet that have changed since last year.
As conveyed in our previous earnings calls, the decline in our cash balances is primarily driven by the payment of our $5 per share special dividend on December 31.
From a high-level perspective, the decline in our cash balance of approximately $64 million since last year can be summarized as follows: cash provided by operating activities of $143 million, offset by regular and special dividends of $190 million and property additions of $17 million.
In general, the increase in our accounts receivable balance reflects higher sales volume.
Consistent with past quarters, we continue to see our overall agings remain solid.
Our inventories remain in line with our expectations, and we continue to place emphasis on this important element of our working capital.
As mentioned above, the cash expenditures for property additions totaled $17 million in fiscal 2016, with the largest amount spent on new packaging equipment to accommodate growth and plant improvement projects to enhance productivity.
At the present time, we anticipate capital expenditures to be in the range of $20 million to $22 million for fiscal 2017 and will include projects to increase capacity and productivity.
Depreciation expense totaled $20 million for fiscal 2016, and we expect a similar amount for fiscal 2017.
With respect to our balance sheet capitalization, we continue to have no debt and nearly $514 million in total shareholders' equity.
We ended the quarter with $118 million in cash and equivalents, and we have available borrowing capacity under our credit facility of nearly $150 million.
Given our balance sheet posture and overall liquidity, we continue to possess considerable flexibility to address our foreseeable cash requirements including those supportive of future organic growth initiatives, acquisition opportunities, continued dividends, and opportunistic share repurchases.
Finally, our overall effective tax rate of approximately 34% for the fourth quarter and fiscal 2016 is consistent with our expectations and previous guidance.
We would expect a similar effective rate fiscal 2017.
Thanks again for your participation with us this morning, and I will now turn the call back over to <UNK> for our concluding comments.
<UNK>.
Thanks, <UNK>.
We enter fiscal 2017 optimistic about our business, but with two major sales growth challenges, both in our food service channel.
Our customer rationalization process will impact sales negatively, and price deflation will have a smaller but still meaningful impact.
The reduced sales growth should not, however, unfavorably affect profitability, as the rationalization plan should improve efficiencies in our dressing and sauce operations, and deflationary pricing is a passthrough of reduced ingredient costs.
On the plus side for sales, we look for continued strength in Marzetti and Simply Dressed refrigerated salad dressings, in our brands of croutons, and improving Flatout and New York Bakery frozen garlic bread sales volumes.
Olive Garden dressing should also show further growth.
New products, such as our New York Bakery Bake & Break garlic bread, Marzetti Vineyard Dressings, and just-introduced Sister Schubert's Shareable Bread are also expected to contribute to retail channel growth.
We also feel our core national chain restaurant business should continue to grow, absent the business we rationalized.
We expect increased consumer and trade spending to support new products and general growth and distribution initiatives.
Our supply chain will continue to be an area of focus and opportunity, with both customer service and cost reductions a priority.
Improving our operating efficiencies is an everyday goal across our business.
We expect lower ingredient costs, driven by much lower egg costs versus the unusual spike experienced last year.
Other ingredients are expected to be generally favorable the first half of our fiscal year and then trending to flat in the second half.
Freight costs are anticipated to remain at lower levels, although we likely will be lapping those as the year progresses.
We continue to be interested in acquisition growth and are focused on branded retail product lines that are on-trend with the consumer and likely merchandised in the perimeter of the store.
With our longtime presence in the produce department and our more recent move into deli with the Flatout acquisition, we particularly like those areas of the store.
We appreciate your interest and thank you for joining us this morning.
Sean, we're happy to take questions at this time.
You know, in the refrigerated dressing space, it's a combination of some new players that have been getting a little bit of shelf space and, in general, a little bit more competitive promotional activity.
The frozen dinner rolls ---+ in that case, no new entrants.
I think just a little bit of, again, competitive activity.
Not a significant shift there, when you think about the fact that we have got about a 50% share in the category.
Well, I think we're seeing a variety of things, both flavors as well as specific ingredients the competitors are using that may be a little different than what we are using and others are using.
So things like yogurt and Greek yogurt are definitely finding a presence in the refrigerated dressing space today.
You know, <UNK>, we're really not seeing true deflation on the retail side.
We might see, again, a little bit more promotional activity ---+
---+ that you could categorize as that.
But the real deflation we're talking about is over on the food service channel.
<UNK>, I don't think we've really seen a noticeable change in overall deal flow at this point.
I again, <UNK>, on the retail channel, I don't think we're seeing any particular pushback from customers.
And frankly, on the food service side it's not pushback from customers; it is our pricing into that channel, which is more cost-driven.
And so it is ---+ traditionally, as ingredient costs ---+ key ingredient costs, anyhow, have moved up and down at different points in time, we have passed those changes on with either increased or decreased pricing.
So this past fiscal year we had inflationary pricing driven by this sharp spike in egg costs we started seeing in the spring of 2015.
And then those prices, egg prices, have been coming down so far this calendar year, back to pretty much historical levels.
And our pricing is now reflecting those lower costs.
Yes, we did a little bit of that where we could.
I wouldn't tell you it was significant, but we did make some minor adjustments if it was feasible without changing either the quality or the taste the product.
You know, <UNK> ---+ this is <UNK>.
For the oil, we are through that forward buying strategy I think we've conveyed to you in the past.
We ladder that out over a 12-plus-month period.
And so for the first half of the fiscal 2017, we are largely covered.
And we have some level of coverage into the first half ---+ or the second half of 2017, and just a little bit beyond.
We do the same sort of routine with flour.
And we have pretty much all of our coverage in for the first half of 2017 and some coverage, again, in the back half of fiscal 2017.
Right.
(laughter)
You have got somebody else that's counting.
(laughter)
For anybody counting.
(laughter)
You're going to get a very brief one.
But, you know, what I would tell you, after having spent a good quarter now unpacking the business and getting to know the people and customers, a solid track record of success underpinned by very, very strong brands; great innovation; a strong presence and growing and relevant categories, particularly in the perimeter of the store, if you looked at where we are positioned versus a lot of the bigger traditionals, the large-cap and mega-cap players.
I like where we play in the store.
And we've been able to deliver that by good, solid indication.
You know, the food service business is also very, very well positioned with great brands, great innovation.
And we partner with some of the best customers that are in the industry.
You know, food service is a big industry, with some that are growing, and some that aren't.
And I like the fact that we seem to have been able to leverage our capabilities to partner with the ones that are the most consumer relevant and have demonstrated the most consistent growth.
So I'm sitting here at day 115 even more excited I was at day eight.
As we look forward, the areas that we want to focus on are probably as follows: you know, figure out how we can accelerate our ability to drive base growth through innovation.
So this isn't a new skill set, but it's going to take an existing skill set and just build more muscle against it.
The other is, as we look at our supply chain operations, figure out how we can make smart choices to drive consistent and modest margin accretion into our business, so we make a little bit more out of every dollar that we sell.
And then finally number three, as <UNK> pointed out, we have a strong presence in the produce section of the store, which is arguably some of the most exciting real estate in retail today.
And with the Flatout acquisition we have a presence in that exciting and highly fragmented branded specialty bakery and deli section.
And as we go forward, it's figuring out those niche bolt-on acquisitions that complement our existing capabilities, and we use those to just accelerate our growth going forward.
So short question, a medium answer for you.
But that gives you a taste of maybe where we're focusing going forward.
Yes, you are.
As it relates to the retail channel of our business, which is where a lot of that pricing was last year and where the deflation is happening as we moved into this year, there was a little bit of retail pricing that was driven by increased ingredient cost, primarily eggs.
Traditionally those prices are not adjusted as ingredient costs change, if they change downward.
I think, <UNK>, if I may add, what I would just clarify for you folks is that on the food service side, they're contractual.
So they have escalators when the commodities go up and de-escalators when the commodities go down that impact the revenue line.
And what you're seeing is the impact isolated within the food service part of the business, where those de-escalators are taking effect.
And then on a going basis they roll forward.
But it isn't impacting the retail part of the business there when you take a price increase.
Unless there's something extraordinary, that price increase sticks going forward.
Not in any real specifics, <UNK>.
But the bigger part is, I think, rationalization side; and to a lesser degree, but still noticeable, on the less promotional activity.
Pricing would be in between.
Well, that's certainly a goal of ours, as either <UNK> and I have commented on some of the different components between supply chain; improved operating efficiencies; the mix change, perhaps, as we see the retail channel of the business growing a little bit faster than the food service channel.
Those kind of things should all contribute, we hope, to margin opportunity.
You're welcome.
Thank you.
<UNK>, on the one hand, we continue to pursue some opportunities in geographic areas where we don't have big presence, particularly moving West, including California.
So there's effort going on there.
I wouldn't say it's a real unusual effort, but it is there, and we're pursuing that.
At the same time, though, we are also being sure we are active in pushing to grow our presence in our core markets, which vary between our different brands.
But we're very focused on those as well.
Canada has been a good market for us for a number of years.
We continue to look for further opportunity there, both with expanded distribution of existing products and moving additional products into the market.
Mexico is a much smaller market for us and not getting real high priority at this point.
But we are doing some business there, and we'll look for opportunities there.
Yes, it is being invested consistent with past practices.
And it's largely in commercial paper, US government securities ---+ very, very secure type investments.
<UNK>, no, I don't think we are looking to broaden it.
If anything, we're bringing a little bit more focus in what we're looking for, as we touched on some of the core areas of the store we are interested in and particularly the perimeter of the store.
So if anything, you'd probably see a little bit more focus rather than a broader look from us.
No, <UNK>, no changes, with the exception of ---+ back on what we've done from a rationalization standpoint in our food service channel.
Other than that, no noticeable additions or deletions.
Our business continues to perform well with Wal-Mart, and we're glad to see their performance improving.
That's correct, <UNK>.
We didn't repurchase any.
As you know, we keep shares authorized but do that on an opportunistic basis, and just haven't had that as our top priority at this point.
But always have an open mind to that and keep an eye on any developments that might suggest activity there.
But nothing in the fourth quarter and virtually no shares for the fiscal year.
Actually, we are in the midst of negotiations in our frozen garlic bread operation up outside of Cleveland as we speak.
We are actually past due.
So we've continued to operate; the workforce continued to work as negotiations proceed.
You're welcome, thank you.
Well, thank you all for joining us today.
We'll look forward to talking to you later in April ---+ or later in October with our first-quarter results.
| 2016_LANC |
2015 | DGX | DGX
#What we've shared is that some portion of that organic volume for us is related to decisions we have made.
And some of those our strategic as far as we are focusing our energy on the higher end portion of our portfolio, and some of it is around customers.
And we also have shared in the back half, some of that becomes an easier comp for us.
And <UNK>, why don't you just share perspective on what we have talked about in the last three or four quarters, and then what will happen in the back half with our organic performance on volumes and revenue.
As I noted before, you see in that, despite some volume declines we have actually been able to grow revenue the last several quarters.
So first off, I want to mention that.
But yes, as <UNK> mentioned, we did have some of the volume, less profitable volume that we walked away from, and that's gotten behind us.
And then we did also cite some competitive losses.
Department of Defense was one of them, that was - well, it was a while back.
A lot of the implementation really happened over the last 12 months.
And then there was a large Blues plan in Philadelphia, Independence Blue Cross, where we were at par with our chief competitor and they negotiated a rate to exclude us.
So we did have that loss.
That again largely gets behind us as we go into the back half of the year.
So those two large losses combined with the volumes that we walked away from have made volume certainly a headwind over the last 12 months.
But those comps get a lot easier in the back half.
Just to underscore what <UNK> has said, we continue to share with you that our restored growth plan is both organic and through acquisition.
We feel very good that in the first half we grew greater than 3% growth in revenues.
That's a good number.
Some portion is organic and some portion through acquisitions.
As you know, in the second quarter we're lighter in acquisitions, and we provided you guidance in the back half of the year.
And that 3% growth has allowed us to grow earnings at the level that we have, and that's real earnings.
If you look at our operating income, it's up nicely versus last year.
We are proud of that.
And also we've gotten expansion, margin expansion.
So we think we've got the right formula here that we are working.
And we will continue that formula because at the end of the day, as you all know, the way we're going to get our value up for this Company is to continue to grow our earnings.
And we think we are on the right path to do that.
Thanks.
<UNK>, as to your first question, we have provided some visibility on our requisition volume over the years and also what tests we have seen annually.
And <UNK>, why don't you share those number we've shared in the past.
That outcome is not a coincidence.
It is a consequence of our strategy to steer a larger of portion of our portfolio to where we can make more money and where we can deliver value.
We, as one of our elements of our value that we deliver to all our clients including integrated delivery systems and hospitals, is we have one of the broadest test menu of anyone.
So as you know, we've got the most routine and the most advanced.
And we're bringing new science to the marketplace every day.
We are proud of that.
And we think it's will continue to be a differentiator.
The hospital market, the [referencer] market is a more concentrated marketplace.
There is no specific number because in addition to the test menu, it includes consideration about quality and service and reputation in the marketplace.
And yes, pricing is a consideration for that as well.
So you have to put all those elements together to eventually really understand what happens at the end of the day of us getting reference work and more hospital business versus others.
So there's no particular number that we can see.
About low single digits.
I think it's about 2%.
Thanks, <UNK>.
Okay.
I think we're up on time.
I just wanted to say once again that we believe we had a another good quarter.
We are making solid progress executing our strategy.
We appreciate your time here today.
And we hope you have a great day.
So take care, and see you in our travels.
| 2015_DGX |
2017 | O | O
#Thank you all for joining us today for Realty Income's fourth-quarter 2016 operating results conference call.
Discussing our results will be <UNK> <UNK>, Chief Executive Officer; <UNK> <UNK>, Chief Financial Officer and Treasurer; and <UNK> <UNK>, President and Chief Operating Officer.
During this conference call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities law.
The Company's actual future results may differ significantly from the matters discussed in any forward-looking statements.
We will disclose in greater detail the factors that may cause such differences in the Company's Form 10-K.
We will be observing a two-question limit during the Q&A portion of the call in order to give everyone the opportunity to participate.
I will now turn the call over to our CEO, <UNK> <UNK>.
Thanks, <UNK>, and welcome to our call today.
We are pleased to report an excellent fourth quarter which concluded a solid year for our Company across all areas of the business.
We completed a record-high volume of high-quality property acquisitions, accessed the capital markets at favorable pricing and terms, and actively managed the portfolio to maximize value.
As a result, AFFO per share during the fourth quarter increased 10.3%, to $0.75, which contributed to 2016 AFFO per share growth of 5.1%, to $2.88.
As announced in yesterday's press release, we are introducing our AFFO per share guidance for 2017 of $3 to $3.06 as we anticipate another attractive year of earnings growth.
Now, let me hand it over to <UNK> to provide additional detail on the financials.
Thanks, <UNK>.
I'll provide highlights for a few items in our financial results for the quarter and the year starting with the income statement.
Interest expense decreased in the quarter by $3 million, to $49 million, and decreased in 2016 by $13 million, to $220 million.
This decrease is partly due to a lower average outstanding debt balance over the past year as we have primarily sold common equity for our capital needs over the last two years to repay outstanding bonds and mortgages.
Our October bond offering of $600 million was the first large debt offering we had completed in over two years.
The decrease in interest expense was also driven by the recognition of noncash gains on interest rate swaps during the quarter and year, which caused a decrease in that liability and lowered our interest expense.
As a reminder, we do exclude the impact of noncash swap gains or losses to calculate our AFFO.
Our G&A as a percentage of total rental and other revenues was only 4.9% for the quarter and year as we continue to have the lowest G&A ratio in the net lease REIT sector.
We project G&A to remain approximately 5% in 2017.
Our non-reimbursable property expenses as a percentage of total rental and other revenues was 1.9% in 2016.
This was slightly higher than 2015 due to higher carrying costs associated with some vacant properties.
We expect non-reimbursable property expenses as a percentage of total rental and other revenues to remain in the 1.5% to 2% range for 2017.
Provisions for impairment were $20.7 million in 2016 on 32 sold properties, 6 properties held for sale, and 2 properties held for investment.
We have increased our property sales activity a little, with $90.5 million in sales in 2016 and $75 million to $100 million of sales expected in 2017.
Briefly turning to the balance sheet.
We've continued to maintain our conservative capital structure.
In 2016, we raised approximately $573 million of common equity capital.
In fact, over the last two years, approximately 70% of the capital we have raised has been common equity, and our balance sheet remains very flexible.
Our senior unsecured bonds have a weighted-average remaining maturity of 6.6 years, and we have approximately $900 million available under our $2 billion revolving credit facility.
Other than our credit facility, the only variable-rate debt exposure we have is on just $38 million of mortgage debt.
Our overall debt maturity schedule remains in very good shape, with only $278 million of debt coming due in 2017, and our maturity schedule is well laddered thereafter.
Finally, our overall leverage remains modest, with our debt-to-EBITDA ratio standing at approximately 5.7 times.
In summary, we have low leverage, excellent liquidity, and continued access to attractively priced equity and debt capital, both of which remain well-priced financing options today.
Let me turn the call now back over to <UNK>.
Thanks, <UNK>.
I'll begin with an overview of the portfolio, which continues to perform well.
Occupancy based on the number of properties was 98.3%, unchanged from last quarter.
We expect our occupancy to remain at approximately 98% in 2017.
During the year, we released 186 properties to existing and new tenants, recapturing 105% of the expiring rent, which is well above our long-term average.
Since our listing in 1994, we have re-leased or sold more than 2,300 properties with leases expiring, recapturing approximately 98% of rent on those properties that were re-leased.
This compares favorably to the handful of net lease companies who also report this metric.
We remain active in our asset and management efforts as we look to enhance the returns on our existing properties as well.
Our same-store rent increased 0.9% during the quarter and 1.2% in 2016, which is generally consistent with the run rate we expect for our portfolio in 2017.
90% of our leases continue to have contractual rent increases, so we remain pleased with the growth we were able to achieve from our properties.
Approximately 75% of our investment-grade leases had rental rate growth that averages about 1.3%.
Our portfolio continues to be diversified by tenant, industry, geography, and to a certain extent, property type, all of which contributes to the stability of our cash flow.
At the end of the quarter, our properties were leased to 248 commercial tenants in 47 different industries located in 49 states and Puerto Rico.
79% of our rental revenue is from our traditional retail properties.
The largest component outside of retail is industrial properties, at about 13% of rental revenue.
Walgreens remains our largest tenant, at 7% of rental revenues, and drug stores remain our largest industry, at 11.4% of rental revenue.
During the fourth quarter, we added two new tenants to our top 20, including 7-Eleven, which represents 1.8% of our annualized rental revenue, and Home Depot, which represents 1.1% of our annualized revenue.
We are pleased with these additions as both of these tenants are investment-grade rated, best-in-class operators in their respective industries, with excellent real estate locations and strong store-level metrics.
We continue to have excellent credit quality in the portfolio, with 47% of our annualized rental revenue generated from investment-grade rated tenants.
The store-level performance of our retail tenants also remains sound.
Our weighted-average rent coverage ratio for our retail properties remains 2.8 times on a four-wall basis, and the median remains 2.7 times.
Moving on to acquisitions.
We completed $1.86 billion in property-level acquisitions in 2016, of which $786 million was completed during the fourth quarter.
Both of these amounts were record-high volumes for our Company and were completed at investment spreads relative to our nominal first-year weighted-average cost of capital that well exceed our historical average.
We continue to see a steady flow of opportunities that meet our investment parameters.
In 2016, we sourced $28.5 billion in acquisition opportunities.
We remain disciplined in our investment strategy, acquiring less than 7% of the amount sourced, which is consistent with our average since 2010.
Our selectivity reflects our focus on quality.
Our distinct cost-of-capital advantage allows us to consistently grow earnings while adding the highest quality investment opportunities to our portfolio.
Given the pipeline we are seeing today, we are introducing 2017 acquisitions guidance of approximately $1 billion.
As a reminder, this estimate reflects our typical flow business and does not account for any unidentified large-scale transactions.
I'll hand it over to <UNK> to further discuss our acquisitions and dispositions.
Thank you, <UNK>.
During the fourth quarter of 2016, we invested $786 million in 279 properties located in 27 states, at an average initial cash cap rate of 6.1% and with a weighted-average lease term of 14.3 years.
On a revenue basis, approximately 84% of total acquisitions are from investment-grade tenants.
94% of the revenues are generated from retail, and 6% are from industrial.
These assets are leased to 27 different tenants in 21 industries.
Some of the most significant industries represented are convenience stores, financial services, and discount grocery stores.
We closed 24 discrete transactions in the fourth quarter, and the average investment per property was approximately $2.8 million.
During 2016, we invested $1.86 billion in 505 properties located in 40 states, at an average initial cash cap rate of 6.3% and with a weighted-average lease term of 14.7 years.
On a revenue basis, approximately 64% of total acquisitions are from investment-grade tenants.
86% of the revenues are generated from retail, and 14% are from industrial.
These assets are leased to 51 different tenants in 28 industries.
Some of the most significant industries represented are convenience stores, drug stores, and financial services.
Of the 85 discrete transactions closed during 2016, 5 transactions were above $50 million.
Transaction flow continues to remain healthy.
We sourced more than $5 billion in the fourth quarter.
During 2016, we sourced $28.5 billion in potential transaction opportunities.
Of these opportunities, 61% of the volume sourced were portfolios, and 39%, or approximately $12 billion, were one-off assets.
Investment-grade opportunities represented 26% for the fourth quarter.
Of the $786 million in acquisitions closed in the fourth quarter, 30% were one-off transactions.
As to pricing, cap rates remained flat in the fourth quarter with investment-grade properties trading around 5% to high-6% cap-rate range, and non-investment-grade properties trading from high-5% to low 8% cap-rate range.
Our investment spreads relative to our weighted-average cost of capital were healthy, averaging 214 basis points in the fourth quarter, which were well above our historical average spreads.
We define investment spreads as initial cash yield less our nominal first-year weighted-average cost of capital.
Our disposition program remained active.
During the quarter, we sold 26 properties for net proceeds of $34.4 million, at a net cash cap rate of 7%, and realized an unlevered IRR of 8.5%.
This brings us to 75 properties sold during 2016 for $87.6 million, at a net cash cap rate of 7.3% and an unlevered IRR of 8.5%.
In conclusion, we had an exceptional year in 2016 regarding acquisitions as well as dispositions.
We look forward to achieving our 2017 acquisition target of approximately $1 billion and disposition volume between $75 million and $100 million.
With that, I'd like to hand it back to <UNK>.
Thanks, <UNK>.
As <UNK> mentioned, 2016 was an active year for our capital markets activities.
We issued $573 million in common equity, at an average price of approximately $61 per share, reflecting the lowest cost of equity raised in any year in our Company's history.
Additionally, with the highest credit rating in the net lease sector, we issued $600 million in 10-year, fixed-rate, unsecured debt at a yield of 3.15%, the lowest yield for debt we have issued with this term in our Company's history.
Our 10-year credit spread, which has narrowed by over 20 basis points since the offering, is now among the lowest in the entire REIT industry.
Our leverage remains low, with debt-to-total-market cap of approximately 28% and debt to EBITDA of 5.7 times.
We currently have approximately $1.1 billion outstanding on our $2 billion line of credit, which can be expanded to $3 billion at our option.
This provides us with ample liquidity and flexibility as we continue to grow our Company.
Last month, we increased the dividend for the 90th time in the Company's history.
The current annualized dividend represents a 6% increase over the prior year.
We have increased our dividend every year since the Company's listing in 1994, growing the dividend at a compound average annual rate of just under 5%.
Our AFFO payout ratio is 83.5%, which is a level we are quite comfortable with.
To wrap it up, we are pleased with our performance in 2016 and remain quite optimistic for 2017.
As demonstrated by our sector-leading EBITDA margins of approximately 93%, we continue to realize the efficiencies associated with our size and the economies of scale in the net lease business.
Our portfolio remains healthy, and we continue to see an ample volume of acquisition opportunities that allows us to consistently grow earnings.
The net lease acquisition environment remains a very efficient marketplace, and we believe we are best positioned to capitalize on the highest quality opportunities given our sector-leading cost of capital, access to capital, and balance sheet flexibility.
At this time, I would now like to open it up for questions.
Operator.
<UNK>, we have a tremendous amount of financial flexibility right now, as I said in the opening comments.
And, at the appropriate time.
We'll take a look at all forms of capital that are available to us, and that would include unsecured debt, equity, as well as hybrid capital and make a decision as to what makes the most sense at that time to term out some of the line.
But, in terms of leverage right now, with a debt-to-EBITDA of 5.7 times, we're well within our targeted ranges and feel very comfortable about where the balance sheet is.
Sure, the premiums right now are for one-off assets.
On the portfolio side, especially when you get to the higher quality product and large investment dollars, there's substantially less competition because there aren't very many players who can execute, if any, in the public sector who can execute on that type of transaction.
So, what we are experiencing right now are cap rates on one-off transactions that are 25 to 75 basis points lower than where they are on the larger portfolio transactions.
For recurring CapEx in 2017, we're budgeting $5.5 million.
It hops around.
In 2016, it was $1.5 million.
In 2015, it was $8.5 million.
So, really it's driven by timing on those recurring CapEx and the requirements fluctuate year to year so there's not really a smooth run rate.
But, I'd say, in general, it's somewhere between $2 million to $8 million over the next few years, and this year, we're projecting $5.5 million.
I'd say it's pretty broad right now.
It's consistent with what we were seeing last year where some of our larger, more attractive industries, we're seeing product from tenants in those industries.
And, whether it be C-stores, QSRs, some theatre opportunities, some fitness opportunities ---+ it really is quite broad.
And, I can't say there's one particular industry that's driving the opportunities on the investment side that we're seeing currently.
But, we do have a good flow of opportunities as we mentioned in the opening remarks.
Well, I think, given our distinct cost of capital advantage, we're able to focus on the highest quality net lease properties and investments out there.
This is a very efficient market, and as you go out on the risk in yield spectrum, you're going to be taking on issues that you don't take on on the higher quality.
And, with our unique position, we're certainly able to achieve IRRs that exceed our hurdle rates and spreads ---+ initial spreads relative to our first-year nominal weighted average cost of capital that are much wider than what they have been historically.
So, we plan to maintain that quality focus, and we think it's paying off.
And, we think the market is respecting that.
Just normal.
We have been in this 98%-plus-or-minus range, and it's hard to get it down to 0.1 of a percentage point in terms of prediction.
So, in our model, we modeled approximately 98%.
The portfolio ---+ there are no material issues in the portfolio right now.
We feel quite good about its health, and 98% is not indicative of any downturn on the portfolio front.
Yes, I think that's fair to say, <UNK>.
No I don't.
I don't like to speculate on any potential or theoretical M&A activity, so I don't really have any thoughts to share publicly on that front.
Well, we're subject to CA, so I can't get into specific details on that portfolio, but what I could do is talk about what we look for when we do a C-store transaction.
So, again, we're focused on quality, really a best-in-class operator with high-quality real estate.
Store sizes that are at least 3,000 square feet because that's where these C-stores drive their profits, and that's where their margins are.
We want to be in properties that are reflective of market rents and replacement costs, and we want good coverages.
And, having a great credit is icing on the cake, and we prefer to be with best-in-class operators.
Couche-Tard ---+ Circle K is another one of our Top 20 tenants.
That's what we like.
We're actually selling some C-stores right now, and the ones we're selling are a contrast of what I just described.
We don't have a lot of them, but they are non-strategic in that the store sizes are 500 square feet or less.
They are more kiosk, regional.
The locations are inferior, and certainly, the credits are inferior to someone like a 7-Eleven.
We don't really experience a lot of competition certainly from the public sector on those types of transactions because, again, going back to our cost-of-capital advantage and our ability to execute and clear our hurdles and drive earnings through these types of investments.
The coverage levels on those types of transactions exceed our average for our overall portfolio.
I can't release specifics on that front given the fact that we're subject to a CA.
Not materially.
When we are looking at the higher quality investments that we've been talking about some on today's call, we don't see as many public companies, if any, there.
We see institutional capital being run by institutional investment managers that are familiar and experts in the net lease sector.
So, when we go out a bit on the yield and a little bit out on the risk spectrum, we start to bump into some of the other public and private REITs out there in the net lease space.
Pus we see some mortgage REITs and sometimes private equity capital.
That's been consistent for the last few quarters, if not the last 1.5 years, so no real discernible changes on that front.
It's a mix.
So, we're guiding to $75 million to $100 million in dispositions this year.
That's really comprised of the kiosk, lower quality, legacy C-stores and some casual dining opportunities, as well as some daycare properties that are no longer consistent with our investment strategy that we're moving now.
Some are vacant, and some are leased.
It's probably 50/50 somewhere in that neighborhood.
With the $90 million we did last year, those were also non-strategic sales.
And, on the leased assets which were about 50% of what we sold, we achieved cap rate in the low 7%s, so that gives you an idea of the market where we can sell non-strategic assets in the low 7%s.
Our overall unlevered IRR on all of our sales including our vacant properties was 8.5%, and again, these are our non-strategic investments that we're selling.
We've converted from a DARTH to an S&P approach in terms of credit, so the DARTH days are behind us.
But, I can talk about the categories from a credit perspective.
We have really four categories from a tenant credit, and it's excellent, above average, average and below average.
And, below average are the weaker credits, and they represent about 6% of our revenues.
But, our watch list ---+ the list from which we sell is in the low 1%s, and that watch list combines both the credit and the quality of the real estate.
So, there's some very high quality real estate in that 6% below average credit bucket that we wouldn't mind getting back and selling or re-leasing.
And so, we're fine holding on to that.
The trends have been pretty consistent there.
The watch list is hovering in the low 1%, and the below average credit has been in the 7%.
I'll tell you, you've been following us for a long time.
If you go back eight years ago, and you looked at our Top 20 tenants the average rating would be double B minus.
You flash forward to today and at the end of 2016, the average rating of our top 20 tenants is a solid triple B.
So, we've made real good progress over the years in upgrading the credit profile, and we feel good about where the portfolio stands, Dan.
Yes, well on the sale lease back, 75% of the activity in the fourth quarter was sale lease back.
For the year, it was about 60%.
We don't financially engineer transactions so we want to underwrite market rents.
We could juice those rents and show higher cap rates, but that gives you risk on the residual and long-term risk so we've always avoided that.
And, we don't mind announcing an initial yield of 6.1% like we did in the fourth quarter when we're buying the quality assets that we're buying.
We're still making, as I said, great spreads, well above our historical average.
And, on our IRRs, we're exceeding notably our hurdles there.
So, what we see done in the industry is some players dressing up their yields by buying assets that have rents that are well above market, and in the long run, it's our opinion that's just not a value-creating exercise.
Thank you.
We're going to take a look at this coming out of the call in the next few weeks and determine what's appropriate for the Company and the shareholders.
We've made no definitive decisions on that.
No.
Okay, thank you, Kyle.
Thanks to everyone for joining us today, and I know we'll be visiting a number of our investors who were on the call today in less than two weeks at the Citi conference.
We look forward to that.
And, again, thanks for your participation and have a good afternoon.
| 2017_O |
2017 | PRA | PRA
#Good morning, everyone.
Welcome to the conference call to discuss ProAssurance\xe2\x80\x99s results for the quarter ending March 31, 2017.
These results were reported in a news release issued on May 4, 2017, and also in the company's quarterly report on Form 10-Q, which was also filed on May 4.
These documents are intended to provide you with important information about the significant risks, uncertainties and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results.
Further, we caution you that management expects to make statements on this call dealing with projections, estimates and expectations and explicitly identifies these as forward-looking statements within the meaning of the U.S. federal securities laws and subject to applicable safe harbor protection.
The content of this call is accurate only on May 5, 2017.
And except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligations to update or alter information disclosed as part of these forward-looking statements.
The management team of ProAssurance expects to reference non-GAAP items during today's call.
The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.
Now as I turn the call over to Mr.
Frank O'Neil, I would like to remind you all that this call is being recorded, and that there will be a time for questions after the conclusion of prepared remarks.
Please, Mr.
O'Neil, go ahead.
Thank you, Anita.
Thanks, everybody, for joining us.
On our call today are our Chairman and CEO, Stan <UNK>; <UNK> <UNK>, the President of our Healthcare Professional Liability Group; Chief Financial Officer and Executive Vice President, Ned <UNK>; and Mike <UNK>, the President of Eastern, our workers' compensation subsidiary.
As is our custom, we're going to lead off with Stan.
Thank you, Frank.
I want to welcome everyone to our call to discuss a strong though uneventful quarter.
We achieved solid profitability, retention of existing business was good and we wrote significant new business in both our Specialty P&C and workers' compensation segments.
Given the straightforward nature of the quarter, our remarks will be brief, and we look forward to questions at the end.
Ned, will you please lead us all.
Thanks, Stan.
Gross premiums rose almost 5% year-over-year, driven primarily by growth on our Lloyd's Syndicate and workers' compensation segments of 84% and 8%, respectively, compared to prior year.
We wrote $10.2 million of new business in our Specialty P&C segment, and $14 million of new business from workers' compensation.
Our coordinated sales and marketing efforts produced $7.7 million of business in the quarter.
The consolidated current accident year net loss ratio was 80.9%, an increase of 2.3 points over the prior year and attributable almost entirely to the growth in our Lloyd's segment.
So that's the flip side of Lloyd's growth coin.
The consolidated calendar year net loss ratio was 65.1%, which is 2.6 points higher than last year, again, primarily as a result of growth in the Lloyd's Syndicate segment.
We realized $28.8 million of net favorable development with all segments contributing.
That is essentially level with the first quarter of 2016.
We continue to pay close attention to our expenses, which is important given the competitive nature of the market and the limits we place on growth by being disciplined in our pricing and underwriting.
We saw a $21.6 million swing in net realized investment gains, which were $13.3 million in the first quarter of this year versus a loss of $8.4 million in the first quarter of last year.
Our net investment result was $3.2 million higher year-over-year.
This was due to a sizable change in the earnings of unconsolidated subsidiaries, which were $1.8 million compared to a loss of $3.6 million in Q1 2016.
Offsetting those gains was a $2.3 million decline in net investment income, which continues to suffer from the low interest rate environment that is affecting the entire insurance industry.
Taxes were a somewhat bright spot for us in the quarter.
We realized a 3% tax benefit compared to a 6.6% tax expense in the same quarter last year, due primarily to the application of revised accounting guidance, which was effective January 1, 2017, and resulted in an excess tax benefit on share-based compensation.
And to a lesser extent, our investment in various tax credits and tax exempt income in our bond portfolio.
With higher revenues, thanks to net realized investment gains and higher premiums coupled with the tax benefit, net income for the quarter was $41.5 million, $0.77 per diluted share.
Operating income for the quarter, which strips out investment gains, was $33.4 million or $0.62 per diluted share.
Our ROE improved to 9.1% in the quarter, which gets us much closer to our targeted 7 points above the 10-year treasury rate, which at April 30 was 2.29%.
Book value stood at $34.19 per share at the quarter end, a 1% gain in the quarter.
As of May 1, we held approximately $135 million in unpledged cash and liquid investments outside our insurance subsidiaries and available for use by the holding company.
That includes approximately $18 million of subsidiary dividends paid to the holding company in April.
Frank.
Thanks, Ned.
We'll turn next to <UNK> <UNK> for detail on the Specialty P&C segment.
<UNK>.
Thanks, Frank.
Despite the competition, we held our own in the Specialty P&C segment.
Gross premiums were down 1%, but the components bear some explanation.
Physician professional liability continues to be the largest single line within this segment and premium derived from our policies with a 1-year term grew a little more than 1% to $89.7 million.
Most of our investors know that we also write a limited number of 24-month physician policies.
Because of the renewal cycle of these policies, we expect an overall decline in odd-numbered years.
Premiums on our 2-year policies were down $2.8 million to $5.9 million, and that is the primary driver of the $1.4 million decline in premiums for the segment.
Health care facilities declined 4% to $12.2 million, primarily due to the timing of policy processing in the first quarter of 2016.
Premium from other health care providers, aligned with the growing importance in the health care evolution in America, was up $486,000 or 6%.
Our premium retention on the physician line was 90% for the quarter, up from 88% in Q1 of 2016.
Rising on renewing physician business, a key benchmark for us, was 1% higher year-over-year.
Our current accident year net loss ratio for the quarter was 88.7%, essentially unchanged from the first quarter of 2016.
We made a lower provision for mass torts than in the same quarter last year, but there was some upward revision in the overall loss ratio due to the mix of business.
Our favorable net loss reserve development in the segment was $25.3 million, coming principally from accident years 2009 through 2014.
Importantly, we do not see any change in the overall loss trends for the segment.
Frank.
Thank you, Frank.
The workers' compensation segment operating results increased to $2.9 million for the 3 months ended March 31, 2017, compared to $1.3 million for the same period in the prior year, driven by an increase in earned premiums and decreases in the net loss ratio in underwriting expenses.
Gross premiums written increased 7.9% to $84.2 million for the 3 months ended March 31, 2017, compared to $78 million for the same period in '16.
This includes new business writings of $14 million that Ned mentioned previously during the quarter, compared to $9.4 million in 2016.
We also launched a new initiative, Eastern Specialty Risk, which I will discuss in more detail later, that contributed $1.5 million of that new business in the quarter.
Audit premium was $1.2 million in the first quarter of 2017, a slight decrease compared to the $1.5 million in 2016.
Renewal pricing decreased 3% in the quarter, reflecting continued price competition in the workers' compensation marketplace.
Premium retention was 89% for the first quarter, driven by strong results in our alternative market program business.
Premium retention for alternative markets was 96% in the first quarter of 2017 compared to 92% for the same period in '16.
We were successful in renewing all 10 of the available alternative market programs in the quarter.
Overall, alternative market program gross written premium increased 18.3% in 2017 compared to the same quarter in 2016.
The decrease in the first quarter 2017 accident year loss ratio in our traditional business reflects lower winter weather claims activity in 2017 compared to 2016 and overall favorable trends in claim closing results.
We successfully closed 21.8% of 2016 in prior claims during the quarter, one of the best first quarter claim closing results in company history.
Favorable reserve development was $2.4 million in the quarter compared to $1.1 million in the first quarter of 2016, primarily related to alternative market business but also includes approximately $400,000 in both periods related to the amortization of purchase accounting fair value adjustments.
The decrease in the 2017 expense ratio reflects a 1.1 point reduction in intangible asset amortization, a decrease of 1.2 points related to a pension plan termination that was fully settled in 2016 and continuing prudent expense management strategies.
The 2017 combined ratio of 92.9% includes 1.3 percentage points of intangible asset amortization and 1.1 percentage points of a corporate management fee.
Lastly, I'm pleased to announce that we launched the Eastern Specialty Risk underwriting unit during the first quarter of 2017.
As I noted earlier, we wrote $1.5 million of gross premiums in this unit in the first quarter, primarily in the mid-Atlantic region.
This new initiative provides an additional product and service strategy to our valued agency partners that focus on employers engaged in higher hazard industries.
These employers tend to have less frequent but more severe claims compared to other industries.
As a result, employers engaged in high hazard industries pay substantially higher than average rates for workers' compensation insurance.
We believe that our short-tail claims strategy, high quality risk management and disciplined underwriting platform will be attractive to customers in this market segment.
In addition, we expect this unit will deliver value by working with customers to reduce the overall incidence and cost of workplace injuries, while promoting a safer work environment.
This strategy aligns well with our capital based position, return expectations, internal service expertise, pricing strategy and the improving economic outlook for this market segment.
I also want to stress that we have the full cooperation and support of our reinsurance partners.
Our reinsurance retention on this business is the same as that of our traditional business, which limits our downside risk and expands our relationship with our long-term reinsurance partners by providing them with additional rate for exposure in this sector of the market.
Frank.
Thank you, Mike.
Let's go back to <UNK> now and hear about Lloyd's.
Thanks, Frank.
We continue to see growth at Lloyd's, and that includes higher premiums along with a commensurate increase in expenses.
As we get into specific numbers, let me remind you we report net results reflecting our 58% participation in the syndicate, and we do so on a 1 quarter lag.
Gross premiums written were the big story, up 84% quarter-over-quarter to $12.7 million due to both new business and the growth of existing accounts.
Net premiums earned were $14.6 million, an increase of 17% over the same quarter of last year.
This reflects the increase in overall premiums, and as we have explained before, adjustments to premiums on policies for which initial exposures are estimates and on policies for which premiums are adjusted based on loss experienced.
Underwriting expenses within the syndicate continue to grow as we expect.
This quarter, expenses were $6.2 million, up 20.2% over the prior year first quarter, but trending down from the 23.3% growth for 2016 versus 2015.
With the slowing of expense growth and the rise in premiums, the expense ratio was up only a little more than 1 point quarter-over-quarter.
The current accident year loss ratio increased 19.8 points compared to last year's first quarter.
This is primarily the result of the unusually low loss ratio in the year ago quarter, which resulted from timing differences on premiums earned for accounts that were in run-off at that time.
Also, at work but to a lesser degree, are small shifts in the mix of business compared to last year and the use of loss assumptions that continue to be derived from Lloyd's' historical data for similar risks.
Although the Syndicate is increasingly relying on its actual experience to modify the Lloyd's data.
So the same factors drove an increase of 15.6 points in the net loss ratio, which did benefit from the recognition of $1.1 million of favorable reserve development.
And one final note to underscore our excitement about the success of our investment in Syndicate 1729 and the degree to which we value the Syndicate's ability to grow while maintaining underwriting and pricing discipline, we can report that we have extended our $200 million capital commitment to the Syndicate through the year 2022.
Frank.
Thanks, <UNK>.
Stan, will you wrap this up.
Thanks, Frank.
As I said, this was a strong straightforward quarter with solid results.
We continue to see the benefit of the dedicated execution of well-reasoned, strategic initiatives designed to ensure that ProAssurance meets the evolving needs of a dynamic marketplace.
We remain excited about the future, and look forward to answering your questions.
Frank.
All right.
Thank you Stan.
Anita, we're ready for questions.
Okay.
Yes, Matt, the ---+ I think it's really just a normal kind of business mix.
As we've talked about in several of our prior calls, we've done a lot over the past several years to develop stronger relationships with some of the larger brokers who are now dealing with the larger consolidated health care accounts.
And we're getting many more submissions.
Submission growth continues to be a real area of concentration for us.
And yes, there are some consolidations taking place where we are on the winning side.
I mean, it happens the other way as well from quarter-to-quarter, and we've reported in the past accounts that we've lost as a result of consolidation.
This quarter, we had one that benefited us.
So I think it's a combination of a lot of things.
Nothing really dramatic or different than we've done in the past, other than getting more at-bats on the submission side.
Matt, yes, that is what we would anticipate.
Mike.
On the new business front, it was $14 million compared to $9.5 million from the first quarter of 2016.
Half of that increase was a large health care new business account within Inova which is, for us, is more of a fee-based revenue opportunity.
So what we saw <UNK>, there in the quarter, was consistent production across these operating territories on the new business front.
And your second part of your question on frequency, I mean, the industry has seen significant reductions in frequency, which has driven loss costs down slightly in across the operating territories.
And ours is reflective of that as well.
Our claim frequency has been down fairly consistently.
It was down about 9.5% at year-end 2016.
So we feel like we're well positioned there.
Yes.
We've really been evaluating this strategy for several years.
And <UNK>, as we look at the overall ---+ our overall capabilities, our reinsurance structures, the growth of that sector from an economic perspective, the talent level that we have in our organization on some of the risk management claims and underwriting perspective, we believe that at the end of the day, it's an underserved market where we can achieve margin over time and achieve our return expectations.
So we'll be very disciplined about it.
We'll continue with our individual account underwriting strategy and we'll be conservative on the pricing, but we do think it's a very nice opportunity going forward.
Mike, you might also mention the agent interaction you've had with that.
Yes.
Good point, Frank.
One of the observations we've made is we've talked to our agents at various advisory council meetings over the last 3 years.
And one of the, I think, sustainable competitive advantages for us there is the typical higher hazard account is written ---+ the agent has 1 or 2 accounts with a specialist.
Eastern, in their agency management model, has a broad book of business and a larger book of business that includes small business in Inova and middle markets workers' comp.
So the agents have been really, really receptive to the high hazard unit from the perspective of, hey, this is a new product and service that we can expand our relationship with Eastern.
We've already had a ---+ we already have an extensive relationship there, and we are seeing those opportunities.
So we think we have an agency management advantage.
Yes.
Just taking a look at what we've seen in the first quarter, we wrote $1.5 million in first quarter with no loss activity.
And there's a balance there, <UNK>, from the perspective of you need scale for your reinsurance relationships in that business and for severity funding.
However, we've looked at it for the remainder of the year and unless there's a very large account or 2 in there, we think it'll be less than 3% to 5% of our premium in '17.
But we'll grow slowly at a disciplined pace as we go forward.
I think that's going to depend a lot on how the mix of business evolves.
And of course, the loss ratio part of it is also dependent on the expense ratio.
And the reason I'm talking about the mix of business is the fact that some of the Lloyd's business being reinsurance assumed with ceding commissions has a higher expense ratio than maybe some of the binding authority business.
I think that it's ---+ rather than giving you a firm number, I'd say that the loss ratio expectations are probably in the 60% or so range with the expense ratio probably in the 35% or so range.
But there's going to be a good amount of variability around that from quarter-to-quarter.
So please don't get locked in on those.
Yes.
I think we're seeing good progress.
A lot of our new business growth last year, and we have sort of a record amount of, if you will, of new business last year came from larger account physician business resulting from groups that had consolidated and from hospital facilities.
And I'd say that most of that came from the larger broker relationships.
I don't have a precise percentage for you, but I know just thinking about it, I'd say the majority of that new business last year came from the larger broker relationships.
A couple of caveats to add to that, <UNK>.
First, remember as we've spoken about before, that this business rolls around, at most, once a year or sometimes once every 2 or 3 years, where somebody takes a look at us and our program.
So it's not like we sell any consumer product where they come in 1 day, look at it, and come back the next day and buy.
And so that creates its own set of issues.
But second, when you apply those same issues to the big relationships, that's what is the choppiness and the volatility into the revenue that we talked about at the year-end call we had 3 months ago.
So it makes it impossible for us to predict and even harder for you to predict, but we would expect to continue to see progress in that area.
We're very pleased with what we've accomplished to date, and we think that activity will continue to serve us well.
Just a few questions.
The first question goes back to the discussion on capital and you didn't repurchase any stock this quarter.
I know that in the past, we've talked about a special as the more appropriate means based on where the stock is trading at relative to the book value.
Can you just remind us how you evaluate one over the other.
And how should we be thinking about any capital repatriation down the road.
<UNK>, so for stock repurchases, we try to be very disciplined.
We try to avoid kind of taking a view on what I would call value vis-a-vis The Street and look at it more on how long it takes us to recoup any dilution that is caused by buying above our stated book value.
And as that recoup period approaches 3 years, we begin to take ourselves out of the market on share repurchases.
We certainly prefer share repurchases at prices we find within that threshold over any sort of special dividends.
But I would also remind you that we are constantly evaluating kind of the capital position of the organization and looking at the opportunity set that's out in front of us.
And then kind of we'll make decisions based upon that regarding our current dividend levels, the payment of any special dividends and the repurchases of stock.
Okay.
The second question goes back to the workers' compensation segment.
And I know you talked about the growth in the alternative market business, and in the press release you talked about 10 programs.
Can you just give some broad color what these programs look like.
Are they are all alike.
Maybe just help us understand that piece a bit better.
Absolutely, <UNK>.
Today, just to give you an overall profile of an alternative market business, we have 30 total programs which includes the 3 that we have medical professional liability.
In them, 27 of them are active.
We have 23 of those programs that are ---+ Cayman based and we have a few in other domiciles.
From a perspective of what types of alternative market programs we have, we have a significant level of health care-related alternative market programs, association business in different segments of the marketplace and then we also have a component of what I would call agency-owned captives or segregated portfolio cells.
It's a real balanced book of business.
It produce very nice fee-based revenue.
We produced about $3.8 million of fee-based revenue in the first quarter and we made about $630,000 in underwriting profit on the cells that we own, and about $820,000 of net income on those ---+ on the cells that we own.
So we continue to believe it will be ---+ it's a sticky product, it's got high program retention, it's got high premium retention within the programs as you saw by the 96% premium retention.
And we expect continued opportunities there.
That's actually quite helpful, the refresher.
The final question I have is for Stan or anyone for that matter.
Just going back to the Lloyd's business.
Obviously, we've talked about the expense ratio challenges.
You're talking about the loss ratio sort of reaching a new normal and probably remaining at these elevated levels in the near future.
I'm curious how should we think about the profitability aspect of this business.
Because if you look at it, it's had an underwriting loss on a quarterly basis ---+ I'm sorry at an operating loss on a quarterly basis.
So maybe just help us understand why you're writing this business.
Why do you need to be writing this business.
And how does this make money longer term.
So that we can understand as outsiders what is so special about this business.
I'll let <UNK> respond to that, but bear in mind, <UNK>, we don't make decisions about a business based on this quarter or that quarter, but as part of our long-term strategy.
So we view the Syndicate as an investment today.
We're quite pleased with it.
<UNK> will give you some specifics on that.
But it also is an integral part of our long-term strategy as we've said in the past.
And someday, we expect Syndicate 1729 to be the platform for writing additional international business.
So we think it gives us flexibility.
It gives us a different arrow in the quiver, and it's one we're very pleased.
We take a very disciplined approach to it.
Duncan Dale and his team at Syndicate 1729 are long-term players.
They understand the Lloyd's market and they take advantages of the opportunities that come along.
With that as preface, I'll let <UNK> talk about the specifics of the numbers.
Sure.
And I guess, I take a little exception to the idea that it's a ---+ in terms of operating loss on an overall or long-term basis, we have choppiness, no question about it.
It's a relatively new operation.
We actually ---+ the Syndicate actually closed its first underwriting year, the 2014 year, at a small profit, which I think was a pretty remarkable achievement for a brand new syndicate.
It doesn't mean that every underwriting year will and some will be better than others.
I think we expect that a number of underwriting years will close with large profit.
But we had the loss ratio up this quarter.
If you're comparing it to last year, I think, that's probably an unrealistic comparison because as I mentioned, last year was unusually low.
But we did have a 65.3% loss ratio, a little bit higher than kind of that rough long-term number that I mentioned earlier of 60%.
Expense ratio is still elevated because of the relative use of the Syndicate and growing into its staffing.
Part of the ability to write business is also ---+ has also been the attraction of underwriting talent with relationships in the marketplace.
And that has allowed us to ---+ or allowed the Syndicate to grow pretty significantly but also, at the same time, have some operating expense components.
And that expense ratio we expect will trend down.
So I still think that over a period of time, those numbers that I mentioned will prevail and we'll end up with an underwriting profit in the Syndicate, much less an operating profit.
So if I were to ---+ and maybe you can educate me here, if you were to step back and as an outsider, would you say that this materially exceeds the cost of capital, modestly exceeds the cost of capital or marginally exceeds the cost of capital over time.
I mean, again, the ProAssurance story was built on very strong med mal in the U.S. and then, obviously, we branched into other areas.
What I'm trying to think is if you internally do the exercise in terms of capital deployment, what sort of goalposts in terms of returns did you pick.
And are we anywhere closer to them down the road.
Or is that ---+ again, you talked about the premiums, you talked about Duncan.
And again, I completely agree with those aspects.
But just help us understand how internally we should think about the profitability target and how far or close are we from that target.
I think, first thing, I think we need to look at this as a strategic initiative and not only with respect to a cost of capital type of analysis.
We benefit from the Lloyd's Syndicate and expect to benefit by allowing us to have an international platform.
That is beginning to materialize with respect to international health care business as well as the other business that is being written in the Syndicate.
In terms of a cost of capital-type approach, my expectation is that on an overall basis over the long period of time, the Syndicate will produce a return that is commensurate with our desired returns on capital, on our return on equity ---+ in line with our return on equity expectations for the capital that we have committed to the Syndicate.
Would you be able to broadly define what the time period is.
Tell me what's going to happen in the market for 7 years.
It depends entirely are we going to have no cat losses for the coming 12 months or we're going to have 5.
It's very difficult to predict.
And that difficulty is why it's so important to be disciplined in what we're doing.
We take a very long-term view of it.
As <UNK> said, it's the strategic initiative designed to provide us with additional opportunities and additional mechanisms by which to take advantage of the world is evolving pretty quickly behind us.
If you stop and step back for a minute, given the very, very difficult times the reinsurance business around the world has faced over the last few years, to think you can start a brand new syndicate and close your first underwriting year at a profit is, frankly, pretty remarkable.
And I haven't looked at it, but I would venture that it hadn't been done all that often.
So we take a very, very long-term view of it, <UNK>.
And we think over the long term, the capital we have allocated to this now investment in over the long term to a more strategic opportunity will be very worthwhile for all of our shareholders.
Yes.
One thing to keep in mind, Bob, is that this is business that we've written in our high experience modification book over time and we have a proven profitability track record.
So it is the next level of risk in the sense that the types of risk will be more aligned with the infrastructure growth in the United States.
So we have some construction, regional transportation, forestry, those types of things.
But keep in mind, we've written those classes of business successfully in our HIMA book, in our Inova book and others.
This is more of a specialty unit design for the individual account in these particular sectors.
The other thing that's very interesting, and we looked back and looked at a 20-year history of the business that we do write, is the more conservative underwriting company that we use produces about a 57% loss ratio over the last 20 years, which is 5 or 6 points lower than our 20-year history at Eastern, which is in that 61%, 62% range.
So you do find margin in business that has less competition and where you can provide value on the risk management claims and underwriting side of the equation.
Well, yes.
In some respects, we do take some underwriting risk in some of the Inova programs on this type of business.
However, look at it ---+ I think it would be interesting to look at it this way, it's another product spectrum, not like ---+ for example with Inova, not all customers want to go into a captive program.
So they may want to be underwritten on an individual account basis within this unit.
And that presents us, again, with another product spectrum and service offering to our agency partners that we really built over the last 10 years.
I mean, we started with small business.
We have all the product lines necessary in workers' comp for middle markets.
We've added Inova over that period of time.
And I think this will be a very attractive product and service offering as we go into the future.
On average, it's a bit larger to fund for severity.
But just to give you some perspective on that, Bob, we wrote $1.5 million in the first quarter, no loss activity, and it was 5 customers.
Bob, so what we've said, if you recall, the roughly $200 million that we borrowed under this facility is all collateralized.
It's really an interest rate arbitrage.
And so as the underlying collateral matures, we'll pay down that collateral as it matures.
If we do have collateral that matures in the second quarter, and off top of my head I'm not sure that we do, we'll pay that down.
But that's how that will happen.
So it will just be as that collateral matures.
And it's pretty short-dated collateral for the most part.
Thank you, Anita.
We'll wrap up the call, and look forward to speaking to everybody again in August when we release second quarter results.
Thank you, everyone.
| 2017_PRA |
2015 | ADSK | ADSK
#Yes.
We're not going to, obviously, forecast FY17, at this point.
I would tell you, though, the free cash flow and the operating cash flows will follow closely along with the billings, as opposed to anything in the reported revenues in the P&L.
Both.
It's both.
Both things strongly grew.
And like I said, I think desktop subscriptions will have a more consistently increasing profile, whereas I think EBAs will still be subject to that seasonality.
But I think both will continue on an upward trend.
But what I was referencing ---+ both of those substantially grew.
Yes.
One of the things I would say is that, as you work your models, it's very different when you're at 13% or 15% because your expenses and revenue aren't aligned.
When it comes about ---+ because of the way we account for it, in some ways you're putting money in the bank.
And so the growth rate you can see in EPS or operating margin is dramatically different than happens under normalized conditions.
In some ways, the dollar you put away today that you don't recognize comes back, even though, to some extent, most of the expense of that is already ---+ we've already spent that money.
So I think we've spent a lot of time looking at this.
And what you get, as you come out of this, is dramatic increases unlike increases we've seen in any other year.
And that speaks to the ---+ how well we will do in that year.
What we're really doing is, we're just putting money in the cookie jar right now.
So I think, if you look at it through that lens ---+ kind of simplistic corner store mentality lens ---+ you get it.
The only reason it's not dropping to the bottom line now is through the accounting rules, not due to the fundamental economics of the business.
Yes.
<UNK>, the subscriptions numbers are still overwhelmingly driven by maintenance subscriptions.
And so while we're seeing strong growth in both cloud and desktop ---+ certainly strong growth, year-on-year, but sequentially, very strong growth ---+ in those numbers, they're still small.
And so we're still overwhelmingly driven by maintenance subscriptions.
As the other two become material and we think there's a benefit in breaking that out, of course, we'll do so.
No.
I wouldn't think about it that way.
As we talked about before, we've said, in the first year, we can provide incentives for folks to get there.
There's nothing that says we need to do that in subsequent years.
And I really think of the economics of each of these customers differently.
The other customers have paid a large, up-front amount and, to some degree, deserve to pay less per year, whereas the ones who get this lower, up-front cost can pay more over time.
But I think, in terms of getting people into the system, we will definitely continue to experiment with different price points and see what the results of that are.
And that's one of the things that we've talked about.
But if I read through the lines in what you're saying, I would not model these two things as identical.
I think that would be a large mistake.
Yes.
The other lever there, Walt, of course, is to use value to attract customers to the cloud and desktop offerings, based on the value they provide and differentiate the value of those offerings versus maintenance.
Thanks.
Yes.
So what I would say in the short term ---+ I think, looking at the short term, of moving the millions of people who are non-subscribers on, I think this will be an ongoing thing.
I don't think there's any short-term phenomena there.
I think there will be incentives; there will continue to be incentives.
The places that we encourage them to move will change as the programs change.
But many of the 3 million customers are happy, loyal customers.
And what we're trying to do is change the commercial arrangement between us.
And we will continue to do that by making a variety of offerings.
So there's nothing like ---+ that ended or expired.
There's still a lot of options, in terms of how we go addressing ways to get those customers into the new model.
Yes.
<UNK>, I think you hit the nail on the head.
I think it's a really important point.
Yes, what we've seen is subscribe to Autodesk, which is a flexible licensing program for everyone from our smallest to our mid-sized customers ---+ the people who aren't involved in like those EBAs ---+ those are mostly replacements, in our mind, for suites.
Certainly, some people that have single products will also find that attractive.
It also starts to deal with some of the network licensing things.
Even on our single products, there's a network licensing component.
Many of our customers, even on LT deploy, these in groups, and subscribe to Autodesk begins to address that as well.
We haven't announced detailed plans.
But just to answer your question more pointedly, it will have a bigger impact the following year than it will this year.
Okay.
Got it.
| 2015_ADSK |
2015 | ALK | ALK
#Yes, <UNK>, hi, it's <UNK>.
Maybe I will jump into that.
I think what I would just simply say is in Seattle what we see is quite a strong economy.
We are adding, we're growing, we're taking delivery of these new airplanes, we're putting them into markets.
As <UNK> sort of suggested many of these markets are doing great right out of the gate.
<UNK>, I can't remember the exact figure you quoted but 75% are early in their life producing returns that cover our cost of capital.
So I think the simple answer to your question is yes, this is good new growth.
We're producing returns as a Company that are far in excess of our cost of capital and this is helping us with our substantial returns to the owners of the Company.
I don't know that I would call it inflation necessarily.
But what I would say is that we've done a lot to invest in our product.
And ultimately at the end of the day customers choose your service because you operate well and you have got great people on board and you have got great product and we want to make sure that our product is as good as it can be.
So we are investing into food and beverage.
We are investing in some of the training initiatives that we've talked about.
I wouldn't necessarily call it inflation, I would call it intentional investment into what customers see every day.
<UNK>, it's <UNK>.
I will take the first question on the bag performance.
We had a rough quarter on mishandled bags and the operations folks own that.
We're not happy with how we performed.
We actually have an initiative right now and going into 2016 to get our mishandled bags right in line.
I don't want to put the cause on the free bag with the credit card.
That is us to perform at the levels that I know we can perform.
And <UNK>, in terms of if we were to renegotiate our bank card deal, whatever's in the base is in the base, so I just think the economics get better across the board.
In terms of free bags is in the base is what I mean to say.
Yes, <UNK> I might start and then I'm going to turn it over to a new personality on the call.
But sure, the way we would look at our network is we have incredible strength in the state of Alaska and Washington State and Oregon and considerable strength in California.
To the extent we have competition in those markets that's a lot of these results that you see are the results of the loyal customer base, the flight schedule, everything we're doing out of these markets.
So for sure we would want to do to work hard for originating traffic out of those hubs, out of those regions and protect what we have here.
In terms of your second question I want to introduce a new personality.
<UNK> <UNK> is our Vice President of Revenue Management.
<UNK> has been with the Company a long time, 15 years, <UNK>.
Yes.
<UNK> has worked in our corporate real estate group.
He's spent a long time at financial planning and analysis.
He did a terrific job in labor relations.
He is the one that helped us get many of these deals that we have today and now he's running revenue management.
So <UNK> will ---+ there is your introduction.
Thanks, <UNK>.
Good morning everybody.
Hey, I would add just a little bit to what <UNK> said.
We are keenly focused on making sure we retain the loyalty of the customers in our work.
And so we're very strategic about what competitors are doing, what fares they're offering and you'll find that we're competitive across the board.
We're not interested in yielding our base of strength.
I think in terms of outside of Seattle I incurred some of the core parts of our network, we actually have been doing a little bit better in terms of focusing on getting originating passengers off of the core network.
One place that we've done a good job over the last 12 months is Salt Lake City where we sort of started struggling a little bit out of the gate in terms of load factor.
We put a lot of energy into it as a commercial team and we've seen those load factors come up nearly to our system average.
So we will do more that as the network gets broader and more complex but I think we're doing a great job and most of that is to the credit of my team down in RM.
Good morning, <UNK>.
It's <UNK>.
Maybe I'll start with that.
It's actually a good question and it's one that we're thinking a lot about right now.
Back a decade or so ago when we set out a goal of having a 10% margin it was viewed as sort of aspirational in nature certainly by others in the industry.
And we worked hard to get there and our 10% margin was directly connected to an ROIC goal.
What I will say is the industry is much different now than it was then, structurally revenue environment competition in Seattle.
And so it's really fair to say that 10% or $0.10 on the dollar as we talk about internally is probably not a relevant place to be over the long-term.
On the other hand we're at a 29% margin for the quarter, 23% on a rolling 12 basis among the top three in the industry, typically behind Spirit and Allegiant and congratulations to those guys, they are doing very well.
But that's probably not sustainable either both because as you say fuel will recover but I think just in the context of where airlines as a mature industry that's healthy are going to be it's probably going to look more like industrials broadly than as a real outlier like it is today.
So it's a really good question.
It's one I don't have a great answer for but I suppose what I've done is maybe set out the goalposts on each side and the right answer is probably somewhere in between.
I might sort of jump onto that as well.
It is something we're spending time on right now just to make sure we understand where our profitability comes from so that we can sustain it.
I think a lot of our margin performance comes from our low cost structure, just simply said.
Our costs as <UNK> said they've been down 13 of the last 14 years.
We did restructure this Company outside of bankruptcy.
We sit here today with a low cost position.
And <UNK> you know the exact numbers, I don't, but I think we're something like 20% lower CASM ex-fuel than the mainline airlines and we're just a little bit higher than the LCCs.
So part of that low cost structure gives us margin.
Part of that low cost structure gives us the ability to offer our low fares.
I think a second big thing that leads to our margin performance is customer preference.
Our customers do like to fly with Alaska Air Group.
They like to fly with Alaska, with Horizon and some of that is the fare but a lot of it is the service.
So I think those two things.
And then you might say okay you've got a low cost structure, where does that come from.
And there's lots of answers to that.
But I guess I just want to simply say that I think the low cost structure is a very, very important part of our margin advantage.
It's <UNK>.
Yes, I think we're down about 2.8% and I think what you're seeing right now is sort of a transition period.
As you know we've gone out with three bags on the first bag fee but we've also seen massive increases in our loyalty membership credit card holdings.
So our goal and we continue to be focused on getting to be more industry average on our ancillary revenues as far as the big network carriers go.
And as you've heard from <UNK> a little bit his team is also very focused on our first-class cabin and continuing to as we invest in the product there continue to achieve the premium and the first-class load factors that we also need, even if it fell up at the gate and the preferred seating we've launched this year.
All of these things together we think are going to continue to work well but we just need a little bit more time after the first three bag adjustment.
<UNK>, it's <UNK>.
It's hard to predict the future but what I will tell you as I look at our COO here that the room at the inn is getting very tight.
If you take our morning banks between 8 and 10 a.
m.
and our evening banks between 2,000, 2,200 these things are full, completely full.
And we're already having to move our network around because we have a sizable network to accommodate.
So while I don't know what the future holds, what I do know is that I think we're going to see it slow and in my prepared remarks the size of the new markets that competitors are coming into are getting smaller and smaller and smaller.
So we've learned to adjust in this environment and so I don't have huge concerns that we will be continuing to be able to adjust as we move forward.
<UNK>, <UNK>.
Maybe I will add ---+ <UNK> here, maybe I will add one other thought on that.
We've tried to build our business to withstand competition.
We've seen it over the last three years to be sure but our mindset is that there's always going to be competition in our markets.
This is an extremely competitive industry but for the reason that we just talked about with <UNK> I think this Company has been successful and will continue to be successful because of the great service that we provide, the excellent operation that we run and our low cost structure.
So I think we'll be fine.
Any debt paydown that we've done has been just paying off normal maturities.
We've got an awesome balance sheet right now.
And we don't have any specific initiative to pay down more debt because we're already in a very substantial net cash position.
I think what I'm saying is the strong free cash flow that we're generating is for the most part going to get deployed back to our shareholders just like it has been over the last nine months or so.
Good morning, <UNK>, it's <UNK>.
You know I'd say a couple of things.
We're focused on really two aspects: our partners and ourselves.
And I think if you look at the dynamics and we will share with you at Investor Day much more visibility on where we are today with all of our alliance partners and the traffic, so look forward to that.
We're finding that we're basically American is as I shared in my comments up 10% but we're also finding a lot of traffic coming back onto our network.
And so really the way we look at it is growing the overall traffic.
And so we're using our own network and our own expanded network as well as American and their expanded network to net-net be better off.
And that's how we're looking today and that's where we want to keep moving forward.
I think a couple of things and honestly, maybe we can follow up, I don't have a scientific split for you right in front of me on that whole question as it relates to the flow and the local.
But the way I look at it is especially on the domestic side for our network good, solid, local demand where we have capacity that's coming in that's maybe incremental and that's where <UNK> and his team can use our expanded regional network to bring traffic in from our Montanas, Washingtons, Oregons and Alaska to help fill those additional seats.
I think what's really exciting on the international front to your point is Seattle relative to New York, Los Angeles, San Francisco demand is way, way smaller.
And so the feed is imperative for these international carriers and partners of ours.
And so what we're seeing number one is our own members with our partners choosing to fly on our international partners and then we're using our network including all of our new markets to help bring traffic to the West Coast through their international network and beyond.
So overall all these pieces have been working well for us and we have a lot of refining to do.
We have more things to do but we are feeling very good about that.
Yes I mean we have Interline with United.
Maybe what you're referring to is there have been changes in our lounge agreements and we won't be partnering with Delta in our lounges anymore but we have a new agreement globally with American and so we've got about five club rooms where we're using United to help supplement our lounge system.
So that's really what you're seeing.
<UNK>, good morning, it's <UNK>.
Yes, I think obviously Portland is extremely important to us, so well over 120-plus flights a day.
And what we've seen with the strength of our cost performance and our lower cost performance and our rule of thumb is Portland is always half the demand of Seattle, we're seeing opportunity with our cost structure and new aircraft especially the 175 to grow Portland.
So you see in the first quarter we got Portland-Minne, we've got Portland-Kansas City, Portland-Omaha, so I think you'll see us continue to grow Portland as we move forward.
Yes, I believe so.
<UNK>, that's a hard question so I'm going to ask <UNK> to answer it.
<UNK>, most airlines today we struggle with carry-on bags.
And the problem with airplanes today on 737-800 with 150 people we have maybe 120, 130 carry-on bags, there is at least 10 to 20 on every flight that don't fit.
So we have a process to try and manage carry-on bags on every flight they get lined up in the jetway, they get taken downstairs.
These are legal carry-on bags.
These are not bags that people would normally check.
So what we've done, what the bigger bins will actually do is actually speed up the boarding process, have people bring their bags in instead of us having to create a process where after we check in 110 or on 110 people we start tagging bags and putting on the jetway for our rampers to come pick them up.
So operation-wise this is going to be a massive, massive help and help for our operation.
And just on that, I mean you know <UNK> is talking about already regulation carry on board bags.
So these were coming on anyway, it's just that he's not having to take them downstairs.
And one thing that I think we've shared this in the past but we're very aware of obviously what the bag fees generate for our business but that's not something that bags fees, the different views on those.
We are investing in additional or ancillary products that our customers want to pay for, really enjoy, so our Preferred Seating is an example, our buy on board products and other things as we invest in our business.
Those are the things that we are looking to increase the revenue per ship versus bag fee revenue.
Off the top of my head I don't know.
I'm pretty sure, well we've been growing it double digit per quarter or many quarters, first and second quarter were double-digit growth and in previous years.
Actual 13% off the top of my head.
But it's certainly within a point or two of what we've done many, many times over the past few years.
That's just off the top of my head.
And <UNK>, <UNK> pulled some data for us just in the last couple of days.
We have, so 13% is the high-water mark.
We plan to grow 8% next year for the year and we've actually grown 7.2% ASMs I think is what you told us <UNK> for the last five years.
We've grown 7% on average for the last 20 years.
So next year's growth is on an annual basis is right in line with a little bit high given what's happening in Seattle but basically in line with what we have been doing.
I mean it is what it is, it's a little high in the fourth quarter and the first quarter but there is no difference in our thinking about next year as compared to other years.
I think what you're really seeing is us continuing to accelerate new markets as we see new revenue opportunities.
And they are performing and we will continue to do this as long as they perform.
Those are the main reasons.
Also next year we have a lot of gauge going on and even this year I think we updated our forecast to about 10%, we're going to be about 10.6%.
That's basically flying half or more airplane than we had shared with you.
So you're going to continue to find us waver around a little bit but we will make sure that we adjust capacity one way or the other given the economic environment if we see a change.
Further to your point, <UNK>, <UNK>, if you go back and look at 2009 I think what you would see is Alaska quickly, quickly responding to a downturn in demand.
So this is working now as <UNK> says but if things change we will change.
I think high-level the color I would give you is that <UNK>'s team has done a fantastic job where we've incursions in the first year.
As they move into the second year our performance has actually improved and I think what you're also seeing is some of the downward pressure, especially on like Alaska long-haul being offset with good strong revenue performance in other areas of our system.
So I probably didn't do a great job answering your question.
But overall where we see pressure on unit revenues we have offsetting benefits on our unit revenues from a network perspective.
I think overall on a complete partner basis I think traffic is about 15% for the third quarter.
And I think what you're going to find, <UNK>, is that we will lose in some and gain in others.
Net-net the solid, the goal, though, is to increase the yield and really working with American and our other partners with premium product corporate customers and accounts.
So we are we're very, very optimistic about turning that on in a powerful way.
But as for specifics I will share what we can at Investor Day and I think you'll learn more there.
Yes, I would say really broad scope here is anything we've lost we've replaced.
And that's the big picture.
Yes, it's actually a touch over 15 right now, <UNK>.
And that is my sense is that maybe is a little higher than we been the last few years.
Maybe I will start and then <UNK> can jump in here.
What I would say is that to the extent that 400s are exiting the fleet that's a benefit to maintenance CASM.
But we are getting to a point where some of those initial NGs are getting to their first big overhaul and that's something that we're thinking about as we move into 2016 and certainly into 2017.
<UNK>, you want to talk about that.
Yes, so we have of course we have our Classics and they will be going away but our NGs are reaching 13- to 15-years old.
We've got brand-new ones and ones that are 15-years old.
So we manage those NGs with costs, larger heavy maintenance costs and getting into the first major overhaul on engines.
So you will see an uptick in maintenance cost on our older NGs but with the younger airplanes, the NGs when they are new have just a terrific cost profile for the first 10 or so years.
I'm going to let <UNK> handle that one as he looks after our corporate accounts.
Hey, this is <UNK> <UNK>.
I've got external relations and sales as part of that team.
In fact we have a more intense effort going around corporate accounts in Seattle but throughout our system right now than probably ever before and the team is really doing great.
We are doing more and more joint sales activities with American and we think that's a big opportunity for us going forward.
And then you've heard us talk about our partnerships with the foreign flag carriers, the international carriers particularly here in Seattle and promoting those to corporate accounts here in Seattle is another big opportunity.
There's a lot of interest in folks that fly us domestically that can then use those other international carriers out of Seattle to get anywhere in the globe.
We've still got 8% in the sites here and as I said earlier it's really mid-con and transcon are big primary drivers in the first part.
And then as it relates to the landscape and the economy we will continue to look out and make adjustments as necessary.
But nothing materially changed since we last spoke.
This is <UNK>.
I will touch on the state of Alaska piece and <UNK> can pick up anything else.
The state of Alaska, the falling oil prices there are having a big impact on the state government but overall consumer demand is strong.
Their permanent fund dividend check they get each year, all the state residents get was one of the highest ever.
The tourism numbers up to the state of Alaska this summer were quite strong.
So I think that market is steady and I think will be for the foreseeable future.
And <UNK>, isn't it correct that the state has big budget reserves that they will use to smooth out variations according to it.
They do.
And then just on the demand side, the only thing that's keeping me up most at night is just managing competitive capacity coming in on our markets and using the full breadth and depth of our network and our partners to compensate from that.
All other things being equal demand is very good.
Thanks, <UNK>.
So I think that sort of takes us to the end of our hour.
Thanks everybody for dialing in.
And we look forward to seeing many of you in New York City on December 3 for our Investor Day.
Thank you.
| 2015_ALK |
2016 | ROST | ROST
#I think the way I would look at the situation is whenever we buy packaway, whether it was this past fourth quarter or any fourth quarter, those are the metrics we look at: price, value, timing of when we want to bring it in.
So we're just going through the same process we normally go through.
So when we went out and there were goods available, we went to see if we thought it met the criteria of where we thought we were going, and in some places ---+ you're assuming that the vendors have merchandise, they're going to move on a price.
Right.
So sometimes vendors move on the price based on their needs.
It's the end of the quarter, it's the end of a half.
So there's a lot of variables that we can't control.
The only thing I can say is that we bought what we thought was appropriate.
We ended with 47% versus 45%.
We feel comfortable with that number, and ultimately, we're only going to buy what we think is the right price.
Packaway is very hard to nail down.
In a quarter in the EOM, there has to be ---+ there is some art to buying packaway.
You have to feel comfortable that after you have put that in there, when you go to bring that out, whether it's four months later, eight months later, six months later, depending on the product, that the value is right.
There's a lot of variables that we can't determine, as we're out in the marketplace, but that's really what the buyers do every day of the week.
So that was really our assessment in the fourth quarter of how we felt about packaway.
Now, whether vendors will move off the price as we get further into the next season.
Maybe, maybe some people will hold inventory over.
I can't answer those questions for the vendors.
I can only answer what we feel comfortable in doing, which is the same thing we've done every season.
Not really, <UNK>.
Vendors aren't going to be quick to be telling us that they're going to have more or less inventory.
So it's really ---+ each vendor does their own thing.
I can't really determine that, to be honest with you.
So <UNK>, as you say, next year, we haven't released guidance for 2017 yet.
But I think we've said before that we would expect that over the next few years as the economy ---+ or if the economy picks up, that we may see more expense pressures, not just us, but in general, companies and retailers will face more expense pressures, including higher wage rates.
Obviously, as we start to plan 2017, which won't be for some time, but as we start to plan for 2017, we'll start to look at what are the kinds of things we can put in place to offset those kinds of expense pressures.
Too early to comment on those now, but that's the process that we would go through.
Well, just to be clear, we ended the year with EPS up 14%, despite the wage increase on a 4% comp.
Certainly in between a 3% and 4% comp, we think we can get to double-digit EPS growth over the longer term.
It's worth underlining that point.
Our guidance this year is obviously 1% to 2% comp, and that's what's driving the EPS guidance.
As <UNK> <UNK> just said, at a more normalized comp, I think we've said in the past that our long-term model includes a 3% to 4% comp.
At those levels, we expect low double-digit EPS growth.
For us, it's a bit of mix, but it's also, we continue to operate with lower inventory levels, which means we're taking less markdowns, we're turning faster, and it has an impact on AUR, you're selling at higher prices.
I'd say so between those two, mix and our lower markdowns, is what's driving the higher AUR.
<UNK>, on capital, at least over the next couple years it will look very similar to what we said for 2016, in the, call it $425 million to $450 million range, I would say.
So nothing extraordinary currently in our longer ---+ at least over the next couple years.
On the other two pieces of your question, customers, we operate in a very ---+ we operate in a pretty large and very competitively fragmented marketplace.
So when we ask our customers if you hadn't spent that $30 at Ross today, where would you have spent it.
We get a long, long list of companies that they would have spent that money at.
So from a cross-shopping point of view, we're competing with everyone, which is why we need to make sure we have the best possible values out there.
In terms of your ---+
It depends on the particular store, the particular market that we're looking at.
Nationally, I think you could probably just pick our closest peers, and nationally, obviously, they would show up on that list.
But the point I'm trying to make is, none of them account for a very large share of that list, that the list itself is very fragmented and spread between many, many competitors, which is why we need to make sure that we're sharp versus all those competitors.
The last part of your question, though, big box department stores going out of business, and how that affects any of our individual stores, it's really hard to say, because the truth is that there are lots of things that go into the business that an individual store does, including traffic levels to that strip mall, the competitive intensity in that strip mall.
Sometimes, actually having more off-price competitors in that strip mall can actually be helpful.
So it's hard to say whether or not a large retailer nearby going out of business helps us or hurts us.
It depends who replaces them in that space, what happened to the traffic level in that strip mall, et cetera.
Sure, so the fact that we brought down our average inventory per store by about 40% over the last several years has presented us with a few opportunities to make the stores easier to shop, so we've certainly been doing that.
Expand into faster-growing or new categories.
Again, we've been doing that.
And then as you're referencing, also to reduce the store size.
Obviously that's feasible for new stores rather than existing stores, but we've also been doing that to some degree as well.
I would say the lower inventory levels have given us the opportunity to do a number of things with regard to the size of the store and how we use the space in the store.
Home performed better than the Company, and it was really driven by gift-giving in Q4.
The thing about the home category, it's so broad-based.
There's so many product classifications in there.
When you think about it versus apparel, there's just more things to go into, which is why I feel that home is a good category for us to grow.
So what we said in the past, <UNK>, it hasn't changed for 2016, that at a 3% comp we should be able to lever SG&A and 4% comp for occupancy costs.
Yes, to be clear, I was just referring to the fact that the overall economy, there seemed to be a number of sort of concerns and questions out there about the overall economy, and we don't know to what degree that will impact retail and our business over the coming 12 months.
Yes, that's actually one of the things ---+ as we put together the budget for this year, as you'd expect, one of the things that we looked at were any efficiencies, any areas of the DC, any processes in the DC that we could reengineer or automate, and certainly, that's one of the areas that we've pursued, in terms of coming up with offsetting savings.
I would say it's just one of the areas.
There are other areas in the Company as well such as stores, processes in stores, G&A, supply costs, et cetera, that we've also looked aggressively at.
So the absolute dollars of packaway did drop during the quarter, <UNK>.
So as we've talked about in the past, we capitalized the cost to store and process packaway, including fixed cost, and for us, we charged gross margin or charged cost of goods sold when it sells.
So for us, the absolute dollar value of packaway fell during the quarter, which means we had to take a charge, and that was greater than the previous year.
Of the 100 basis points of distribution center deleverage in the quarter, all of that was related to the packaway timing.
Sure.
So we don't have any plans right now to launch a loyalty program.
We're always willing to look at new ideas.
But frankly over time, we found the most effective way to build customer loyalty with the off-price customer is to consistently offer great deals, great bargains.
So more than anything else, that's how we build loyalty.
Juniors performed in line with the chain average, and it was up against very strong compares in the prior year, so we're pleased with the junior business.
As it pertains to the mix, you're talking about the actual mix we own in our assortment.
It's hard to tell.
Go ahead.
I would say, <UNK>, that most of the port issues were really in the first quarter of last year.
And given that timing, I think there would be very little that we bought that long ago, that would still be in packaway.
That said, the port slowdowns could have had some knock-on effects in terms of inventory that became available in subsequent quarters.
Hard for us to identify and quantify that, but certainly anything that we bought in more recent quarters could well still be in our packaway balance.
It's hard to tell at a certain point what was coming from just business being off in the department store sector.
The supply that came from there, and the supply that came from the port.
After a while, it just became one large supply.
Thank you for joining us today, and for your interest in Ross Stores.
Have a great day.
| 2016_ROST |
2017 | HOMB | HOMB
#A couple things for me.
Just the core loan growth outside of legacy growth outside of CFG.
Were there also heavier payoffs in there in addition to what you saw in CFG.
Is that kind of what you guys are saying.
Maybe I missed that.
Okay, certainly not ---+ I guess kind of the lower growth in the footprint outside of CFG, I guess anything in particular, is that more a function of rate or competition.
What ---+ I guess, what given the health of the market, I guess what's kind of ---+ leading to the a little bit of the slower number there.
Okay, would you say you're more guarded today on the growth in the kind of the core bank than you were earlier based on trend what you're seeing in the market or that's incorrect.
Okay, that's helpful.
And just maybe a couple for <UNK>.
The ---+ on the accretion and the accretable and non accretable yields remain, <UNK>.
What was that at, at first quarter.
How much is remaining in each of those buckets.
Okay.
And then just the last things ---+ those ---+ the elevated benefit, I guess, if you will, in the service charge line as a result of the payoffs from CFG.
Now that you guys talk about kind of the cycle maybe more into the cycle because they're 2 years in now, there was a benefit this quarter that hasn't been there may be in the past.
But if payoffs continue given the cycle, should that number stay somewhat elevated.
Maybe not at this level ---+ this quarter's level but higher than it has been over the past couple of years just given that dynamic now.
Okay.
All right, got you.
And then just like you said in the liquidity (inaudible), the impact from that liquidity on the sub-debt, that impact this quarter would be about 15.
If you do have any you think you would do it by June 30, that impact is about 15 basis points of the margin in the second quarter on the core basis.
Okay.
And then last one was just the core loan yield this quarter, did you guys say it was at 7 basis points of the increase linked quarter.
| 2017_HOMB |
2015 | ROST | ROST
#Sure.
So on dd's first of all, we certainly are making some improvements and changes at dd's, but that's a business that we're pretty happy with how dd's has been performing over the past several quarters.
So we are very confident in the long-term future of that business.
So I don't think there's anything I would call out at this point in terms of changes that we're making.
In terms of the website, the website really is informational.
We don't have an e-commerce business.
We do track traffic to our website.
And over time, we've seen a growth in that traffic, but it is, I want to be clear, it is an informational website rather than an e-commerce website.
dd's specifically.
Yes.
So, yes.
dd's growth of traffic, both to the website and Facebook page and other areas of social media, we've seen quite significant growth in traffic, targeting dd's across those different mediums.
I would say ---+ you know, I would say a little.
On occasion where we think it's appropriate for the two teams to travel together, they'll travel together.
But overall, really, dd's, at this point, is 150-some-odd stores, so we have a bit pretty big pencil, and they go out and they shop different resources, different vendors, and they do it on their own.
But there is some slight overlap.
Thank you.
Thank you for joining us today, and for your interest in Ross Stores.
Have a great day.
| 2015_ROST |
2016 | HPE | HPE
#Yes, the answer to that is absolutely yes.
And actually beyond that, you saw what we announced today with SUSE, where they'll be our preferred partner for Linux, as well as the OpenStack distro.
And listen, a lot of the software products are going in the spin-merge will be important to us going forward.
So there will be a relationship there.
So let me give just you a sense of ---+ I think we're in a great position to compete with both Cisco and Dell.
So for example, actually the HPE go forward strategy will be about a $28 billion Company that's only slightly smaller than Dell's enterprise business, and it is more focused with better innovation.
I think we should just contrast our strategy with Dell, okay.
So we are getting smaller, while they're getting bigger.
And this is important, because I believe speed and agility is critical, in innovation and go-to-market.
The second is, they are levering up and we are delevering.
We have $5.3 billion of net cash on the operating Company, and we're going to have a lot more by the time we're done with these transactions.
And that gives us dry powder.
It also gives us the ability to return cash to shareholders.
And I think that it's difficult to be levered as much as Dell is in this environment.
And secondly, we're leaning into new technology, either through our own innovation, acquisitions, or partnerships, and we've got major focus on our side.
What they are doing is doubling down on old technology and a cost take-out play.
And listen, I think it might be quite successful for the leadership team there, from a financial perspective.
I'm not so sure it's good for customers.
Sure.
And by the way I forgot to address Cisco in your last question.
So listen, Cisco is a good competitor, but they are missing a key element which is storage.
And as the ---+ as this converges, I think as the environment converges, and we look at Hyper Converged and on Synergy, we're innovating really nicely now for the traditional data center, as well as software defined data center.
And I got to tell you, Aruba at the edge is killing them.
And a 20% growth rate above our internal plan, and we're just winning deals hand-over-fist there.
So we feel really good about our ability to compete with Cisco.
Okay, so back to servers.
So listen, what's happening in servers is there is sort of core server growth, then there is Tier 1 servers which is to the big service providers, and then is obviously, high performance compute.
And the reason we did the SGI acquisition, is to really stake out a great position in an $11 billion business, as I said before that's growing 6% to 8%, that's very profitable for the compute itself.
But also there's very high TS attach to high performance compute.
Core servers around the globe are under some pressure right now, but you saw what we did in terms of increasing the margin.
And we are doubling down on SMB, which actually is still ---+ there's pockets of growth in that area, and we're also doing workload specialization.
Okay, we have the best compute in the world to run SAP HANA.
It's not even close with anyone else.
So we're specializing around workload.
And then obviously, there was a tough compare because of Cloudline a year ago.
I mean, we have just ramped that business into a multi-billion dollar business.
And so, it's hard to compete with those compares, but we expect to continue to gain share in that market profitably.
We're not in it for share for share's sake.
We don't want to take unprofitable deals.
But if we continue to work on our supply chain and the rationalization, we become ever more competitive there.
And we're very mindful, that ultimately there is Chinese competitors there as well.
And whether that's Huawei or Lenovo, it's not just Dell.
So we're very aware of the cost structure we have to have to continue to compete.
I think low single-digits is probably what we'll grow.
It will depend on how much Tier 1 Service provider business we want to take.
But I would say, what you saw 1%, 2% is probably a good estimate going forward.
I think its really a combination of a couple things.
When you ---+ when we separate this software business, and you look at the remaining piece of HPE, we're going to be ---+ if you were to extract ES and software from our 2016 financials, to <UNK>'s earlier comments revenue growth would be an incremental 300 basis points.
Margins would be up an incremental 100 basis points, just north of 10%, and free cash flow as a percent of revenue would be up 50%.
If you look at the absolute free cash flow, it would be relatively neutral, driven by the fact that software does generate some free cash flow.
But that's offset by the pressure in ES.
So when we're talking about the financial profile, it's really related to remainco, if you will.
And I have to say, that with our enterprise group, really being now the anchor for remainco, we've been very conscious about making sure that we have, got an overhead cost structure that is in line with a $28 billion business.
That we're making changes to how enterprise group is organized internally.
There will be savings around our OpenStack distro with our new relationship with SUSE.
And then finally, moving HP Labs, Hewlett Packard Labs to EG is going to tighten the linkage between downstream development and commercialization, which I think is something that needs to be done.
So we are all about making enterprise group, more cost effective, as we drive the remainco strategy.
And I'd also add on remainco, keep in mind, that the recurring Op profit would be about [60]%.
Well, let me tell you what we saw, from a demand perspective, and <UNK> can talk about our broader hedging strategy.
We were not able to hedge in the quarter for the pound degradation, but what we saw was actually a pause in purchasing in the UK, certainly the UK public sector.
But also the UK, and then more broadly Europe which was, this was unexpected, a big change.
Let's take a pause, and decide what we want to do here, and we saw it in a very marked way.
What I will say, in the last couple weeks, we've actually seen orders pick up again.
It was almost like they took a pause, and basically, had to take stock of what was happening, and then basically ---+ the orders have started to flow again.
I mean, we continue to also monitor the pricing, the competitive pricing environment that we see.
And we adjust as necessary, particularly in the channel.
So the channel is where we serve SMB.
And that's where our ability to sort of move the pricing in response to competition, we look at that actually every single week, sometimes multiple times a week.
So I think a little understood element of HPE is the dramatic transformation that TS has gone through.
TS is, and was a very profitable business, that was largely attached to business-critical systems, very profitable, very high attach.
I mean, you didn't really sell business critical systems without a TS attach.
And when business-critical systems, both from a market perspective, as well as the Oracle Itanium situation, by all rights TS should be down 25%.
Do you remember <UNK> over the last four or five years, BCS was down 25% like clockwork, every single quarter for four years.
It's growing a little bit now.
But by all rights, TS should have shrunk with BCS, and it did not.
And the reason it did not was very impressive, new product offerings, proactive care, other areas where we help customers maintain their data center estate.
And so, the fact that it has actually only been down a few percentage points over the last 12 months is a testament to the leadership team in that business.
And now what you're seeing is those new product offerings are starting to get real traction.
Orders has been positive the last three or four quarters, and those orders are translated into growth this quarter.
Not a significant amount of growth, but 1% we'll take it all day long, because it is a very, very profitable business.
So we have more work to do on technology services.
I will tell you it is the benefit of now being a smaller, more focused Company.
And Antonio Neri and I are going to spend a whole lot of time now, on what is the next iteration of technology services.
And whether that's flexible capacity services that allows consumption-based model, whether it's proactive care, data center care, we're going to spend a lot of time there, because it is a key strategic enabler of remainco HPE.
Yes, sure.
I think from a cost structure perspective, we spent probably the last 18 months, we've done some detailed benchmarking, particularly in the functional areas, as to where the business needs to be, basically cost as a percent of revenue.
So we're getting closer to those benchmarks.
We're not quite there yet, but we are close, and we are there in some of the functions.
So as we have done these divestitures, or as we're doing these divestitures, we obviously incorporate that into what the new cost structure needs to look like.
And obviously, we need to be very aggressive around what we call stranded costs.
So I think the good news is when you look at the HPE/HPI separation, we did have some dissynergies we called them.
We have worked those through the system.
With the H3C divestiture, we've gotten much better with identifying the stranded costs, would be much more proactive in managing them out.
We're starting to see those come out.
So we're confident that we can continue to do that, to get to the benchmarks we need to get to, when these transactions are done.
I'd just add a couple more things.
When you're going to take ---+ when we've been streamlining the cost structure of this Company for four or five years.
Now we are starting to do things differently, because you can only take out so much costs.
There's only so much low-hanging fruit, you have to do things differently.
And whether that is supply chain and logistics, whether that is how we are organized internally, with all R&D under one R&D leader.
Whether it is putting our software defined infrastructure and our cloud offering under one leader, whether it is putting all of our go-to-market under one leader, where we have consistent go-to-market strategy, discounting across the board.
Frankly, we were much better at minimizing discounting in APJ and EMEA, than we were in the United States.
We now have that discipline across the Company.
And then, finally corporate overhead.
We got to have a corporate overhead that designed for a $28 [billion] company.
And when we started, we had a corporate overhead designed for $110 billion company, and then a $50 billion company, and now a $28 [billion] Company.
I have to say, I'm really pleased with our ability to right-size the corporate overhead, and be lean and mean.
And that includes everything from HR, finance, legal, IT, things like real estate, systems.
So we've made a lot of progress, but you'll see more of that benefit I think in 2017 and 2018.
Sure.
So yes, so $700 million is the right number.
Again, we feel like the value that transaction is driving is phenomenal for HPE, as well as its shareholders.
However, to realize that value, we need to make investments, and allocate resources to do the separation.
So to your point, software although the activities are similar in nature to the transaction in ES, they are discrete.
And they're not necessarily driven by revenue base or headcount levels.
So when you look at software, it's a global complex business.
It has multiple legal entities that have been accumulated over time through a series of transactions.
And because of that when you look at the tax, the finance, the legal, the operating structure, it is still very, very complicated.
So in order to separate that, there are some large expense items in there.
For example, separating 650 IT systems, doing the carve-out financials, translating GAAP to IFRS, splitting 150 legal entities in 60 countries, trying to figure out what we want to do with 200 real estate sites across the globe.
So there's certainly a lot of work that needs to be done there.
The good news is we have done this before, so we know how to do it.
The team has been very proactive, and we're all over it.
We have the work streams identified, so we're confident we'll get there, when we go forward.
The other thing I think that's important, <UNK>, is we have come ---+ on these separations that we have done to date, whether it was HP Inc from Hewlett Packard Enterprise, whether it's ES from Hewlett Packard Enterprise, we have come in on time, and actually below budget.
And so, we're really proud of that, and we expect that to happen.
I mean, I don't know how much.
I mean, listen, $700 million is what you should have in your models.
If we're on target, we ought to come in a little lighter than that but ---+.
Yes, I mean, and the other way ---+ the other way I think about it is, the benefit of the deal far outweighs the cost, right.
So when we get that $2.5 billion cash dividend, and that will be onshore cash, that far outweighs the cost of doing the transaction.
Thank you very much.
Appreciate it.
Thank you everyone for joining today.
| 2016_HPE |
2016 | WAB | WAB
#Thank you.
| 2016_WAB |
2015 | PFS | PFS
#Pipeline yield is about 360, Dave.
I guess the portfolio was around 408, if I remember correctly.
360, yes.
We build this ---+ it's not [Lego] necessarily, but I think we're spending a little time in systems to do certainly some more credit risk type events and we're certainly looking at stress testing as we move forward.
I think it's something that will be building up over a period.
We certainly don't see organically that $10 billion is there within two quarters or even a year, as we estimated.
So absent an acquisition of a material nature, we still have a little bit of time.
On the other hand, we are already building, we're also planning, we are adding maybe staff or reassigning staff to that area.
So I think it's something that is going to be a little bit more ---+ that's why we have to look at our operations to make sure we can maybe reduce some costs or utilize technologies a little bit better on the back end.
I guess that was just to note that the reason for the bump was really related to one specific credit.
There was a charge of about $1.1 million, $1.2 million on a loan that has been resolved at this point.
As of June 30th, Beacon has $2.4 billion under management.
When we did MDE, it was an additional ---+
It was $100 million higher.
I think it was $2.5 million.
$2.5 million.
So not really terrible in the way of runoff.
We had another small piece we did with Suffolk National Bank out on Long Island.
That's been holding up very well, considering it's a new market for us.
So we're pretty pleased with that.
Organic growth in that space is ---+ it's always challenging.
It is more of referral than it is just go out there and sell wealth.
Getting loans is a lot different business than that.
And I think we have a good strategy going forward to make sure the business and what we offer our clients has multipronged approaches to investment management, but also handholding and being able to pick up a phone and talk to somebody, versus some of the large firms.
I would expect it to stabilize.
It's really been a question of suitability of investment options and opportunities on the loan portfolio side instead.
I think it worked out to about 90 basis points blended all in on current production.
I think so.
I think it could probably work down ---+ if credit quality continues along the same glide path, could work down to middle to high 80s ultimately, which would translate, if you excluded the acquired book, to low 90s.
I can give you some pipeline information first.
Pennsylvania is about $53 million of the $1.1 billion, but growing from $35 million in Q1, so we're starting to pick up a little bit more in the Pennsylvania market.
That's just Pennsylvania.
We also had some activity in West New Jersey as a result of the Team acquisition, which is built into there as well.
The rate, as I said earlier, overall is about 360.
Expected pull-through on that $1.1 billion is probably about close to 60%, so maybe roughly $580 million is what we expect to close out of that $1.1 billion.
Well, certainly some smaller institutions that are suffering with deposit growth.
We did see a small competitor had a 10-month CD at 1.40%.
Some of our other competitors of similar size have money market rates of the same level; that is if they bring in a one-year relationship and do some other behaviors.
And they're advertising them pretty heavily.
So I think those are the two areas.
The CD play is going on a little bit more, as people are just trying to get some deposit balances as the loan volumes have started to pick up.
Again, we have been playing defense.
We actually will deal with it on a one-to-one basis if there's a need to be aggressive.
We've been pretty successful in the municipal market, and we also think that borrowing for four years, it makes a lot more sense than putting on a CD for 10 months at a higher rate.
Thank you.
Thank you very much for everybody being on the call.
As we move into the second half of 2015, and hopefully greater certainty regarding Fed action on interest rates, I'm confident in our ability to deliver solid financial results will continue.
We appreciate the support of our stockholders and our employees' dedication to their clients, customers and their communities.
And we thank you and look forward to speaking with you on our next call.
Thank you very much.
Have a great day.
| 2015_PFS |
2016 | CORT | CORT
#Yes, in fact, let me do that first.
It's a really interesting scientific rationale.
I think for those of you who follow prostate cancer, prostate cancer for many men is either a disease that will kill them when they get to be 130 or is easily treatable, but for younger men who end up with metastatic disease, it really is a very bad disease.
And unfortunately, until relatively recently there really weren't good treatments for when it became what was called castration resistant.
Enzalutamide, Medivation's drug, is an excellent drug in that regard, it is a potent androgen receptor antagonist.
But one of the things, the really important latch that Sloan Kettering showed, was that really, within hours of giving enzalutamide, you begin to select for colonies of cells for which androgen is no longer the growth factor, but cortisol is.
There is a real scientific underpinning now shown in transgenic animal models and so forth that the combination of either surgical or chemical castration with a drug like androgen deprivation, better said, with the drug like enzalutamide plus a GR antagonist like mifepristone, like CORT125134, can really enhance the treatment.
It's, I think, a very promising idea, we'll really find out what happens in this controlled study.
And to your first question that you asked a little while ago, we expect results of that study, again, it's an IST, but in 2018
Thank you.
Hey, just to spread the questions around a little bit, I'm going to give you to <UNK> <UNK>, our Chief Financial Officer, Ray.
Hi <UNK>, no, we didn't raise prices this quarter.
We had a price increase last quarter, February 1, nothing this quarter.
I am going to give that one back over to <UNK>.
Thanks <UNK>.
One of the challenges in orphan disease space and the nature of this condition is that these patients need support along the way.
It's taken a long time to get to a place of being diagnosed and treated and then helping them along their patient journey.
We have a patient advocate team here that offers support for patients from disease onset all the way through the lifecycle of their treatment and the ways of helping them manage side effects and manage the comorbidities associated with their disease.
It's an opt-in program, those patients have to consent to be involved in that, but our patient advocate team has grown over time and has become very involved with those patients.
Also, pharmacy side of course, there's a pharmacist with our specialty pharmacy and our case handlers that work very closely with those patients as well on a monthly basis as they are coming up for new shipments.
So they were closely with them if there are challenges or questions that they may have.
And <UNK>, the only color that I would really like to add to this, and it's something that really struck us from the beginning of our commercial on, is when we began to talk to patients, we found that these are often patients because it is a rare disease, that been bounced around, it had taken a long time to get to diagnosis, often felt as if they had not been treated well in the medical system.
And we really felt that by helping to guide their journey, we really could improve their medical care optimally.
And I actually think that our patient advocates are very large part of it, they are trained nurses and so forth and they really can help, of course with the patient's consent, their pathway through.
Additionally, and I will just point to this separately, from the time that we launched we actually stated and we have never violated, every patient who gets a prescription gets the medicine, and we work very, very hard to make sure that happens as that expeditiously as possible.
They can help with that as well.
Two questions.
We are now just beginning the phase 2 study for CORT125134 in Cushing's syndrome and we think that phase 2 study will take about a year.
So, I am hoping by the time we have this call next year, fingers crossed, we will have all of the results that we need to show you by that point in time.
Then as you know, in oncology studies, it is not like you have an eight week observation period.
We're going to run the study until patients have progressed.
This is, again, the Korlym and Eribulin study.
Now you know the nature of this disease, these are highly pretreated patients with metastatic illness, in many cases, unfortunately, that time is not long.
So, we expect to report those results at San Antonio breast cancer meeting, but we will report them as soon as we really possibly can and it's fully baked.
Patients are still on study.
Well, we presented the results, as I said, at ASCO, and I think that is really the last material update that we are going to provide for everybody.
But I really can still tell you that patients are on study and when they are not, we will have our final results.
Well I think there are really two things to look at, one is the overall response rate, as you have described.
And I think that this is a difficult disease, and the response rate really from any condition is, by standards in other diseases, pretty low.
I think what is really striking to us, and we'll have to see if it is also provable in a controlled study, is that there is a group of patients, and it's similar to what I think people see in immunotherapy, who seem to really respond for a much longer period of time than would otherwise have been expected.
About one-quarter of our patients are now beyond what was the 95% confidence level in a pretreated group of Eribulin only patients.
But again, I caution everybody that the previous study was an open label study, ours is an open label study, the real passive test is in the controlled study.
But it is a striking result that there really are, and I use this term with some trepidation, but it's just what some people say, some super responders.
I don't know really why that is the case, we cannot prove at this point that it's not just random, but it's really has been striking to everyone we have shown it to and I think really worthy of further exploration.
Yes.
I think I can really answer your question, but I really, again, want to provide a little context for this.
In our study for approval, our pivotal study, the median dose was about 750 mg and actually, the median dose was about 900 mg.
So, and in that sort of study, titration took place pretty quickly because it was part of the protocol, where is in the real world, titration takes a little slower because people don't come to the clinic every week or two weeks.
Now what's interesting that our average dose has increased over time but it still, rough for round numbers, around 600 mg and not 750 mg.
So we think that actually it could go further, because we think that patients optimized treatment is a little bit further.
I think that what we're really going for and what we're really helping our doctors with is that patients get to their optimal therapy, because we think at the optimal therapy pretty nearly every patient should see a substantial response.
That's true for some patients right now, but not all of them, but we hope to move the dial in that direction as time goes along.
And clearly, although it is a secondary thing, there is more economic benefit for getting people at the optimum dose.
Yes.
So we record the vast bulk of our sales, we sell, actually, directly to patients.
So we record sales upon delivery to the patients.
A very small portion of our sales is through a distributor who sells to hospital pharmacies, that's not really needs to be a material part of your calculation.
So the vast majority of sales directly to patients and it's upon delivery that they are recorded.
I think the reason you see receivables pop-up is that we had a very strong quarter and just we have not had time to collect everything yet.
But there's been no real change in the financial terms of our business over the quarter.
Thanks for taking my questions.
I have a couple of them.
Joe, you have a number of drugs that clearly impact metabolic markers, you have of Korlym and CORT125134 that have gone through or will go through a proof of concept on Cushing's Syndrome.
I share the excitement around CORT118335, what makes it so interesting from the [ammo models], what makes it so unique for metabolic syndrome.
What's interesting, and I have to be completely honest with you, <UNK>, we look at these things empirically, we would love to know what CORT118335 is so potent.
But I can tell you, it's about, even though Korlym really moves everything in the right metabolic direction, sometimes fairly substantially, on a per milligram basis CORT118335 is probably 60 times more potent.
And it seems to be particularly potent in diseases where the liver is very heavily involved, so fatty liver disease, antipsychotic induced weight gain, insert insulin sensitivity around those levels.
Now it's still fairly early in its pathway, it's just had animal studies, but the animal studies are being replicated in many different sites and there really is something going on with this medication that we don't fully understand, although I know you are sort of a scholar about these things, there was an interesting article published in PNAS about the cofactors which were involved with 118335 and they may give you some idea as to perhaps why this compound empirically is more effective.
We'll see if that translates to humans next year.
I have yet another question about sales for you and <UNK>, but hopefully it will be more of a conversation, I will try to give another tact on it.
Korlym is [typed] so high that new lives just have to account for very few new prescriptions a year for Corcept to generate profits.
At the same time you're getting past your first tier, your physicians and patients are getting increasingly dispersed.
And <UNK>, you talked about opening new areas organically, but if I read this right over time, even though you are opening organically, you really do not need a lot of patients in an area to signal the need for opening a new area.
Did I get the package right or could you provide some color on it.
I think I'm gong to hand it over to <UNK> in a second, but I think that the most important thing, and I know it is an unstated assumption for us, but I just want to make sure that everyone on the call gets it, is that Korlym is a very effective medication.
And in the pivotal trial, the overall percentage of people who had significant clinical improvement was 87% which really meant that it was pretty nearly 100% if it takes its dose correctly.
And I think that's a very important starting point.
We think that there are many patients in the country who have not found their way to optimal treatment and so we get, and we really noticed the early on and had to adjust for, these patients exist in medical practices in all 50 states and rural areas and urban areas and so forth.
So, that's the lay of the land.
Now, I will let <UNK> answer your specific question.
So back to reiterate the specific question was just around the incremental enrollments that come in and what is required from a headcount standpoint.
We really try to understand, what does it take to grow.
What does it take to add-on incrementally to grow our business.
And one of the things is this is a drug in the orphan space, we have patients across multiple etiologies, they have different retention factors associated, we have very [ectopic] patients that come in that are very, very sick and unfortunately they pass away on the product over time.
These are not ---+ we're not building upon the same base on a month by month basis, so we need to continually, obviously, add patients.
I think given the long sales cycle associated with this, we really need to make sure that it does make sense to put in additional headcount from a cost standpoint into a specific territory to grow the business or is that something that could be covered by an individual that is already there.
So, again, we are very careful about where we think it makes sense to add but, to your point, given the drug and the price of the drug, if we find an opportunity where we believe that there are patients were not being reached because of inadequate touch, then we will expand our field to reach those patients.
And <UNK>, it's something I said before, but I just want to repeat this, the controlling variable is really finding the right clinical specialist.
Because, we really do think that the right clinical specialist in a territory which has previously not been productive for us, where patients haven't been treated, will succeed.
So all of the things that <UNK> said are true and really this decision is very, very important, but what we really look is the front end, and we've learned what the front end really looks like.
Can we get the right person, can we train them correctly.
Because if we think that we can, we place them in the right territory they will be productive in the timeline that we have talked about.
I appreciate that.
Thanks.
Thank you very much, on a summer afternoon, late in a summer afternoon for all listening in.
We look forward to talking to you in another quarter.
Thanks very much.
| 2016_CORT |
2018 | IIIN | IIIN
#Good morning.
Thank you for your interest in Insteel, and welcome to our first quarter 2018 earnings call, which will be conducted by Mike <UNK>, our Vice President, CFO and Treasurer; and me.
Before we begin, let me remind you that some of the comments made on today's call are considered to be forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected.
These risk factors are described in our periodic filings with the SE<UNK>
All forward-looking statements are based on our current expectations and information that is currently available.
We do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
I'll now turn it over to Mike to review our first quarter financial results and the macro indicators and outlook for our markets, and then I'll follow-up to comment more on business conditions and our recent acquisition of Ortiz Engineered Products.
Thank you, H, and good morning to everyone joining us on the call.
As we reported earlier today, Insteel's results for the first quarter of fiscal 2018 were favorably impacted by a rebound in shipments from the disappointing levels of the previous 2 quarters and the enactment of the Tax Cuts and Jobs Act in December.
Net earnings rose to $8.1 million or $0.42 per diluted share from $4.5 million or $0.23 per share in the prior year quarter.
Excluding the nonrecurring gain on the remeasurement of deferred tax liabilities related to the reduction in the corporate tax rate under the new law, earnings per share for the quarter were unchanged from last year at $0.23, but up $0.03 sequentially from the fourth quarter.
Shipments for the quarter were up 1.3% year-over-year and 1.7% sequentially from the depressed levels of Q4, which is highly unusual considering that our volumes typically drop off from the fourth to the first quarter due to the usual seasonal downturn in construction.
From a geographic standpoint, the pickup in activity during the quarter was more pronounced in the regions that were impacted by Hurricanes Harvey and Irma in August and September, with shipments into Texas and Florida both up double digits sequentially.
Although it's impossible to quantify how much of the increase may have been driven by any deferral of business related to the storms.
On a year-over-year basis, shipments strengthened considerably over the course of the quarter with our December volume up almost 13% from last year.
I would caution, however, that demand trends remain choppy and it would be premature to assume continued growth at these levels during our second quarter, particularly considering the weather-related uncertainty this time of the year.
Competitive pricing pressures moderated somewhat during the quarter with average selling prices falling 80 basis point sequentially from the fourth quarter, which is less than half of the 1.9% reduction that we experienced from Q3 to Q4.
Gross profit for the quarter fell $1.3 million from a year ago to $11.7 million, while gross margin narrowed 200 basis points to 11.9% due to the compression in spread, which was partially offset by lower unit manufacturing cost on the higher production volume, and to a lesser extent, the increase in shipment.
On a sequential basis, gross profit fell $0.1 million from the fourth quarter and gross margin narrowed 30 basis points also due to this compression in spread, partially offset by lower unit manufacturing cost and the increase in shipments.
In response to the escalation in our raw material cost and improvement in demand, we're in the process of implementing price increases, which should favorably impact our second quarter results.
Considering the additional inquiries, as it have been recently announced by our raw material suppliers, we will likely be pursuing further price increases for our products in the coming weeks.
SG&A expense for the quarter fell $0.5 million from a year ago to $5.8 million on lower incentive compensation expense under our return on capital plan, and a larger increase in the cash surrender value of life insurance policies in the current year quarter.
Our tax provision for the quarter reflects the $3.7 million, or $0.19 a share gain on the remeasurement of deferred tax liabilities I alluded to earlier, together with the reduction in our effective rate related to the lower corporate tax rate that was enacted under the new law, which will be in effect for the remaining 3 quarters of the year.
Excluding the deferred tax gain, our effective rate for the quarter dropped to 24.9% from 33.7% last year, which translate into a $0.5 million reduction in the provision and a $0.03 a share increase in earnings.
Looking ahead to fiscal 2019, we currently expect our effective rate to fall in the 23% to 24% range, reflecting the lower 21% corporate rate for the entire year partially offset by the elimination of the Section 199 domestic manufacturing activities deduction that is still available this year.
On a pro forma basis, we estimate that the rate reduction and other changes provided for in the new law will increase our net earnings by about 14% in 2018 and 16% beginning in 2019, relative to what they would have been at the previous fiscal 2017 rate of 34%.
Going forward, our effective rate will continue to be subject to change based upon the level of future earnings, changes in permanent tax differences and adjustments to the other assumptions and estimates entering into our tax provision calculation.
Moving to our balance sheet and cash flow statement.
The $10.9 million year-over-year increase in cash flow from operations was primarily driven by the relative changes in working capital and the net impact of the reduction in inventories from the fourth quarter.
As you may recall, we have built inventories last year in response to the trade cases that were initiated by domestic rod producers and the tariffs and/or quotas that could result from the Section 232 investigation, which was compounded by the weaker-than-expected shipments during Q3 and Q4.
Based on our sales forecast for Q2, our quarter-end inventories represented a little over 3 months of shipment and were valued at an average unit cost that was just under the average for Q1 cost of sales, but ---+ and below current market prices.
We ended the quarter with $37.3 million of cash on hand, or just under $2 a share, and were debt-free with no borrowings outstanding on our $100 million credit facility, providing us with ample liquidity and financial flexibility.
Earlier this month, we returned another $19.6 million of capital to our shareholders through the payment of $1 share special cash dividend, in addition to our regular $0.03 quarterly dividend, marking the third straight year we paid a special dividend of at least $1 a share.
Looking ahead to the remainder of the year, we expect continued improvement in our construction end market which should support stronger demand for our products and widening spreads, together with higher operating levels and lower cost at our facilities.
The latest architectural billings in Dodge Momentum Index reports imply favorable growth trends for nonresidential building construction in the coming year.
In November, the ABI rose to 55 from 51.7 the prior month, increasing to its highest level of the year.
Through the first 11 months of the year, the index has averaged 52.2 compared to 51.2 for all of last year, and 51.6 for 2015.
The Dodge Momentum Index and other leading indicator for nonresidential building construction ended the year in a positive rising 3.6% in December from the prior month and 20.9% from a year ago to its highest level in over 9 years.
In its report, Dodge indicated the monthly average during 2017 was up 10.7% from the prior year average with the commercial component up 11.4% and institutional up 9.7%, implying continued growth in nonresidential building activity during 2018.
The most recent construction spending data continues to reflect divergent trends for private and public construction and the need for increased infrastructure investment.
Through the first 11 months of the year, total private construction spending was up 6.5% from a year ago while public construction spending was down 2.8%.
Although spending for private nonresidential construction has softened in recent months, we expect modest growth in the coming year driven by the continued expansion of the economy, which should be augmented by the favorable impact of the new tax law.
November year-to-date public spending on highway and street construction, which represents close to 1/3 of public construction spending and is one of the larger end users for our products, was down 4.1% from last year and the year-over-year reduction widened to 5.8% over the most recent 3-month period.
We believe the higher state and local funding that has been appropriated in many of our markets will begin to have a more pronounced impact on the infrastructure-related portion of our business, as we move into what is typically our busy season.
Although the outlook for federal infrastructure funding remains uncertain, we remain hopeful that the administration and Congress will be able to reach an agreement on the long-overdue infrastructure package that provides for meaningful funding over an extended period.
We also expect to benefit from any additional incremental business that may have been deferred due to last year's rainy weather and storms.
As I mentioned on our last call, longer term, the recent hurricanes could spur additional demand for our products to the extent that infrastructure repairs and improvements are required in the regions that were affected.
I'll now turn it back over to H.
Thank you, Mike.
Following the unusual weakness that we experienced during the second half of fiscal 2017, we welcome the uptick in demand that gained momentum during our first fiscal quarter.
Although we expect the usual seasonal factors will affect business conditions during Q2, we're hopeful the recent favorable trends will continue as implied by the largely positive macro indicators for our markets.
In November, we acquired certain assets of Ortiz Engineered Products.
OEP has developed a unique market niche in providing value-engineered reinforcing solutions for the concrete construction industry converting projects that have been designed with conventional rebar to welded wire reinforcement.
We believe they represent a close strategic fit with our ongoing efforts to further penetrate the rebar market through substitution of engineered structural mesh for cast-in-place applications and should accelerate the growth of our ESM business.
Our newly combined sales and engineering group is focused on leveraging the substantial investments that we've made in developing our ESM manufacturing capabilities and expanding our cast-in-place business across other regions of the country.
On our last 2 calls, we indicated that we expected to experience some margin pressure due to the difficulty in recovering higher raw material costs in our markets, which is evident in our Q1 results.
Over the past few months, steel markets have strengthened and wire rod costs are, again, on the rise, driven by escalating steel scrap prices, a pickup in global demand and the impact of trade cases that were filed in January 2017, which have eliminated certain countries from the domestic market.
Another factor that may potentially affect our raw material markets is the Section 232 investigation that was initiated by the Department of Commerce last spring.
Last week, Commerce delivered its recommendations to the President, who is required to announce his discussion on the matter no later than April 11.
In the near term, we don't believe the outcome will impact us as world market prices for wire rod have exceeded domestic prices for the last few months, which has already significantly reduced import volumes entering the U.S. Longer term, however, it would not be in our interest for the administration to erect artificial barriers that reduce the availability of fairly traded offshore steels to domestic purchasers.
In response to rising steel prices and improving market conditions, we have announced price increases, which were effective during January and expect that additional increases will be warranted in the coming weeks.
Turning to CapEx.
As reflected in our release, outlays rose to $6.1 million in Q1, largely driven by the purchase of the leased Houston real estate.
We continue to expect fiscal 2018 CapEx to approximate $21 million, which includes the addition of an ESM production line and ancillary equipment, the purchase of the leased facility in Houston and further upgrades to our PC strand manufacturing technology in addition to systems upgrades and other routine maintenance.
We're optimistic that construction markets will strengthen in 2018, particularly relative to the anomalous conditions we experienced during the second half of 2017, driven by growth in private non-res market, favorable trends in infrastructure spending at the state and local levels and the stimulative impact of the recent tax reform plan passed by Congress.
During 2018, we'll be vigilant in our continued pursuit of attractive growth opportunities, both organic and through additional acquisitions, and we'll continue to focus on improving our operational effectiveness and realizing the anticipated benefits from the investments we've made to substantially lower our manufacturing cost, reduce lead times and improve quality.
This concludes our prepared remarks, and we'll now take your questions.
Brian, would you please explain the procedure for asking questions.
Yes.
We've announced $60 per ton effective at various dates during January.
And I might take exception to your comment about PC strand having been more difficult during 2017 than welded wire.
It was difficult across the board.
So we have another significant escalating period of wire rod transaction prices that certainly will affect all our competitors as well as they affect us.
And we expect with better business conditions and plus the scale of the increases that we're facing that we'll be able to pass those increases through.
Year-to-date, imports are up 7% or 8% compared to the prior year.
We have seen escalating prices for imported PC strand, reflecting escalating wire rod and steel prices worldwide.
But PC strand imports continue to be a problem that our industry is focused on addressing.
Absolutely.
Now saying that, we've had some weather disruptions in the Houston area as well as across other regions in the last few days, but the plant is operating and is well on the way to achieving the results on which our investment was based.
Well, let me try to take that in pieces.
First, it's always unknown as to how price increase will be accepted and how effective we'll be in collecting it.
And I would say that's true today with the $60 increase that has been announced to be effective in January.
However, we're getting enough feedback to make us optimistic that we will put that increase in place.
Future increases are driven more by our understanding of changes in the world market and changes in the availability of offshore wire rod to U.S. consumers of wire rod.
Both of these things have had the impact of restricting availability and propelling the prices upward.
So we don't have hard data on which to base our feeling that we'll be announcing on future price increases except the environment, certainly, clearly, indicates that we will.
And as for whether the prospect of higher prices has caused front loading of demand, we really don't think so.
It's hard to know exactly what's going through purchasers' minds, but we've had that discussion internally and we can't point to any significant trend where purchasers have accelerated their purchases to avoid price increases.
I think that might ---+ it might affect short-term psychology, but I don't think it has anything to do with the bigger picture.
Well, I'm not sure that I would characterize it exactly that way, <UNK>.
But I think, internally, what we would like to see is a return to the normal seasonal uptrends that have historically been evidenced during the better construction weather months.
But I'm not sure that, that implies that we're going to see runaway growth in unit volume.
The barring ---+ I'm sorry, I was going to add barring any unusual weather-related trends like we experienced last year between the rainy weather and the hurricanes, we would expect that the typical seasonal pattern to occur this year, where Q1 represents our low point and then we typically see an uptick in volume in Q2 and then Q3 and Q4 would represent our busy season at even higher volumes.
And we would expect to get back to that pattern, again, assuming no weather-related anomalies.
Yes.
That's correct.
The challenge in the underlying thesis of the acquisition is that we will be able to expand the presence of OEP from what has been Northeast-centric more to nationwide in the market areas where we have a clear value proposition that will allow us to grow.
That's certainly our expectation.
Yes.
So you're correct that Ortiz has been a longtime customer for us.
It's a highly specialized niche that OEP occupies, where they are focusing on projects down to even the placement of reinforcing on a job site and controlling that value chain.
Really, that ---+ from their point of view, that started with procurement from Insteel and ends with a finished concrete structure for their customer.
Over the development of our ESM market, Insteel focused primarily on the precast segment of that market over the years because there was one opportunity to invest engineering resources in the conversion of rebar to ESM with a precaster, and then repetitive business followed that initial conversion of the customer.
With the cast-in-place market, it's different where every project is unique and every project has its own engineering requirement and is just a much more unique and specialized segment of the market.
We've been pursuing the market for the cast-in-place segment of the market for several years and saw the addition of the OEP capabilities as a way to accelerate our growth.
So it's not a case where we're entering a market segment that we're unfamiliar with.
Yes.
We really don't think about it in terms of what percentage of the rebar market we target to capture.
We would rather think about the growth rates that we have in the cast-in-place market, and for that matter, in the other segments of ESM as well.
There is no reason that we shouldn't expect to deliver solid double-digit unit growth from that activity going forward, and that's our expectation.
But to say that we've tried to hang a number on the percentage of participation in rebar market would just not be correct.
We just don't think of it in those terms.
The purpose of that reference in our slide deck was just to give an indication of the magnitude of the growth potential in that segment.
Yes.
That's correct.
The 24.9% represents the blended rate for the entire year.
And so this year, we get the benefit of the lower rate for 3 quarters.
Next year we'll, in fiscal 2019, we'll have it for the entire year.
Okay.
Thank you.
We appreciate your interest in Insteel and we look forward to talking with you next quarter.
In the meantime, don't hesitate to contact us if you have questions.
| 2018_IIIN |
2016 | JKHY | JKHY
#Thank you, Lillian.
Good morning.
Thank you for joining us today for the <UNK> Henry & Associates third quarter FY16 earnings call.
I'm <UNK> <UNK>, CFO, and with me today is <UNK> <UNK>, our CEO, and Dave Foss, our President.
The agenda for the call this morning, <UNK> will start with some of his thoughts about the business and on the performance of the quarter.
Then I'll provide some additional thoughts and comments regarding the press release we put out yesterday after the market closed, and then we will open the lines up for some question and answers.
I need to remind you that remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements or deal with expectations about the future.
Like any statement about the future, these are subject to a number of factors which could cause actual results or events to differ materially from those which we anticipate, due to the number of risks and uncertainties.
And the Company undertakes no obligation to update or revise these statements.
For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled risk factors and forward-looking statements.
With that, I will now turn the call over to <UNK>.
Thanks, <UNK>, and good morning.
We are pleased to report another strong operating quarter, with record revenue and operating income.
We had good organic growth at 7%, in spite of challenges in the form of substantially lower deconversion fees compared to the year-ago quarter, and the impact of several large customer losses in our payments businesses.
Fewer deconversions is good news for our business in the long run, but presents challenges in the near term as far as revenue growth comparisons, and especially in terms of operating margins.
Our payments business was impacted in several areas during the quarter.
This was the first quarter that we felt the full impact of the lost bill payment revenue resulting from the Susquehanna/BB&T merger.
Industry consolidations similarly impacted our debit card processing business with several customers, and a large commercial remote deposit capture customer decided to consolidate their business to a system that was part of their existing point of sale system.
While these losses will be a factor in our fourth-quarter revenue as well, we expect new revenue additions to begin to grow over these losses in our first fiscal quarter.
Our outsourcing and cloud revenue growth was solid at 10%, and our in-house maintenance again showed good growth at 6%, even as our new and existing customers increasingly opt for outsourced product delivery.
As previously announced, we have signed a definitive agreement to sell our Alogent deposit automation software business to Battery Ventures.
Financial details have not been disclosed at the request of the buyer, and there are financial considerations that could impact the final purchase price and resulting gain on the sale between now and closing, which is expected to be at the end of May.
The Alogent product is a strong offering, and is highly competitive in the Tier 1 financial institution space.
This segment of the market is not a focus area for us, and we felt the product could be a better fit for another owner.
Our business fundamentals remain strong, and all three of our brands again finished the quarter ahead of their sales plans.
Our previously announced CEO transition remains on track for a smooth handoff on July 1.
Dave Foss has immersed himself in the few areas of the business he was not already involved with, and will be fully prepared to take the reins in July.
I look forward to seeing many of you at our analyst conference in Denver next week.
And with that, I'll turn it back over to <UNK> for some detail on the numbers.
Thanks, <UNK>.
License revenue represented less than 1% of our total revenue, which is the vast majority of license revenue, as you'll recall, is now included in the bundled services and included in our support and services line of revenue.
Which our support and services line of revenue continues to drive our total revenue growth, and it increased to $319.6 million, for an 8% increase over the same quarter a year ago, at $296.9 million.
And this represented 96% of our total revenue in both years.
To break down our support and services revenue, implementation services was down 16%, to $15.9 million this year, from $18.9 million last year.
Electronic payments was up 2% for all of the reasons that <UNK> mentioned, some of the tough comparables and grow-overs.
It grew to $121.4 million from $119.3 million last year.
OutLink increased 10%, to [$76.5 million] versus [$69.7 million].
In-house maintenance, as <UNK> mentioned, was up 6% to $80.6 million versus $76 million last year.
And our bundled services, which again is all of the license implementation and maintenance for those products that the last products installed during the quarter, increased to $25.3 million from $13 million last year.
Related to this revenue, our deferred revenue on the balance sheet increased $12.7 million or 3.4% compared to last year's, which is where the majority of the bundled revenue is coming from.
Hardware increased 8% for the quarter to $13.2 million, from $12.2 million.
Our consolidated gross margins decreased slightly to 42% for the quarter, compared to 43% in last year's quarter, primarily due to the decrease in one-time deconversion fees during the quarter.
Our support and services margins decreased to 42% from 43%, because this is where the deconversion revenue goes last year.
Our hardware margins improved to 28% from 25% last year, primarily due to sales mix within the hardware line.
Our total operating expenses increased 8% for quarter compared to a year ago, which primarily was due to increased personnel expense in both R&D and G&A.
Our operating margin for the quarter decreased slightly to 24%, again driven a lot by the deconversion fees.
The effective tax rate for the quarter decreased a little to 32.1%, from 33.8% in the third quarter a year ago, primarily due to the reinstatement of the research and experimentation credit.
Net income was up 6% to $53.9 million from $50.7 million, which led to EPS of 68%, which was up 9% over last year's EPS of $0.63 for the quarter, and beat consensus by $0.02 for the quarter.
Obviously, the decrease in deconversion fees impacted the quarter.
If you consider the deconversion fees, if they would have remained flat with last year, our quarter would have shown revenue gross margin and operating income all growth of 9%, with net income growth of 12%.
So there was a significant impact due to that decrease in deconversion fees.
Our EBITDA for the year to date increased to $340.5 million, compared to $317.7 million last year or a 7% decrease.
Depreciation amortization, which is now disclosed in the press release.
However, included in that total amortization is the amortization of intangibles from acquisitions, which was down slightly to $14.2 million compared to $15.3 million last year for the first nine months.
Operating cash flows were up $24.5 million or 13%, to $207 million for the year.
We continue to invest in our Company through CapEx for computer equipment, facilities and airplanes, which we took possession of our last new airplane during the second quarter, so our fleet is now fully upgraded as of December 31.
We continue to invest in the development of new and existing products to help continue our revenue growth in the future, primarily in the payments areas, our mobile offerings, and we continue to enhance our core offerings.
We also continue to return investment to our shareholders through dividends by way of $62 million in dividends year to date, and also stock buybacks of $155.1 million year to date.
We did not buy any stock back during the third quarter, due to the timing of the announcement of the Alogent disposition, but we should be back in the market shortly due to the lack of viable M&A targets in the market.
Our return on equity for the trailing 12 months was 23.6% as of March 31.
As far as guidance, revenue is still projected to grow in the upper mid single digits for the year, similar to the first three quarters.
Also, to assist with your modeling, the projected effective tax rate for Q4 will be approximately 33%.
The fourth-quarter guidance that we provided previously of $0.80 continues to appear reasonable at this time, and this does not include any gain or impact from the Alogent disposition that we announced recently, which we will disclose those financial impacts of that after final close.
We just recently kicked off our budget process for FY17, so we're not quite ready to provide solid guidance.
But it would appear that revenue growth should continue at approximately the same level next year, in the upper mid single digits.
Margins will remain strong, but price compressions on renewals and other factors that we are growing over will make margin expansion difficult next year.
Our effective tax rate for FY17 will be approximately 34.5%.
That concludes our opening comments.
We are now ready to take questions.
Lillian, will you please open the call up for questions.
It's a little bit of both, <UNK>.
I will tell you that we have seen a wave of opportunities come across our desk in the last couple of months.
But either, one, it just didn't make sense for us, it didn't fit our strategy, or it was actually a broken company.
But also the valuations are just astronomically high out there, the expectations for valuation.
So we will continue to look, and obviously we'll find the right one.
And would we pay up for the right opportunity that was the right fit and that we could leverage across all three brands.
Absolutely, but they are just few and far between.
It's pretty much the same thing, <UNK>.
It's not really any worse, but I will tell you that in all of our payments and even some of our outsourcing, when you're looking at any long-term contract that's coming up for renewal, there is consultants in just about every one of those deals that are primarily in there just to get discounts on the renewals.
And it's a different animal and a growing breed out there that five years ago, there was a lot of those renewals you wouldn't even see a consultant in.
But they are in every deal now, and that's just driving to more pricing compression on renewals.
That's a challenge to grow over those.
You bet.
Thanks, <UNK>.
A lot of the growth in the credit-union side, I'll tell you, came from a lot of different areas.
But there was solid growth in ---+ payments growth was up double digits, our outsourcing in credit unions was up over 30%, maintenance was up in the mid-double digits.
And then there was quite a bit of an increase in bundled revenue.
So there was just a lot of strong drivers going in the credit-union space.
And the good thing is, the vast majority of what I just said are all recurring revenues.
So yes, we should continue to see a very healthy growth going forward.
Do I think it can continue to be at the 24%.
I don't know about that, but it's going to continue to be very strong in the near future.
Yes, <UNK>, we had pretty much a solid performance across the board, a number of new core wins.
I don't know if there's any one that I would particularly carve out as being particularly noteworthy.
But again, just it's been a very solid and consistent performance out of the credit union group.
And keep in mind, too, that there would not have been any wins in the quarter that would have contributed to that growth level.
The way the revenue recognition works is, anything we sold in that quarter, we're probably a year away from seeing much in the way of any kind of a revenue impact from that.
So it wouldn't have been any one thing that drove the business in Q3.
Yes, one of the biggest drivers of the credit union is the continued increase in our outsourcing, as we continue to not only sell new customers outsourcing, but also the ongoing trend of our existing in-house customers moving to outsourcing and the uplift in revenue from that.
As we said in the press release and in my opening comments, there are a large number of projects that are going on.
And a lot of those projects are new projects that are getting ready to go into beta in the next quarter or two.
Some of those in payments, a direct-biller offering that will drive new revenue.
We've got some new treasury services and cash management offerings that are in development that will be coming out in beta shortly that will be driving new revenues.
We continue to invest heavily into all of our mobile and digital channel, because that is a huge requirement from all of our customers.
And then we continue to enhance our core products.
We've got about 50 major projects going on right now, so I think our cap software is going to end up about $100 million for this year.
I think it's going to level off for FY17.
But like I said in my opening comments, we're still early in the budgeting process, but it should level off in FY17.
But we're going to continue to invest in our product, because that's what's going to drive our growth ongoing.
They were down $4.5 million from about $9 million last year.
Yes.
Because Alogent was ---+ as <UNK> said, it's a very strong product and it's very good in the Tier 1 space, but it was not a huge thing for us.
And just to remind everybody, Alogent was a piece of Goldleaf when we bought Goldleaf in 2010.
It's was a small subsidiary of that.
Total revenue of Alogent was roughly $25 million.
So in this quarter, it's not going to have much impact on revenue.
Will it have a slight impact on operating income of probably $1 million or $1.5 million.
Yes, but that's in our guidance and we're comfortable that we can grow over that.
There's several things, <UNK>.
One, as <UNK> mentioned, Susquehanna actually went away in our second quarter.
So obviously, that's a big impact on both iPay and our Passport business that we're having to grow over.
As <UNK> also mentioned, we had a large private company that was using a different POS system, and they did away with our EPS.
And that was actually in our Q1 of this year, so we're about anniversaried that one.
It's going to take a while, obviously, to anniversary Susquehanna, but we've still got a lot of payments business in the pipeline.
We continue to grow that business good, like I said, the payments business on the credit-union side grew extremely well.
So it's the bank side that we're really trying to grow over this in.
So Q4 is going to continue to be a challenge on the payments, but I think Q1, you're going to start to seeing the growth come back.
<UNK>, understand that the vast majority of that implementation is now into the bundled-services line.
So you're seeing a decrease in implementation just like you're seeing a increase ---+ I'm sorry, a decrease in implementation just like you saw a decrease in license fees, because those are now in the bundled-services line.
You're absolutely right, <UNK>.
But it really comes down to what products we're selling and what products we're installing in any given quarter.
Whether you take the implementation revenue in the quarter as implementation revenue, or it goes into deferred revenue and you recognize it and you roll it out in the bundled services as deferred revenue at a later date.
Correct.
You bet.
Thanks, <UNK>.
Hello, <UNK> <UNK>er.
(laughter)
<UNK>, this is <UNK>.
I'll comment on the cash management.
So, we've had cash-management offerings as part of our Internet banking offering for a number of years.
What we've seen in the last couple of years, generally from our larger banks, but certainly not exclusively to that group, is a stronger requirement for more advanced functionality than what our standard cash-management offering had.
So we got a twofold approach.
We're doing some extensions or enhancement of that existing cash-management system that we think will meet the needs of a number of those folks.
And then we're doing a start-from-scratch development of a current cash-management offering that will be a new product and priced accordingly, similar to other fully featured cash-management offerings of its type that are available in the market today.
Don't anticipate that there will be hundreds of our customers that will opt for that higher end cash-management system, but certainly believe it will meet a need for a good number of them.
And will be particularly important in our sales efforts to banks in that $2 billion to $20 billion asset range, where a stronger cash management treasury services offering is needed.
<UNK>, do you have some comments on the growth in the drivers in the quarter.
Sure.
Brad, one of the things, and ongoing, one of the things you have got to think about is, our license revenue in the quarter was $292,000.
In fact, credit unions had no license revenue in that line.
It all is now going into the bundled-services line, as we delivered the last product on those multi-product contracts.
But the really big drivers, <UNK>, haven't changed any.
If you think about it, in-house maintenance up 6% for the quarter, 5% year to date, that's a good, solid base.
It's 28% of our revenue base, continues to grow nicely.
Our outsourcing, which is about 20% of our revenue, is growing double digits.
It's 10% or 12% for the quarter and year to date, so that's a good driver.
Payments was a challenge this quarter at 2%.
It's still up a little over 5% year to date.
Like I said, the fourth quarter is going to be another quarter of a little challenge on payments, but I think that's going to go back to nice growth in FY17.
So again, it's just going to be our support and services line of business that's just going to continue to drive our growth in a number of different areas.
So there's no one specific area that is driving the growth.
Thanks, <UNK>.
Yes, <UNK>, it's <UNK>.
We are, and the acquisition of Banno that we did about two years ago was one of the large drivers of that.
Not because they had an off-the-shelf digital offering, but because they had some technology and a staff that was highly focused on that.
We felt like we could go from having a very, very successful, as we have for some time, Internet banking offering to more of a current technology digital banking channel solution.
And that's been one of, as <UNK> mentioned, among the major R&D investment areas, that's been one of the ones that has drawn a good bit of our technology investment.
So we're beginning to roll out the initial releases of that new offering yet this summer.
Believe it's going to be a highly competitive offering there, and I think there's going to be a nice opportunity to move folks to the next generation of these types of digital solutions.
Thanks, Lily.
Again, we look forward to seeing many of you at our 2016 Analyst Day event that will be had held next week, actually, next Monday, May 9, at the Westin Property at the Denver Colorado Airport.
We will provide presentations from all of the executives, the three of us, our CTO, our Division President, and all of our National Sales managers will be there Monday afternoon for presentations.
We will follow that with a reception and a mini-tech fair that night to highlight some of our products.
Banno will be there, for those of you that are coming that are interested in seeing some of the things we're doing.
With that, I want to thank you for joining us today to review our third-quarter FY16 results.
We're pleased with the results from our ongoing operations and the efforts of all of our associates to take care of our customers.
Our executives, managers and all of our associates continue to focus on what is best for our customers and shareholders.
I want to thank you again for joining us today.
And Lily, will you please now provide the replay number.
| 2016_JKHY |
2015 | NTGR | NTGR
#Thank you, <UNK>, and thank you, everyone, for joining today's call.
For the first quarter of 2015, Netgear net revenue was $309.2 million, which is down 11.5% on a year-over-year basis and down 12.5% on a sequential basis.
The decline in revenue is due to the exiting of certain service provider business that does not meet our financial metrics, as discussed in our previous earnings call, as well as the negative impact of the strengthening dollar on our international business.
I will expand upon this further in a moment.
Non-GAAP diluted EPS for the first quarter of 2015 was $0.46, which is down 22% year-over-year.
Our EPS was negatively impacted by the decrease of international revenue and profits, which <UNK> will discuss during her section of the call.
For a full reconciliation of GAAP to non-GAAP financial results, please refer to the first quarter 2015 earnings press release.
During the first quarter, net revenue for the Americas was $173.8 million, down 10.8% year-over-year, and down 10.7% quarter-over-quarter.
Revenue in the Americas was primarily impacted by our exiting of certain service provider business that did not meet our expected level of profitability.
Both the retail business unit and commercial business unit's performance in the Americas during the quarter met expectations.
Europe, the Middle East and Africa, or EMEA, net revenue was $89.1 million, which is down 16.6% year-over-year, and down 16.1% quarter-over-quarter.
We had expected the strengthening U.S. dollar to negatively impact EMEA results when translating revenues from local currencies into U.S. dollars.
In addition to that, Europe underperformed more than expected due to increased volatility in the region's pricing environment.
We believe this pricing volatility is a reaction to the fluctuating exchange rate and will continue for the rest of the year until the exchange rates are stabilized.
Our Asia Pacific, or APAC, net revenue was $46.3 million for the first quarter of 2015, which is down 3.3% from the prior year's comparable quarter, and down 11.5% quarter-over-quarter.
Similar to EMEA, our results for APAC were negatively impacted by the strengthening U.S. dollar as forecasted.
All three BUs performed well against our targets in APAC.
Overall, other than managing our service provider revenue to a reduced, but more profitable, level of $100 million to $105 million a quarter, we have seen renewed difficulty in our European retail and commercial businesses because of the continuous upward trend of the U.S. dollar exchange rate in a sluggish economy.
In Q1, we shipped 5.7 million units.
We also introduced 19 new products during the quarter.
As always, sales channel development is the key focus for the Company, as our sales channel remains a critical strategic asset.
By the end of the first quarter of 2015, our products were sold in approximately 44,000 retail outlets around the world, and now the number of value added resellers stands at approximately 33,000.
Now let's turn to our review of the first quarter results of our three business units - retail, commercial, and service provider.
For the retail business units, or RBU, net revenue came in at $121 million, which is up 2.3% on a year-over-year basis, and down 18.2% sequentially.
While RBU performed well in the Americas and in APAC, the environment in Europe has been challenging.
I'd like to highlight our launch of the Arlo Smart Home Security Camera has been very successful.
A big congratulations is due to the entire Arlo team that worked so hard to bring such an impressive and innovative product to market.
Sales and customer interest among the very limited set of retail partners we had in Q1 are very encouraging.
We look forward to building on this success by expanding the channel and regional reach of the Arlo Smart Home Security Camera in the coming quarters.
As we continue to ramp our production capacity to full speed, we expect to reach full channelwide and worldwide distribution of Arlo cameras during Q3.
The commercial business unit, or CBU, generated net revenue of $72.7 million for the first quarter of 2015, which is down 7.8% on a year-over-year basis, and down 8.4% sequentially.
While we were pleased with CBU's performance in the Americas and APAC during the first quarter, which was driven by the switching category, our Q1 results show declines due to the headwinds caused by the strengthening dollar in Europe.
The commercial business started the new year with the introduction of two innovative switches.
At the low end we introduced the Click Switch, which allows for innovative mounting and cable management with USB charging ports.
It is ideal for conference rooms, cubicles, and home theater rooms.
I'd like to highlight that the Click Switch was recently awarded a prestigious Red Dot Product Design Award by an international panel of 38 design experts in Essen, Germany.
At the high end we introduced the M6100 Chassis Switch, which we believe is the world's best priced performance chassis switch with the densest 10 gigabit configuration for under $10,000.
While it will take time for sales to ramp for both of these new switches, we are optimistic that they will be drivers for CM---+CBU's performance in the second half of the year.
For our service provider business unit, or SPBU, net revenue came in at $115.5 million for the first quarter of 2015.
This is down 24.2% year-over-year and down 8.3% on a sequential basis.
As stated on our prior earnings call, we had expected SPBU revenues to decline in Q1 as we have exited certain service provider businesses that did not meet our profitability metrics.
Specifically, we have seen a decrease of service provider investment in the mature wireline technologies, and our competition in this market segment has been willing to take deals with low or negative profit margins.
We on the other hand have chosen to pass on such deals.
During the first quarter, we received additional orders above our original plan from various service provider customers that allowed us to deliver upside to our forecast.
Nevertheless, we continue to expect that SPBU revenue will be approximately $100 million per quarter for Q2 and the remainder of the year.
The restructuring of the service provider business unit is ongoing as we continue to work on bringing SPBU's expenses in line with this new revenue run rate.
We expect that SPBU's restructuring activity will be completed by the end of the second quarter.
While we are throttling back our investments on the mature wireline side of the business, we continue to strategically invest in newer technologies such as LTE, where we expect future service provider spending to flow.
We are also developing cutting edge DOCSIS 3.1 and VDSL products, but only for select wireline customers where we know that we can add value and be profitable.
We continue to believe that Netgear can offer service providers unique value and expect that we can improve the profitability of the service provider business over time.
While we are currently challenged by our reduced revenue outlook, we continue to maintain a high level of R&D effort to ensure future profitable growth with innovative products, as demonstrated by the initial success of Arlo.
We continue to maintain our market leading position in 802.11ac WiFi routers and gateways, WiFi extenders, and WiFi cable gateways sold through retail.
On the commercial side of the business, the introduction of the Click Switch and the M6100 chassis switch proves that we are still the market leader in SMP switching.
Meanwhile, SPBU was focused on being first to market with the latest LTE technology and delivering cutting edge DOCSIS 3.1 and VDSL products for our long term profitable accounts.
All in all, we believe we are effectively navigating a choppy macro environment and making the right decisions to ensure the growth and profitability of the Company in the quarters to come.
I will now turn the call over to <UNK> for further commentary on our financials for the quarter.
Yes.
Primarily right now, it fosters the line of business.
I think we have different customers and different accounts.
And certainly, if there is any opportunity that is left open, we would definitely be interested and going to take advantage of it.
For the time being, I think our best winning chance is really focus on our innovative products, lines that will be based on the best WiFi, like the Wave 2 WiFi, as well as the DOCSIS 3.1.
We believe that as long as we continue to maintain the product leadership, opportunities will open up.
You're right.
I mean, it is definitely a big challenge on a year-over-year basis.
Both euro, Japanese yen, and Australian dollars have depreciated somewhere between 15% to 20%.
And a lot of our competition in those markets were local, which are priced in the local currency.
So either we lowered our U.S. dollar prices or we have to price at local currency, which means that there would be a big hit in the top line when we transfer it back into U.S. dollars.
But an even bigger hit is on the margin.
We estimated that on a constant currency basis we are losing about 240 basis points in operating margin because of this currency fluctuation year-over-year.
So that's a big thing to overcome.
So we're taking it in three aspects.
The first aspect, of course, is to work with our supply source to constantly reduce our costs, so that we'll be able to cushion this big hit.
But of course, it would take time.
So we expect that it would take another quarter or so, so that we can bring the costs in line with the current exchange rate.
And then, the second piece, of course, is try to really shift the mix of the products.
And we would like to shift the mix of the products to the ones that we have higher margin, which are generally the newer, more innovative products.
So that would help to really rebalance our portfolio towards more higher margin products.
Third is to really introduce newer products that we could price at a higher margin price point.
And that's why we made the decision that in Q2 despite the challenge of the top line we will maintain our R&D dollars level, so that we'll be able to bring newer products that will carry a higher margin into those markets.
We've seen the success of this strategy in Asia where the economy is actually doing better, so our customers in Japan, in Australia, in China, are really receptive to our newer higher end, higher priced products.
In Europe we are seeing less success of that.
So we need to in Q2 and Q3, for the rest of the year, to offering---+to using some more innovative products that might be of middle price point, but still high margin, to attract our European customers to buy into it.
However, overall, we believe that the Arlo line is going to be a really interesting opportunity for us.
The indication in the limited distribution in the U.S., in North America in Q1, indicates that it really fits the desire of many smart home users.
And we're starting to put it into limited distribution in Europe.
And this indication is very encouraging.
So we'll continue to use these innovative products to really offset the headwinds of currency.
But it will take time.
However, we are looking forward to the second half when all these new products are fully in place and they will help us to offset the currency headwind.
As a matter of fact, I was very encouraged by the feedback from the users.
If you go to Amazon, which is our limited retail partner, and half of the Best Buy stores, and you could also get some feedback on BestBuy.com.
I think the biggest differentiation of ours versus all our competitors is in the super ease of installation and use.
If you look at that, I mean, we have a patented technology that put us uniquely that we would be able to operate these cameras by battery, which nobody else could do.
By using battery, we are able to produce a camera that is very small and is weatherproof.
You could use it---+you could install it outside, outdoors, with ease without having to look for power, without having to look for protective gear.
And furthermore, we added night vision to it.
So when you combine all of that, it is very difficult for anybody to duplicate.
And we have really good patents to protect---+all of these technologies come together.
So quickly we've seen that our market share has shot up in the first quarter in the U.S. We're not in the top three as yet.
But we fully expect that we'll be in the top two by the second half of this year because of that unique differentiation.
And as a matter of fact, in Asia Pacific and in Europe I don't think that the Drop Cam from Google is a major competitor because in those countries there is no unlimited data plan for most of the internet users.
And given the fact that Drop Cam records 24/7 to the cloud, it would be very difficult for them to compete against us when we only record when there is motion.
So we're pretty confident that we have a very unique differentiation that we will be able to attract customers.
And the initial indication is very encouraging.
It's all four stars no matter where you look.
So in the Amazon review and in the BestBuy.com review.
Hi.
It's actually from multiple customers.
It seems like these multiple customers ran some promotions through their install base.
It involves 11ac routers.
It also involves high end gateways---+cable gateways, and also our Air Card Mobile Hot Spot.
So from multiple customers, from multiple geographies, that they actually ran some promotions in Q1 to attract subscribers which require a bit more than planned quantities from us.
The bulk of the drop off is in the service provider side.
So that's a big drop off in units.
And on the commercial and RBU side, commercial practically has very little drop off in units.
In the RBU side, on a sequential basis it's primarily driven by the number of selling days also.
There are four left selling days in Q1 versus Q4.
That affects the shipment units.
That is true.
But then on the other hand, if the gap widens there is a point that people aren't going to---+willing to pay the difference.
We have no choice but to keep the local currency gap constant, which means that we have to drop prices in U.S. dollar terms.
That put headwinds on both the units as well as the---+I mean, not the unit, but on the dollar, as well as on the margin.
So that's why we're trying to mitigate that by really looking at the source, by reducing our cost of acquisition of those products, and also by shifting the mix and as well as introducing new products.
The first one is the 11ac penetration in North America is significantly better than in Europe, as I talked about earlier.
The U.S. is pretty much close to 65% to 70% 11ac, as I predicted in previous earnings call.
By Christmas this year, probably 90% will be 11ac.
Europe is significantly behind that.
They are less than 40% 11ac, which really hurts our position over there because we're all spearheading towards 11ac while competitors are more into the 11n yet.
So we expect that when we introduce a little bit moderately price 11ac---+because our 11ac products today are primarily in the high end.
AC is 1650 and above.
But starting in Q2 we are starting to introduce ac750, ac1200, more low end products into Europe that probably would be the right approach that we should have taken a little bit---+while ago.
But now we are there, so we believe that our position in Europe will be strengthened.
And it would help the market to move to 11ac a little bit more.
However, we still believe that Europe will be lagging behind.
By Christmas they will still be probably 40% at 11n and 60% 11ac.
So Asia Pacific is pretty much like the U.S. phenomenon.
It has all moved to 11ac, while we are primarily in the high end, while the local vendors are primarily in the low end in the 11ac 750.
So Europe is definitely the laggard.
So that's where we're at from the 11ac penetration.
I forgot about the second question.
Could you repeat that.
No.
On the high end 11ac router the price erosion is pretty minimal.
If you go to Amazon.com you would see that most of our 11ac products are probably at the most $10 off from it was introduced.
If you look at the R7000, which is our flagship Nighthawk, today I just looked on Amazon and I think it sold at $189, versus what we introduced, $199, about two years ago.
And then, the Nighthawk X6, which is our top end, I think is---+the last I looked is still selling at Amazon at $289 versus our $299 price point that we introduced about a year ago.
Sure.
Yes.
What I would like to say is that we're confident in the pipeline of new products of the three business units in the second half on the RBU side.
Clearly we are very excited about Arlo---+further products from the Arlo line, as well as from the Nighthawk line in the second half.
And then, on the CBU side, there'll be more introduction on the 10 gig and POE switches, together with a refreshed line of Ready Now.
And then, on the service provider side, we are still going to be first to market for the next generation Cat 9 products of LTE.
And that's why---+I mean, we believe that our prudent staff are protecting the R&D dollars for Q2 would really benefit us in the long term.
And we expect that when those products hit and the existing Arlo camera gets full distribution in Q3, we will see a much better outlook for the second half of this year and beyond.
And I look forward to report that progress back to you in the next earnings call in July.
So in the meantime, thank you very much for joining us today.
And look forward to talking to you again in July.
Thank you.
| 2015_NTGR |
2016 | NR | NR
#All right, <UNK>, let me take a shot at that first and then I'll ask <UNK> to comment after me.
On the Mats in terms of competition, let me break that up into ---+ if you look at the oil and gas segment, yes, certainly there's some competition there has have falling to the wayside as it's been a difficult market to navigate.
However, as we move into the power transmission market, there are new competitors, different competitors there that compete with wood Mats, very similar to what we competed against in the oil and gas industry.
So in the oil and gas sector, certainly seeing competitors disappearing, but we're going after new competitors in the power transmission and pipeline segment.
And then on the Evolution question, could you come back to us on that question again, <UNK>.
The answer is yes.
I think we're seeing that customers are recognizing now that the pricing element is now finished.
They still have a need for operational efficiency.
So the technology begins to play again and we're seeing signs of that coming back now.
Thank you.
| 2016_NR |
2018 | AAXN | AAXN
#Thank you, and good afternoon to everyone.
I'm <UNK> <UNK>, President of Axon.
Welcome to Axon's Fourth Quarter 2017 Earnings Conference Call.
Joining on today's call from management are <UNK>ick <UNK>, CEO and Founder; and <UNK> <UNK>, our Chief Financial Officer.
Before we get started, <UNK> <UNK>, our V.
P.
of Investor <UNK>elations, will read the safe harbor statement.
Good afternoon.
This call is being broadcast on the Internet and is available on the Investor <UNK>elations section of the Axon Enterprise website.
During our call, we'll be making references to our reported results, which you can find by reading of our quarterly shareholder letter and the supplemental materials, both of which are available at investor.
axon.com and on the SEC website.
We'll start today's session with prepared remarks, then we'll move to live a Q&A session.
Statements made on today's call will include forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, including statements around projected spending.
We intend that such forward-looking statements be subject to the safe harbor provided by the Private Securities Litigation <UNK>eform Act of 1995.
This forward-looking information is based upon current information and expectations regarding Axon Enterprise and these estimates and statements speak only as of the date on which they are made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.
All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in greater detail in our annual reports on the Form 10-K and our quarterly reports on the Form 10-Q, under the caption <UNK>isk Factors.
You might find these filings as well as other SEC filings at investor.
axon.com or at sec.
gov by searching for filings under the Axon ticker, AAXN.
Okay, now turning the call to <UNK>ick <UNK>, our CEO and founder.
Thanks, <UNK>, and good afternoon, everyone.
Thank you for joining us, and welcome to day 1 in the next decade of Axon's mission to protect life.
2017 was a big year for Axon, and I'm extremely proud of what our team has accomplished.
We executed on our short-term goals and, at the same time, laid the foundation to drive continued top line growth and long-term profitability.
There were several highlights from the year that I want to recap.
First and foremost, we changed our name from TASE<UNK> International to Axon Enterprise to now reflect what is now an unprecedented platform of devices, software and technology.
Next, we completed the enormous task of migrating 20 million gigabytes or 20 petabytes of data onto Microsoft Azure cloud.
Let me tell, you this was no small feat, and I could not be more proud of our team who worked tirelessly to make it happen seamlessly for our customers.
Back to my recap of the year, we also launched our artificial intelligence group, Axon AI.
We accelerated market adoption of our body camera program.
We expanded our product ecosystem with Axon Fleet and in-car video system, and we've started to take market share in this new market.
We grew our booked license account on Evidence.com to more than 200,000 seats.
We introduced Signal Sidearm, which allows all of our cameras in a certain radius to begin recording after a firearm is drawn.
We've rolled out Axon Citizen, which allows the public to submit evidence.
And we've enhanced our Board of Directors and expanded our leadership teams across IT, product and finance while promoting some of our existing superstars.
Notably, we've brought in financial leadership that significantly deepens our bench and is already facilitated in new cultural ---+ a new culture of discipline that will enable us to deliver increased profit and drive greater shareholder value.
I couldn't be enjoying working with anyone more than I have with you all this past 6 months.
It's great to have you aboard.
<UNK> will discuss our OpEx shortly, but suffice it to say, we entered 2018 with good progress under our belt and expect to continue that momentum.
In 2017, we delivered record revenue of $344 million, and we also ended the year with Software and Sensors bookings up 15%.
Importantly, we continue to make progress against our 4 key areas of growth, which are: one, the TASE<UNK> Weapons; two, evidence management software and body cameras; three, Axon Fleet; and four, Axon <UNK>ecords.
With that as a backdrop, I'm incredibly excited about our plans for 2018 and the way our team has come together to embrace our new mantra of being scrappy to drive leverage.
We've long had a culture of excellence, hard work and fun, and what I view as collegial atmosphere at Axon.
That will not change, but it will be enhanced by disciplined financial management combined with top line growth.
Broadly speaking, Axon is at a new juncture.
We have a platform of innovated and interconnected business that will allow us to continue creating and dominating new markets.
You heard our perspective in the path we're taking at our November Analyst Day.
We believe our market position and the opportunity to drive shareholder value is unique.
We've continued to shift our business model.
Our mission is clear.
Our teams are invigorated, and we're all looking forward to keeping you updated in our progress.
As you have no doubt seen, today, we also announced the new plan for me to lead this amazing company, these amazing people through the next decade.
Later this week, I look forward to accepting my last paycheck for the next 10 years.
I'll be shifting to a 100% performance compensation package based on stock options that only last if we can increase the market capitalization through a range from starting at a doubling to a tenfold increase, coupled with financial operating targets to ensure we're building both shareholder value and financial rigor.
The planned development was led by Hadi Partovi and our compensation committee and is largely inspired by the recent program announced by Tesla for its CEO, Elon Musk.
And I'll tell you, I'm incredibly excited at the opportunity to earn back a share of the company I founded 25 years ago if we can deliver 10x results.
I also relish the accountability of knowing that I will take home nothing from this plan if we don't at least double the market cap based on the 6-month averages starting today, while either doubling revenue or tripling adjusted EBITDA just to get to the first milestone.
<UNK> can give us more detail later.
And of course, this plan is contingent upon you, our shareholders, voting to implement it at our upcoming Shareholder Meeting in May.
But I can tell you, I'm pumped and ready to roll.
With that, I'll turn over to <UNK>.
Thanks, <UNK>ick.
You should all have our reported financial results and shareholder letter in front of you.
Let me add some color by taking a look at where our teams will be focusing their energy in the new year.
First, I'll talk about product development.
And second, I'll give some color about our execution.
For product, 2018 is going to be another year of intense innovation for us.
We'll be launching several new products, including Axon <UNK>ecords, a breakthrough record management system built to fully integrate audio and video data and to the leverage artificial intelligence to streamline report creation in addition to several game-changing enterprise software add-ons.
Another products that fit into our 4 strategic growth categories highlighted by <UNK>ick.
Evidence.com is constantly improving.
For those of you who are new to Axon, briefly, Evidence.com is our cloud-based digital evidence management system that stores body-worn camera video and does so much more.
We're constantly improving this product, adding new features upon our customers' request for our different pricing tiers, and we send out updates in real time to improve the user experience.
For example, most recently, we dramatically reduced the time it takes to search for videos and upload it to Evidence.com.
We're excited about the increasing utility of Evidence.com.
Today, the platform post off a body cam video, and that's great, but our customers need the software to do more.
We're developing enhancements that will enable Evidence.com to seamlessly take in CCTV footage and other forms of video and audio evidence.
We can't touch on all of our products to date, especially as our suite grows, but I want to note that we're seeing good traction with the Axon Citizen, which is a community evidence submission tool that we announced in Q4.
Oxnard Police Department out of Southern California put out a video to their entire community, outlining how they could submit evidence via their smartphones to the police agency using Axon Citizen.
Fort Worth Police Department at Texas also announced they were doing an entire agency-wide trial of Axon Citizen.
The second area of focus I want to cover is our ability to execute on our growing TAM.
Back-office operations might not be that glamorous, but it's important to get these things right, and we feel really confident about the decisions we are making to support our growth.
We are scaling up our offices across the world, and we have set a priority in 2018 to cross-pollinate our internal groups to ensure we execute against one vision for Axon.
For perspective, in 2017 alone, our net headcount increased by 250, reflecting 36% growth.
We have recently added staff in key markets, including <UNK>sdale, Seattle, London, Frankfurt, Finland, Amsterdam, Sydney, Vietnam and New York.
Our senior leaders are spending time on the ground in these areas and working across functions to keep the global team marching in lockstep.
We're also consolidating our global logistics group as we prepare for continued international growth.
We recently folded our EMEA logistics and operations responsibilities into one global logistics group.
During the past year, this group dramatically improved our HQ customer fulfillment and warehousing operations.
They also crafted a strategic warehousing plan and develop new key transportation partnerships.
We also recently opened a distribution center in Melbourne, Australia, which is becoming an increasingly important market for us.
Hopefully, you saw our announcement earlier this month that in the first quarter of this year, Victoria Police in Australia ordered 11,000 Body 2 cameras and secured a 5-year subscription to Evidence.com.
We believe we now have a solid foundation in place to provide even better support to our international customers going forward.
Joining forces is one of our internal core values and encourages people to step outside of their individual silos.
We already see this happening, and we believe this will be critical to the organization as we continue to grow.
Now I'll hand the call over to <UNK>, who will talk about our financial results and outlook.
Thanks, <UNK>.
We have a lot of good things to talk about this quarter from a financial perspective.
We delivered solid fourth quarter results with record revenue, strong gross margins and adjusted earnings per share above consensus.
Fourth quarter revenue came in at $95 million, reflecting 15% growth year-over-year.
We saw strength across the board.
Weapons revenue grew 10%, and Software & Sensors revenue was up a healthy 27%, reflecting a large number of customer add-ons and another record quarter of competitor conversion wins.
We'll come back to gross margin and operating margin in a minute, but I wanted to jump down to the bottom line first to point out that in Q4, we added $8 million noncash tax expense related to U.<UNK> Tax <UNK>eform.
This put us at a GAAP EPS loss of a $0.04 per share.
Excluding this noncash tax expense and also excluding a noncash intangible asset abandonment charge, our Q4 non-GAAP adjusted EPS was $0.13, which we feel really good about.
Also, you may have noticed in our shareholder letter that we are giving 2 non-GAAP EPS figures.
This is because, for the first time, we're excluding stock-based compensation expenses from income and plan to do so going forward.
Excluding stock comp, our non-GAAP EPS was $0.18 in Q4.
As you can see in our reconciliation tables, this is up from non-GAAP EPS of $0.15 in the same period a year ago.
So to be clear, the $0.13 non-GAAP EPS is what compares to consensus, and the $0.18 non-GAAP EPS reflects a new adjustment that we're introducing this quarter.
You have the tables in front of you so I don't need to hit every number, but I do want to take a few moments to unpack gross margin and operating margin.
Our consolidated gross margins were great this quarter, coming in at 66.6%.
This reflected strong pricing, lower data migration costs in the previous quarters and a favorable mix.
We're proud of this result, but we also believe that we had a favorable confluence of factors in Q4 that boosted our gross margin.
And so we believe that 300 to 400 basis points of the gross margin performance was nonrecurring.
Drilling into gross margins a little bit more, you'll notice that Software & Sensors product gross margin flipped from negative 5% in Q3 to positive 43% in Q4.
This was mostly tied to strength in pricing as well as the timing of shipments and favorable product mix.
With all the puts and takes of the past few quarters behind us, we expect Software and Sensors product gross margins to normalize to about 25%, excluding Axon Fleet pass-through hardware.
On operating expenses, I want to take a minute and commend our team for working hard to implement and embrace robust cost controls in November and December.
We've already started to see the results of their efforts as we've started to bend the trajectory of our cost growth curve.
Our Q4 operating expenses of $55.4 million include $900,000 in restructuring costs associated with a reduction in force.
We believe that this reduction in force will lead to $4.5 million in annual cost savings starting this year, 2018.
Q4 operating expenses also included a $1.1 million noncash charge related to an intangible asset write-down.
You can also see the results of our cost controls on the adjusted EBITDA line, which came in at $15 million in Q4.
This compares to $13 million a year ago and is up substantially from $7 million in Q3.
Turning to the balance sheet, we feel a really good about our financial condition with over $80 million of cash.
Also, we told you 2 quarters ago that we would take inventory levels to sub $50 million by the end of the year, and we did exactly that.
Inventory was $45.5 million at year-end.
Before going over our guidance, I'll briefly discuss ASC 606.
The new accounting standard is applicable to Axon, effective January 1, 2018.
This standard effectively eliminates the concept of contingent revenue, which will result in accelerating some of our revenue recognition on new contracts while, at the same time, moving previously stored-up deferred revenue straight to the retained earnings line.
We're still working through the details, but our accounting team has worked hard to prepare for the accounting change.
And in 2018, we will disclose revenue results under both standard 605 and 606, starting with our Q1 2018 results.
Now to our 2018 outlook.
We are providing the following guidance: <UNK>evenue growth of 16% to 18%; operating margin expansion of 300 to 400 basis points, driven by strong gross margin and strike expense control; we are looking at a normalize tax rate of between 20% to 25%, which can fluctuate depending on changes in our stock price and the geography in which our earnings are booked; and finally, capital expenditures of $12 million to $16 million.
Looking a little further ahead, we're in the initial planning stages for a next-generation manufacturing facility and headquarters building that will consolidate our 4 <UNK>sdale locations into 1 complex.
This is a long-range project that would see us break ground some time in 2019 with a target completion date of 2021.
The expected return on investment for this project is compelling as it would enable us to retool our <UNK>sdale manufacturing lines, consolidate office space and ultimately move our Axon Accelerate user conference onto our own campus.
We'll have more to say on this as we move through the planning stages.
We appreciate your time today, and we'll now be happy to take your questions.
Operator, we're ready to move to Q&<UNK>
Yes, sure.
Let's start with the first part of your question there.
So we saw some upside relative to product mix.
And really, we had the heavier portion of software versus hardware in the quarter.
And we generally ---+ when that happens, we tend to see favorable margins.
We also had some upside from adjustments we made to inventory that came in at the end of the year as part of our inventory balance.
And then the second part of your question.
Got it.
Great question.
So I'll take that one.
We've recently announced the team that we hired in Tampere, Finland.
I was just out of a conference call, getting them started this week.
And boy, really exciting and energetic to have some really great talents around Imaging that, I think, will help tick up our hardware game and sort of increase our hardware's a capabilities to drive future software capabilities.
So we're ---+ we continue to be, I'd say, mostly interested in finding great teams that we can acquire.
I don't know that there's any glaring holes in the ---+ like, in the product ecosystem.
But I'd tell you, I generally tend to be a skeptic on acquisitions, the Chicago school guy that if we're going to look at an acquisition, it's going to have to pass a pretty high bar that it is more valuable because it's part of us than it would be standalone or part of someone else.
So our general strategy is not to go through acquisitions, unless they either have a team that we really think accelerates us or some other unique sense of value that is unlocked by being part of us.
I wanted to ask.
You're going back to your November Analyst Day.
You noted a couple of things.
One, it sounds like you're realizing maybe some of the cost savings a little quicker than expected.
I think that you've implemented some incentive changes for your sales team as well, the focus on selling contracts at better margins or better payouts for lower discount, so to speak.
Tying those 2 things together, first, how has the change in incentive plans been received for the sales team.
And then secondly, you noted previously that you expected the Axon or the Software and Sensors side of your platform to achieve profitability in 2 years, in 2020.
Is that still kind of the track that you're expecting today.
So why don't I take the first part of that question, and I'll hand it over to <UNK> here.
On the cost savings, we've just been delighted that the company has really embraced the new value that we're calling Be Scrappy.
So I hosted an exact dinner at the entire executive team.
The 10% team, we ate pizza.
It was $100.
And I paid for it out of my own pocket.
So we're feeling really good about the Be Scrappy initiative.
On how we incentivize our sales team, we have really focused on segmenting that team into hunters and farmers.
And so there is still ---+ their main incentive is to close business.
We've put in some structures that we think will help facilitate lower discounts, but we're still really incentivizing them to go out and win new business, get full penetration and add our additional tiers profitably.
And let me turn it over to <UNK> on the kind of that 2- to 3-year outlook.
Great.
If I could speak one more and quick here on the 16%, 18% sales growth for the year.
On the Weapons side, are you expecting kind of similar, like 10% growth on that.
Can you give us a little color on the Weapons business outlook for '18.
But just confirming.
You are expecting a little bit of growth on the Weapons side this year.
Correct.
Two questions.
One is, you mentioned winning some competitive win-backs.
Was that this quarter.
And can you tell us what cities those were.
So yes.
So the ones we were referring were this quarter, I don't know that we've disclosed exactly which cities those are.
Okay.
And I wanted to take your attention to the operating margin expansion, thank you for that clarity.
And just to be crystal clear because margins are always such an issue, if I go to the midpoint, the 350 basis point improvement, is that inclusive of Axon Fleet or new product introductions in the year such that, when it's all said and done, you're targeting a 7.3.
Is there going to be adjustments for new product initiatives.
Like, I heard <UNK> mention the Software and Sensors normalizing around 25%, excluding the Axon Fleet pass-through hardware.
So we have tax in multiple jurisdictions.
For that particular adjustment, we used our U.<UNK> tax rate.
It was impacted.
And we do have some ---+ we had a tax structure in the Netherlands that we wound down.
And there was some residual effects of that in Q4 that were ---+ in our tax rate.
And so the U.<UNK> ---+ just to be clear, it's about 37%.
It'll be lower.
As the ---+ so the U.<UNK>, obviously, we're going to see a lower income tax rate in the U.<UNK> in 2018.
And some of the items that helped our tax rate in 2017, we do expect some subset of those to continue in 2018.
We had a <UNK>&D credit.
We had a ---+ there's obviously ---+ you've seen the impact from the accounting change relative to equity.
And so that, we continue ---+ we expect that to continue to help our tax rate.
But that is ---+ there is some volatility there.
We can't really, obviously, predict the stock price to the extent that, that fluctuates, and that'll drive some volatility in our tax rate as well.
I'm sorry.
Are you looking for specificity around the milestones in sales.
Sure.
So what we're effectively doing are ---+ <UNK>ick needs to achieve 12 tranches, and they're not time-based.
They're market cap-based or milestone-based.
And there are 2 sets of milestones.
The first one is market cap.
And those are in successive increments of $1 billion from $2.5 billion to $13.5 billion.
The second set of milestones are operational milestones.
And those ---+ there are 8 revenue and 8 EBITDA milestones.
So 16 total.
And any 12 of those needs to be achieved.
They get effectively tied up ---+ tied into one market cap milestone.
So to basically achieve the full award, we need to ---+ we would basically need to be a $13.5 billion market cap company and achieve 12 of the 16 operational targets.
And those targets, we included in our press release.
But effectively, they start at $700 million of revenue, $125 million of EBITD<UNK>
The highest revenue milestone is $2 billion.
And the highest EBITDA milestone is $230 million.
And really, I would think about those separately by ---+ we thought we structured revenue milestones independent of the EBITDA milestones because they weren't really meant to be looked at together.
<UNK>, I believe you had brought in some outside consultants to help you reorganize the operations and things.
Is that, "We\
Yes.
That work is still continuing in Q1.
So we're expecting to see there's an expense to that.
And actually, it will likely continue into a portion of Q2.
There's a lot going on right now.
I'd say, we've brought those folks in, but the bulk of the work has been done by the new team that we've gotten in place.
I'm very excited about the team that we have in place now, led by Jim Zito, our VP of Accounting.
And we've brought in some great leadership under Jim.
And in conjunction with the consultants, we've put in a new system to automate our revenue recognition.
We're implementing a new H<UNK>I<UNK>
We're implementing a new E<UNK>P.
We're migrating over to a cloud-based version of our E<UNK>P.
So there's a lot of work on going on.
The consultants are one part of that.
Okay.
That's helpful.
Curious on the video hardware gross margins, I mean, I think you say mix is the reason for the outperformance, but I guess maybe it's the mix of Flex versus body.
But I thought the docking stations also carry very high margins.
I know they were down year-over-year.
Was that ---+ can you help me get my hands around that a little bit better.
So yes, the hardware that we shipped was at a significantly better margin than what we've seen in prior quarters.
A large part of that was the international beachhead account that accounted for thousands of cameras the prior quarter.
And then there was a little bit of adjustment to inventory that was favorable.
Yes.
That's right.
Okay.
Shifting ---+ one other question on the <UNK>MS launch.
When you start landing accounts for that product, are you going to need ---+ is there like a professional services component where you need to have implementation process to help people port over from their old system to new.
Or is it more seamless than that.
No.
For sure, there will be professional services components.
And we've been building out that team, which also, when you install things like Axon Fleet, work with agencies to be doing integrations to their vehicles also requires professional services.
So Fleet has been a nice chance to cut our teeth at that.
And then those don't all have to be employees.
We can achieve that through partnerships as well as company-based employees.
Just a quick one here on more current trends.
I think with a very sizable order that was received, kind of a lot of nuance behind the shipment timing on that, can you give us a sense for ---+ typically, you might provide a little more color on where the quarter is tracking.
Or how we should be thinking about kind of the current quarter sales.
Do you want to provide any color around that.
We feel good about this current quarter.
We don't normally give quarter-to-quarter detailed guidance.
We believe we've got strong momentum, thus far.
Yes.
Steve, I certainly appreciate the question.
Last year, one of the dynamics that was a little challenging for us was giving the guidance quarterly as far as revenue and OpEx.
And so what we'd like to do is guide to the annual guidance, 16%, 18% on the top line growth, 300 to 400 on the basis points on operating margin expansion.
And I would continue to expect to see some fluctuations quarter-to-quarter.
But for the full year, that's what we expect to deliver.
Yes.
Every quarter, we'll give you an update on how we're tracking to the full year.
Great.
To our shareholders, thanks for joining us today.
And obviously, we're pretty proud of the results the team has turned in.
Proud of the team we've been building.
I was in our Seattle office just yesterday, meeting some of our new employees and just continue to be dumbfounded at the level of talent that this organization has attracted.
And we just couldn't be more excited to continue to grow and improve.
To our finance team who's listening today, you guys are doing a great job.
<UNK> talked a little bit about Jim, and we've got <UNK> in the room here with us and a whole bunch of new folks who really at making Axon, setting the foundation for the next 10 years of growth.
So obviously, I'm excited about this new competition plan that we've put in place.
I'm excited that I know where I'm going to be for the next 10 years.
And it's going to be a lot of fun working with great people doing great things.
So stick around for the ride, and we'll talk to you guys in a few months for our next call.
And we'll see you at our Shareholder meeting in May.
With that, have a great day.
| 2018_AAXN |
2016 | WRB | WRB
#Yes, it was.
So let me offer a couple of sound bites, and then I suspect my boss has a view to share as well.
I think for ---+ there are several opportunities that have come into focus from our perspective.
Some of those opportunities we have capitalized on.
Some of those we have explored and decided not to pursue.
Some of those opportunities we continue to explore.
The fact of the matter is, by and large, whenever there is a meaningful merger or acquisition, that creates a degree of overlap or uncertainty or potential dislocation that impacts both the people within the organization.
And it also can honestly impact people outside of the organization, such as the distribution system and customers.
So we certainly have seen opportunities as a result of the M&A activity.
We expect we will see more.
In addition to that, as you and others are aware, just like we are aware, there are some very meaningful organizations in the P&C space that seem to be going through a process of looking in the mirror and making some significant changes.
As a result of that, that is creating some uncertainty, confusion, and ultimately potentially opportunity as well for organizations like ourselves for both talent and business.
So all things being equal, from our perspective, we do think that there are some opportunities that we've been able to capitalize on, and we think that there will be more to come.
From our perspective, as we've suggested to some in the past, the insurance business is fundamentally two things.
It's capital and its people.
We believe capital is ever more a commodity and people are what make the difference, so the opportunity to attract talented people from other organizations is certainly something that we are focused on.
Good evening, <UNK>.
A couple of questions there so let me try to take them one at a time.
First of all, we do believe that everything is not perfect, every plate is not spinning perfectly, but we think we are well on our way down the path to a better place.
I appreciate the comment, but I don't think everything in the domestic markets here we have running perfectly either.
As far as core competencies go, we do not necessarily take the same approach that other organizations take, particularly very large multi nationals.
We have no desire to be in every market around the world.
We have a desire to participate in markets or niches within markets where we are able to compete based on expertise.
Obviously, there are some places where we have not succeeded in doing that and some of the results and some of the discussion that we've shared with you in the past.
Having said that, we, as I suggested a moment ago, we believe that we are well on our way to remedy that.
So quite frankly, I think our strategy outside of the United States is not dissimilar to our strategy in the United States.
We are not trying to be the global, all things to all people.
We are trying to find niche opportunities in other markets where it makes sense outside of the United States to achieve reasonable risk-adjusted returns.
In several of the markets that we participate in, Latin America would be an example, I think we have achieved that consistently for more than a decade.
I believe we are doing that through our Lloyd's operation as well.
Having said that, some of the activity in Canada, rather ---+ excuse me, in Continental Europe has not proven to work out as well, but again, we think that we're getting that sorted.
I think the way I would suggest that you think about it is as I suggested earlier, <UNK>, there were a couple of places that we zigged when we should have zagged, and we think that we are well on her way to having that sorted out.
I would hesitate to try and start putting percentages on it because I don't have it down to the decimal point.
Thanks, <UNK>.
Have a good evening.
Again, here we go with the forward-looking statements.
I think our view is that based on what we know today, which is imperfect, and I highlight imperfect.
We think that there is a reasonably good chance, significantly better than average, that we will be able to improve our top line as well as our loss ratio.
Additionally, we think that there is good reason to believe that we will be able to improve our expense ratio.
Having said that, going back to some of the comments earlier, given some of the dislocation in the market, we will be prepared to sacrifice our expense ratio in the short run in order to invest in new operations as we have done historically.
And it's right in line where it's been in the mid-$50 millions pretty much for the year.
Yes.
I think it was just a general observation about the reinsurance marketplace.
Clearly, the entry of a meaningful amount of alternative capital over the past several years has put a meaningful amount of pressure on the reinsurance marketplace, and specifically on the traditional players.
And the pressure is still there, but it doesn't seem like it continues to flow in at the same pace.
There may be some other, but it's not of consequence.
Yes.
A good memory, <UNK>.
We have expanded a bit into the energy space, and it's something that we've chatted about with you all in the past.
Just to put it in perspective, from an underwriting perspective, our exposure to oil and gas is less than 5% of our premium.
It's closer to I think it's about 3.5% was the last time I had a look.
So, is it something we care about, sure it's something we care about.
But is it something that's going to dramatically derail the organization as that sector is under pressure.
No, we don't think it ---+ forget about dramatically, we don't think it really is going to even be a blip for us.
And as far as the loss activity goes, we've seen no evidence to date that it's going to create an issue for our ---+ the picks that we're using.
Certainly we are in touch with the reinsurance market.
By and large, it is a better moment to be a buyer than a seller.
From our perspective, we try and view the reinsurance market as a place where we can partner with long-term partners.
We do not look to arbitrage our partners, at the same time, we are not naive to the market conditions and the opportunity that generates for our shareholders.
So as far as the specifics around our reinsurance buying strategy, <UNK>, that's just not something we tend to really get into in this type of forum.
But I would suggest, we're not trying to abuse anyone but we are not naive to market conditions.
Thank you.
Okay.
Bridget, thank you very much and thank you all for calling in.
As we suggested earlier, we think both the quarter and the year were a solid showing.
We continue to be very focused on generating what we believe are solid returns.
And again, our view is that the return on equity that we should be able to achieve in the future is something that we are very focused on.
And it is our view that we will be able to improve 2016 when compared to 2015.
So again, we think the market offers meaningful opportunity.
We think some of the challenges that we faced in 2015 are behind us, and we are enthusiastic about what is ahead.
Thank you all for joining us, and have a good evening.
| 2016_WRB |
2015 | CLDT | CLDT
#Okay <UNK>, thanks.
Morning, everyone.
Thanks for being on the call.
It's certainly been a very interesting 2015 for lodging companies.
Lodging equity markets have been volatile, to say the least, over the past few months and lodging stocks, for the most part, are down significantly from lodging highs earlier in the year.
Conversely, industry fundamentals remain very healthy, with year-to-date RevPAR growth of 6.7%, demand up 3%, and new supply up only 1%.
Some of the largest full-service lodging companies have been reporting RevPAR growth in the low single digits, while many of the REITs with more select service characteristics are experiencing better growth.
We certainly seem to be at a point where investor perception is different from reality and we certainly aren't pleased with our current share price given the strength of our assets and growth in our markets.
But one thing we learned a long time ago was not to lose focus of our goal to own the very best select service assets in the United States that will generate long-term returns and dividends for our investors.
Chatham's fundamentals remain strong, our high-quality portfolio of premium branded upscale extended stay and select service hotels is generating and bringing attractive RevPAR growth driven entirely through increased rates without sacrificing any occupancy.
Our hotels are perfect for the corporate traveler who demands a quality room in a great location.
With an average rate of almost $160, we are able to continue to drive margins higher, especially considering how hotel cost structure isn't saddled with the burdens of food and beverage departments and other nonessential amenities that erode profits in addition to rising labor costs resulting from ever-increasing union issues.
Chatham's outlook remains one of the best in the lodging REIT space; we're proud of that.
In 2014, we invested approximately $500 million into new hotels, including two joint venture investments, and earlier this year we raised $120 million in a follow-on equity offering and used those proceeds to fund the acquisition of four hotel gems for approximately $190 million, $90 million in the first quarter and $100 million in the third quarter.
With a substantial external growth as well as our strong underlying operating results, we are projected to grow FFO per share another 20% in 2015, and our cumulative FFO per share growth rate since 2011 is a whopping 27%, [good for] highest among all lodging REITs but for two significantly leveraged hotel REITs.
The excellent growth doesn't stop at 2015, as our acquisitions in 2015 will help fuel double-digit FFO per share growth again in 2016 as most industry experts believe RevPAR growth in 2016 will continue to be in the mid-single-digit range.
Looking out even further, to 2017, we will have our Silicon Valley expansions coming on line and fully ramped up, providing another key facet to our growth story that is unique among all lodging REITs.
New supply is projected to continue to grow slowly over the next couple of years, but with demand continuing to rise and occupancies continuing to climb, we believe pricing [power] will benefit the hotel offering.
Of course, we have a fantastic competitive advantage given our unique relationship with Island Hospitality that allows us to move quickly and optimize revenue and profitability, which is very important at this phase of the cycle, where wait growth is profit.
At this point, we are 65 months into a cycle, which is longer than the last cycle.
But given the fact that new supply is still fairly well contained for the next couple of years, most industry experts believe this will be a longer cycle, similar to the cycle that lasted 111 months which began in the mid-1990s.
Switching gear to our third quarter results, all key metrics, whether RevPAR, EBITDA, and FFO per share, were in line with our guidance.
As many have discussed, the shift in the Labor Day holiday impacted our portfolio performance within the quarter, and RevPAR growth fluctuated as we saw RevPAR increase 7% in July, 4% in August, and 5% in September, for an overall growth at 5.3% for the quarter, all driven by an increase in rate, while maintaining occupancy at an impressive 88%.
At that level, our hotels are full six days of the week, which is a testament to the quality of the hotels we own.
If you look across our portfolio, the top performers were diverse, as these hotels experienced RevPAR growth of 10% or higher.
When you look at our key markets, 55% of our wholly owned hotel investments are located in Denver, Seattle ---+ that's Bellevue ---+ Los Angeles, San Diego, and Silicon Valley, all markets where job growth has been strong and the outlook remains strong.
RevPAR at our Denver hotels rose over 7%.
The Denver Tech Center continues to benefit from corporate development in the area, and occupancy at our hotel at the Tech Center was 83%, while the Cherry Creek area remains one of the top destinations in the metro Denver area and our gains there, again, were all rate driven against an occupancy rate of approximately 90%.
Our Bellevue downtown Residence Inn Hotel was renovated in the first quarter and looks great.
We invested some incremental dollars building out a bar in the hotel to serve its guests, and the profit generated to date has already paid for the cost of the bar.
With an average daily rate of almost $200 and an occupancy rate of almost 95%, this hotel is doing great and saw RevPAR rise 5% in the quarter, benefitting from the significant corporate demand from technology companies in the market.
Our two Los Angeles hotels in Anaheim and Marina del Rey saw RevPAR increase over 8% and our Anaheim Residence Inn does a great job capturing business from Asia during the summer months.
And despite only owning the Hilton Garden Inn Marina del Rey for a short time, we're excited about the growth prospects for that hotel as the area is thriving.
RevPAR in our three San Diego hotels advanced 5% and the occupancy remained high in those extended-stay hotels that are perfectly branded for what drives that market.
Finally, Silicon Valley continues its rise as one of the top lodging markets in the country and our four Residence Inns, as we've said many times, are really the perfect brand for the corporate travelers in Silicon Valley.
RevPAR rose over 8% to just about $200 in the quarter.
Tech companies continue to invest significantly in their campuses, including Oracle, which just announced it would be building a high school on its campus.
In our opinion, the strength of the business base in the valley has never been healthier.
Touching briefly on our acquisitions, we were thrilled to be able to add three fantastic hotels in the quarter, investing approximately $100 million.
The Boston and Fort Lauderdale Residence Inn Hotels ---+ great hotels in markets that are among the fastest-growing in the United States.
And the Hilton Garden Inn Marina del Rey, as I said, is in a great location.
High barriers to entry there, and the marina area is bustling with activity and new development.
These three markets should be some of the strongest as we move into 2016.
And finally, for me anyway, our balance sheet remains strong and relatively low leveraged at 41%.
We believe now is the time to double down on asset management and continue to explore all options to enhance revenue and profits with our manager, Island Hospitality.
With that, we'll turn it over to <UNK> for some more detail.
Denny.
Thanks, <UNK>.
Good morning, everyone.
I'm going to start by just walking through our earnings for the quarter compared to our guidance that we had issued back in August.
Our RevPAR guidance for the quarter was 5% to 6% for all hotels and we ended up seeing growth of 5.3%, all attributable to an increase in rates.
<UNK> spent some time talking about our strong markets.
I'm going to spend just a couple of minutes talking about a couple of the weaker markets for us, one of which was really our Pennsylvania hotels.
The two western Pennsylvania hotels in Altoona and Washington, Pennsylvania, are primarily oil and gas-driven, and those two hotels are down approximately 12% in the quarter.
RevPAR at our Hyatt Place in Pittsburgh ---+ again, not necessarily oil and gas-driven, but there certainly is some influence to the Pittsburgh market ---+ was flat year over year.
Across the three hotels we didn't lose any market share in terms of RevPAR index, but the market's certainly not the strongest at this point.
One other weak market for us, which is a little bit of a change from the first six months of the year, was the DC market, where RevPAR at the Foggy Bottom and Tyson's Corner hotels was down about 2% in the quarter, and our comp sets RevPAR was down similarly.
Again, no loss in market share but general market weakness.
The two hotels were impacted by a loss of about 200 government room nights due to lost travel resulting from shutdown rumors, especially in the latter part of the third quarter.
Our four Houston hotels are driven primarily by medical center business given that two of them are located directly at the medical center, and the other two are about two to three miles away from the West University section of Houston.
These hotels fared well in the quarter, with RevPAR for all four up for the quarter.
And if you look at actually the hotels for ---+ the three hotels ---+ one of the hotels was under renovation, the Residence Inn Houston West University ---+ when you exclude that hotel, the other three hotels actually had RevPAR up 4.4% for the quarter.
The two assets, the Courtyard and the Hampton Inn and Suites that are directly at the medical center, saw RevPAR rise almost 5%.
When you look at the performance for the entire year of Houston MSA, RevPAR was down 3.7% in the quarter and was down 2.4% for the year.
So all in all, our portfolio is significantly outperforming the market.
Again, all related to the fact that our hotels are generally tied into the ever-growing MD Anderson Medical Center area.
Adjusted EBITDA rose almost 40% and was $39.4 million in the quarter versus the guidance range of $38.7 million to $40 million.
Our hotel EBITDA margins finished the quarter at a very strong 46.7%, at the low end of our guidance range of 46.5% to 47.5%.
The primary driver behind the lower-margin growth performance was simply due to the lower-than-expected ADR growth in the quarter as ADR was the only expected component of RevPAR growth.
Some incremental brand-related expenses for guest rewards costs and one-time credit card fees due to a change in processor at certain of our Marriott branded hotels was offset by incremental parking revenue.
Parking revenues initiative that ---+ we have underway at many of our properties, and we've been pretty successful either raising or implementing charges where it's warranted.
We remain encouraged by our ability to continue to drive comparable margins higher, especially when you consider that our gross operating margins were 53% and 51% for the three and nine months ended September 30 ---+ by far the best in the industry.
We certainly don't believe comparable margins have peaked so we do expect to continue moving margins higher.
Next year the ADR will continue to be the sole driver of RevPAR growth in our portfolio.
Adjusted FFO jumped 46% and adjusted FFO per share came in at $0.76 per share versus our guidance range of $0.75 to $0.78.
At the end of the day, our FFO per share was right in line given the fact that RevPAR growth was toward the low end of our guidance range, and for the full year we're currently projected to grow FFO per share, as <UNK> said, a little over 20% in 2015.
Switching gears to our joint ventures, the third quarter results were pretty similar to the second quarter.
In the aggregate, the joint ventures generated approximately $53 million of EBITDA and our $5.3 million share of that was right in the middle of our guidance of $5.2 million to $5.4 million.
The Innkeepers portfolio remained strong, while the Inland joint venture is performing slightly below our expectations.
It's interesting to compare RevPAR across the three Chatham portfolios.
When you take a look at them, you can see that Chatham scored a third quarter RevPAR with $146; Innkeepers was $121; and the Inland portfolio was $100.
And as you dig deeper and look at the comp set market ---+ that's market occupancy ---+ in those markets, Chatham's markets ran at 83%, Innkeeper's at 73%, and Inland at 75%, which I think is a pretty good look into the underlying market quality and ultimately the ability to drive rate and RevPAR increases in those hotels where demand is high and occupancies, of course, remain high.
The Innkeepers portfolio is really performing well.
RevPAR growth is strong, up 8.2% for the quarter with rates comprising 75% of that growth.
These results on a standalone basis would be one of the best-performing lodging REITs as far as who's reported to date.
19 of the 47 hotels in the Innkeepers portfolio produced RevPAR growth of 10% or higher, which is very impressive.
Like the Chatham portfolio, the Innkeepers portfolio is primarily bicoastal, and it's the coastal markets that have been the top performers this year.
We were just recently in Seattle and California, and the corporate demand drivers in those markets are still growing and the outlook remains bullish.
A brand that performed within the Innkeepers portfolio very well was our five Hyatt House hotels, which on average saw RevPAR growth over 10% across the five hotels.
Over the past 18 months, we've invested approximately $3 million per hotel in the Hyatt Houses, upgrading the quality of the rooms, building out the H Bars in the public space, and it's certainly great to see the return on those investment dollars coming into those hotels.
Leveraging off the strong RevPAR performance, gross operating margins within the Innkeepers portfolio advanced 280 basis points to 46.3%.
Again, when you actually compare that to the Chatham portfolio of over 52%, still about a 600 basis point difference between the two portfolios.
All 47 hotels in the Innkeepers portfolio are operated by [Owen] and they were able to hold hotel G&A, R&M, and utilities flat year over year in the quarter.
So over all, contributed to a great quarter for the Innkeepers portfolio.
As has been the case for most of the year, top line RevPAR growth in the Inland portfolio remained sluggish when compared to the Chatham and Innkeepers portfolios.
RevPAR was up 2.6% in the quarter, comprised of about a 50/50 split between rate and occupancy themes.
10 of the 48 hotels produced double-digit RevPAR growth in the quarter, but when you actually ---+ and this is a little bit of a difference between the Inland and Innkeepers portfolio ---+ taking out hotels under renovation, 12 of the 48 hotels actually saw RevPAR decline in the quarter.
Again, as we talked a little bit earlier about just the overall market quality of the portfolio.
Operating margins were flat at 42.2%, which is about 10 percentage points below the Chatham portfolio and 6 percentage points below the Innkeepers portfolio.
The portfolio suffered from overall weaker and softer markets as well as some unexpected displacement caused by room conditions on the top line; and on the bottom line, much higher than expected R&M expenses impacted margins by approximately 50 basis points in the quarter as we had to correct some moisture issues and problems that were not addressed by the prior owner.
The good news is when you look at our joint venture investment returns, they remain strong.
The joint ventures are delivering high teen actual cash returns.
The portfolio is producing strong free cash flow.
And again, a reminder that those two portfolios, all the CapEx essentially for the first two years was funded up front when we closed those transactions, so those portfolios will continue to be able to produce strong cash flow as we move through 2016 and 2017.
With respect to the Silicon Valley expansions, work continues on the 32-room tower addition in Mountain View and we expect to complete that project in the 2016 second quarter.
With respect to the other three projects, we're still on basically the same time line for the two Sunnyvale locations as well as the San Mateo location, which will commence expansion later in 2016.
During the fourth quarter 2015, we'll be renovating our 160-room SpringHill Suites in Savannah, Georgia, and we accelerated the renovation of the 146-suite Homewood in San Antonio, Texas, just by a couple of months in order to complete that renovation prior to some business in 2016.
Over all, our portfolio's in great condition and we certainly don't have to take a significant amount of rooms out of inventory over the next couple of years.
So all good news from the renovation standpoint.
Before I turn it over to <UNK>, we will be hosting meetings in Las Vegas at NAREIT in a couple of weeks.
We look forward to seeing many of you there.
If you are going to be there and have any interest in meeting with Chatham and its executive team, please reach out to me and we'll definitely try and slot you into our schedule.
I think with that ---+ I appreciate your time ---+ and we'll turn it over to <UNK>.
Thanks, <UNK>.
Good morning, everyone.
For the quarter, we reported net income of $14.4 million, or $0.37 per diluted share, compared to net income of $8.8 million, or $0.31 per diluted share, in [Q2] 2014.
The primary differences between net income and FFO relate to noncash costs, such as depreciation, which was $12.5 million in the quarter; hotel acquisition costs of approximately $0.6 million related to the acquisitions of the Dedham and Fort Lauderdale Residence Inns and Hilton Garden in Marina del Rey; and our share of similar items within the joint ventures, which were approximately $1.9 million in the quarter.
Adjusted FFO for the quarter was $29.3 million compared to $20.1 million in the 2014 third quarter, an increase of 46%.
Adjusted FFO per share was $0.76 per share versus $0.73 per share in Q3 2014.
Adjusted EBITDA for the Company was 38%, to $39.4 million, compared to $28.5 million in Q3 2014.
In the quarter, our three joint ventures contributed approximately $5.3 million of adjusted EBITDA and $3.3 million of adjusted FFO, at the low end of our guidance of $3.3 million to $3.5 million.
During the quarter, we will receive distributions of $2.1 million from the Innkeepers portfolio and $1.0 million from the Inland portfolio.
Our balance sheet remains in excellent condition.
Our net debt was $587 million at the end of the quarter and our leverage ratio was 41.2%.
We're very comfortable at this leverage level and have the capacity to complete additional acquisitions without raising equity, although there are no acquisitions currently in the pipeline.
Transitioning to our guidance for Q4 and full-year 2015, I'd like to note that it takes into account our planned renovations at the SpringHill Suites Savannah and the Homewood Suites San Antonio during the fourth quarter.
We have amended our guidance to reflect actual performance in the third quarter and a reduction in RevPAR growth in Q4.
We expect Q4 RevPAR growth to be 5% to 5.5% and the full year 2015 RevPAR growth to be 5.75% to 6%,.
On a pro forma comparable same-store basis, including the Dedham, Fort Lauderdale, and Marina del Rey hotels, 2014 hotel quarter-by-quarter RevPAR was $113 in the first quarter, $131 in the second quarter, $139 in the third quarter, $114 in the fourth quarter, and $124 for the 2014 full year.
Our full-year forecast for corporate G&A is $8.5 million, which represents a $100,000 decrease from our previous guidance.
On a full-year basis, the three joint ventures are expected to contribute $17.1 million to $17.2 million to EBITDA and $9.5 million to $9.6 million of FFO.
From a cash flow perspective, capital expenditures are expected to be $4 million in Q4 with $2 million related to our 2015 capital plan and $2 million related to the Mountain View expansion.
I think at this point, Operator, that concludes our remarks and we'll open it up for questions.
Operator.
I think we'll open it up for questions.
Hey, <UNK>; good morning.
This is <UNK>.
No, I think certainly at this point in time were pretty comfortable with our portfolio.
I don't think ---+ as far as from an acquisition standpoint, certainly we always would have our eyes open and be certainly looking for some opportunistic deals, but I think at this point, certainly given kind of where we are within equity price and ---+ although we do have some capacity on our balance sheet, we certainly aren't targeting new acquisitions at this point in time.
But we're just going to be optimistic.
As we alluded to, we may be opportunistic on the sales side ---+ looking at one or two assets to sell, which would be a means of recycling some capital at that point in time.
Of course, we would always look at our own stock and the implied yield there, it goes without saying ---+ measure that against what returns we may find in the market to buy a hotel.
And we, given where the world is today, would think our own stock would be a better investment, to be clear, than buying an asset.
I think ---+ you're talking about total spend for the four hotels of approximately $80 million.
We expect to generate still kind of upper-teen-level returns on those incremental dollars after financing.
So it's certainly going to be ---+ and I think we've disclosed in the past ---+ around $0.20 accretive on an FFO basis, on a full-year basis.
So that still is the target.
Yes for our portfolio, for the [cabin] portfolio, RevPAR was up about 5% for October.
I think November and December seem to be, at this point, trending a little bit better than that.
So I think that's the basis behind our 5%, 5.5% guidance.
Thank you.
Well, we appreciate, again, everybody being on the call.
As I said, and I think <UNK> has said, we certainly don't love our stock price here.
We think that the fundamentals and RevPAR growth up mid single digit and EBITDA and FFO growth of double digit certainly warrants a higher multiple for us and probably the group that currently exists.
But we have seen these times before.
We know how to make money in all parts of the cycle and we expect to continue to do that for our shareholders.
Thank you.
| 2015_CLDT |
2017 | NEU | NEU
#Thank you, Audrey, and thanks to everyone for joining us this afternoon.
With me today is Teddy <UNK>, our Chairman and CEO.
As a reminder, some of the statements made during this conference call may be forward-looking.
Relevant factors that could cause actual results to differ materially from those forward-looking statements are contained in our earnings release and in our SEC filings, including our most recent Form 10-K.
During this call, we may also discuss non-GAAP financial measures included in our earnings release.
The earnings release, which can be found on our website, includes a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measure.
We filed our 10-Q this morning.
It will contain significantly more details on the operations and performance of the company.
Please take time to review it.
I will be referring to the data that was included in last night's release in the following.
Net income was $64 million or $5.39 a share compared to net income of $62 million or $5.22 a share for the first quarter of last year.
This is an earnings increase of 3% and an earnings per share increase of 3% from last year's performance.
Petroleum additives operating profit for the quarter was $99 million, which is $1 million or 1.3% lower than last year.
Consolidated sales for the quarter increased 6.5% to $543 million compared to sales for the same period last year of $510 million.
The increase in revenue in petroleum additives in the quarterly comparison was driven mainly by higher volumes.
Petroleum additive shipments for the first quarter of 2017 were up 13.9% from the same period last year.
Lubricant additive shipments increased across all regions, except North America, while fuel additive shipment increases were driven by North America and Europe, partially offset by decreases in Latin America Of the $33 million increase in revenue, shipments was the predominant driver, partially offset by selling prices.
Operating margins at 18.3% remained within our typical range.
The effective income tax rate for the first quarter of 2017 was 27.5%, down from a rate of 30.4% in the same period last year.
The rate in the first quarter of 2017 was primarily lower due to an increase in earnings in foreign jurisdictions with lower tax rates.
On the cash flow for the quarter.
Items of note include funding our dividends of $21 million and using more cash to fund the normal variations in working capital.
We continue to operate with very low leverage, with net debt to EBITDA remaining below 1x.
In 2017, we expect to see an increase in the level of our capital expenditure to a higher level than 2016, which includes the anticipated spending on our Phase 2 Singapore investment as well as a number of improvements to our manufacturing and research and development infrastructure around the world.
In Q1 of 2017, we ramped up the capital spending to $46 million.
We announced also our intent to acquire Aditivos Mexicanos, or AMSA, which is a petroleum additives manufacturing sales and distribution company based in Mexico City.
We still expect to close the transaction in the first half of 2017 pending a regulatory review in Mexico.
Over the past several years, we have made significant investments to expand our capabilities around the world.
These investments have been in people, technology, technical centers and production capacity.
And we intend to use those new capabilities, along with new investments mentioned, to improve our ability to deliver goods and services that our customers value and to grow shareholder value.
Audrey, that concludes our planned comments.
We'd like to open up the lines for any questions, please.
Happy to answer that.
We don't talk a lot about pricing, but I do want to point out that we do get impacted by the relative price of crude oil, and oil's been down for some period.
And while our costs and our prices don't track crude oil exactly, directionally they tend to move in the same direction.
So if crude oil is down long enough, eventually it rolls through to our costs and our prices.
So that's what you're seeing.
The business will be integrated into our operation, and we don't plan to break it out separately as far as a financial segment or financial information.
They're in the petroleum additives business, and we expect them to perform inside of our operation as the other operations that we have do.
<UNK>, I don't have a specific answer for you on that because I just don't know that data.
But I'll tell you, I ---+ we participate in the full range of the market in the developed as well as developing parts of the world.
So we're in all of it.
<UNK>, if you look at new car sales across the world and the technology in those new cars, the technology from an additive perspective is the same, whether it ---+ the car sold in North America or it's sold in a different part of the world, in Asia.
So from that perspective, there's no discernible difference.
I would say that you would take a look at last year's full year tax rate is probably a good indication.
Again, don't read anything into 1 quarter, and that's probably equivalent to what we think it is going forward.
Yes, we did 29.1%.
We have an authorization that's good through the end of next year.
I guess you should think of it, if there's a choice between opportunistic and regular, it would be characterized as opportunistic.
We make the decision based on the relative prices of the stock and other uses of cash at the time.
Sorry, what period are you looking at.
Yes.
This calendar year.
All right.
Thank you, everyone, for calling in.
We'll talk to you next quarter.
Take care.
| 2017_NEU |
2015 | BKNG | BKNG
#Okay, <UNK>.
So first on the parity clause, we're pleased with the outcome.
We wouldn't have proposed it otherwise.
For us, parity is not a construct of the online industry, it's actually the whole travel industry.
Like if you had to go to a site that sold a Delta airline ticket and it was always $10 more, it's hard to be in business.
Apple has the same thing.
If you go buy a Mac at an Apple Store, and you go to a third-party distributor and it's $10 more, there won't be any third party distributors.
Parity is a very important construct that levels the playing field, and allows us to really reach our primary objective.
Our primary objective is to always make sure our customers get the best price.
We can't be in business if our customers feel like they're playing more using any of our assets.
So we worked through this compromise, I think it was well understood by the authorities that there's a free riding problem in our business like ours.
If our suppliers who basically load the prices onto our system then load higher prices on our system and lower prices on their system.
But more importantly, regardless of whether there's parity or not, if a hotel is on our system and the prices are too high it won't convert, and if it doesn't convert, it won't show up because there's a ranking mechanism anyway that always makes sure that the best product moves to the top.
And our best partners have the best product have a very strong incentive to give our customers good value, because our customers won't buy things that aren't good value.
So there's already a really strong reinforcing element.
I don't see this as having any significant impact on our business.
But it's a moving target.
There's always new discussions and things, but the way that our business runs and the reason customers use our product, they want to have confidence that we're getting the best pricing, and this agreement doesn't at all affect our rights or ability to make sure that they get the best price, and that's what's important.
And then on the Booking Suite topic, we don't release right now how many sites we're putting out.
Maybe in a few quarters we'll give everyone an insight into that, but it's off to a very strong start.
So it's promising.
The team in Seattle, which was Buuteeq, is our back end team, and we now have salespeople out in the field.
They're really a second tier sales force.
They're not in every office but they're there in when a warm lead happens, it get handed off to somebody who really knows the depth of what they're talking about.
We're in the bigger countries, but in the smaller countries we're just getting to that.
Our teams are just getting trained up on that, so it's sort of a rolling motion.
But early signs are very, very positive.
And the demand for the product is extremely strong, which is a good feeling, because it shows our partners trust us, and they recognize that this value proposition is really outstanding for people who have a website in the accommodation arena.
Okay, <UNK>.
Thanks.
Yes, what we find, at least in our business, and this is now more a Booking.com, Agoda, rental car statement.
I'll put aside KAYAK and OpenTable because of the aforementioned, they're primarily on app, and they get the really high repeat frequency type customer, which is a different set of behaviors.
But in our business, our most loyal customers, it's a bit of a circular arc because our most loyal customers are the ones that carry the app, and our most loyal customers are the ones that bounce over all the screen.
So the app for them is not just a booking experience.
It's the thing that they carry their reservation in.
We now have travel guides, so the travel guide is in the app.
When they check into a hotel, immediately it says, are you happy or sad.
So all of these things come with the app, and help our most loyal customers that are often the people who booked with us already many times, continue to repeat with us.
So it would be a stretch to say that everyone who uses the app is a more loyal customer, because the input to that generally is the more loyal.
But we do find generally now going away from app and talking about mobile more generally, the move, the biggest thing that's changing in our business is the move from a single screen world, where you only did one thing with us, which was make a booking, to a multi-screen world, where you have an end-to-end experience, from looking to booking to enjoying your trip on the ground, is giving us more and more loyalty.
People realize there's lots of reasons to use our products, but when we can actually make the whole experience better, people see that, wow, this is just a better way to do things.
And it's hard to make that multi-screen experience all tie together, and we are certainly not complete with that work.
But it's a huge differentiator, and for a big player like us we have the assets and the resources to invest to make that seamless, and for you to be able to do that anywhere you travel in the world.
This isn't easy work, by the way, because all of these softwares don't naturally speak with one another, and you've got to get the right cloud-based architecture where your account can sit in the cloud, and no matter from you're on the app or the Booking Now or you're on an Apple watch, or you're on the website, that your account immediately gets tied together.
That's work the team has done and I think does reward the bigger players who can really plumb that new end-to-end multi-screen digital experience for our customers.
So I'm excited.
For e-commerce players, mobile is a real positive.
When you're in the media business, mobile has this extra tradeoff, that it's harder to convert something through media on a smaller screen.
That's obviously, you're seeing that trade-off between those who own the transaction those who don't.
Okay.
Well, <UNK>, yes, we ---+ so first of all, you start out with hotels, and then below hotels, there's a whole collection of things that you could call self-catered products.
First just commenting on B&B's and apartments and things like that, we see that the commission levels and the take rates in that space are equivalent to the hotel space.
We don't feel any extra pressure.
Again, that's all with the lens that we have a very low bar as it is, around the world, compared to most of our competition.
But we don't feel pressure to go lower.
When you get into the single vacation home space, we still have generally signed up, without having to dilute our take rate much.
We have a little bit more pressure there, because the average vacation home owner, it's a marketplace with a lot of friction, and a lot of uncertainty.
We're the first and only transaction engine that works ---+ that's instantly verifiable, so that property has actually a calendar that works.
There's no back and forth with the consumer, like once the consumer buys, then they have to pay.
There's a lot of work still yet to be done, and a lot of these players are used to marketing themselves through a classified ad, or on an Internet website, and they're expecting phone calls, or maybe it's some of them might be on AirBNB and there's different economics in that, that I would say, let's say that the story's still out in the vacation home market, but we've at least to date been able to approach it in a similar way.
The other argument of vacation homes is the length of stay is a lot longer.
The ADR is potentially higher, and therefore, they would argue the take rate percentage should be lower, but that the absolute take rate is actually very healthy relative to the booking.
Long answer to the question.
I don't feel a lot of pressure, but in the vacation home, single owner market we of course will compete as aggressively as we need to, and be smart about the economics.
Dan, why don't you take the first one, and I'll take the second one.
Sure.
So <UNK>, gross profit relative to room nights, the room nights are on an as-booked basis and the gross profit is on a stay basis.
So you've got a little bit of a mismatch there.
We had a strong quarter with accelerating growth, and to a not insignificant degree, those checkouts are going to occur in Q2 around Easter, and then Q3 around summer.
And the other factor is, as I mentioned before, OpenTable has a more dramatic inorganic benefit to Q1, because the travel businesses are seasonally smaller in that quarter, and so that's gross profit that's in our numbers, with no room nights associated with it.
And <UNK>, on loyalty programs generally, so we do have a couple in the Group.
Agoda has a loyalty program, although we're slowly phasing that out.
OpenTable has a points loyalty program.
This is in the more traditional earn points, earn nights, get things free.
Booking.com specifically, we believe that kind of mechanism for the really infrequent traveler can be as much of a turn-off as a turn-on, because they may only do two bookings a year.
They may be wanting to do one booking, and they maybe do it quite infrequently, and for them, what they want is just a great experience.
So we focus ---+ to drive loyalty, we focus very much on the product, and getting them amazing pricing.
When you go to a destination, it's not about what this hotel costs, it's about what does the selection and assortment allow me to buy, and our users love the fact that they can find that place that directly matches what they need, at a great value.
And that's what's driven our loyalty over time, has really been product experience.
That said, <UNK>, I can tell you haven't booked five times on Booking, because if you do within a year we have a program called Genius that we offer in more of a surprise and delight fashion to our most frequent guests, and that allows them access to other closed user group rates that are supplied by our hotel partners.
Our hotel partners are really interested in our most frequent guests.
It improves their conversion and therefore improves their placement on our front end to all customers.
And that's something we've had in the market now going on a couple years, and has been really successful.
That's been our approach to date.
It's not that we won't change that.
We're always questioning these things.
Rocketmiles we bought, is a really interesting small Company in Chicago that uses airline miles.
We're interested in it because it's a real fast-growing very unique business, but we're obviously now bringing in some people with some deep expertise within Rocketmiles, many of who came from the airline frequent flyer miles business.
We'll see if we learn anything from that, that might impact our thinking differently in the future.
<UNK>, one follow-up to your first question which is what you might have been getting at.
No substantial change in our take rates in Q1 or Q2 forecast.
Okay, <UNK>.
I'll take that.
We don't divulge that specifically, but at the higher level, I have shared this before, that if you were a property on Booking.com five years ago, on average, every year, we've given you more bookings.
So if you're a brand-new property you come on, and that's always been our goal, is to have enough demand so that all of our existing properties don't feel like we're taking business away from them, but they continue to get more, and we can always feed our new properties.
When you look at our property growth, that 40% we talked about, the properties are getting smaller and smaller on average.
It's not that we aren't signing up big hotels, big resorts, but on average, that's getting smaller.
Our unit growth in terms of bookable properties is not growing at the pace of our business, which therefore, allows us to continue to keep our property partners happy, is the way to think about it.
Yes, as I said on the last call, we think the consolidation clarifies competition.
It's not the strategy we're following.
And we continue to stay focused on what we're good at, and I ---+ even if the three players are now one player, we have the same strategy in the United States we've always had.
It hasn't changed our product, it hasn't changed our value proposition and we continue to push forward, and I would say quite successfully.
By the way, I say that, not saying the other strategy is bad.
It's just different than what we've been doing, and the space that we occupy is very large.
This has been said many times.
But it's either $1 trillion or $1.3 trillion.
Even if you add our largest competitor with us, we still make up less than 10% of the opportunity.
So it's not like we're running against each other every day.
It's more our segment of the business, which is online travel, largely independent travelers, people who leverage the Internet, has a nice tailwind behind it, and we're making sure that we do our best to capture as much of that as possible.
Thank you for all joining us and wanted to ---+ I know a lot of our employees and others join this call as well.
I want to thank everyone for a lot of super hard work in Q1, and we're looking forward to a really strong Q2.
| 2015_BKNG |
2017 | LCI | LCI
#Before I begin, I\
Thank you, <UNK>, and good afternoon, everyone.
As was mentioned earlier, I will be referring to non-GAAP financial measures.
The reconciliation of the GAAP to non-GAAP numbers can be found in today's press release.
Our earnings release also includes a schedule of our net sales by medical indication.
I also want to remind everyone that during the third quarter of last year, we recorded a pretax onetime settlement agreement with one of our customers for approximately $24 million.
In the current year third quarter, we recorded a $4 million adjustment to the settlement agreement.
As a result, our GAAP total net sales were $161.7 million compared with $140.1 million for the prior year third quarter.
Due to the nonrecurring nature of this item, we excluded it from our adjusted results as it does not affect our sales run rate.
Now for the financial results on a non-GAAP adjusted basis.
For the fiscal 2017 third quarter, net sales increased to $165.7 million from $163.7 million in last year's third quarter.
Gross profit was $85.5 million or 52% of net sales compared with $97.4 million or 59% of net sales.
As <UNK> mentioned, our gross margin was impacted by competitive pricing pressure across a number of products, product mix and changes within the distribution channels.
R&D expenses decreased to $8.3 million from $16.4 million in the prior year third quarter.
The decrease was due to synergies and the timing of project spend.
SG&A expenses were $17.3 million compared with $15.8 million.
Operating income was $59.9 million compared with $65.2 million for the prior year third quarter.
Interest expense decreased to $22.4 million from $27.0 million.
The decrease is the result of our efforts to reduce debt.
In the fourth quarter of fiscal 2016, we refinanced all of our 12% senior notes which totaled $250 million with incremental $150 million term loan B and retired the remaining balance of the notes with cash.
And as <UNK> mentioned, we made payments totaling $100 million to pay down our fully drawn revolving credit facility in January and March of this year.
Net income attributable to Lannett increased to $29.2 million or $0.77 per diluted share compared with $27.9 million or $0.75 per diluted share for the fiscal 2016 third quarter.
Turning now to our balance sheet.
As <UNK> mentioned, we paid down approximately $100 million of debt during the quarter.
Accordingly, in March 31, 2017, cash, cash equivalents and investment securities totaled $154.6 million.
Debt outstanding was $937 million.
And we continue to be well within required ---+ our required debt covenant ratio.
With regard to our guidance.
We expect the factors that unfavorably impacted our third quarter to continue in the fourth quarter, resulting in slightly lower Q4 sales.
We expect our fiscal 2017 fourth quarter profitability on an adjusted basis to be similar with our fiscal 2017 third quarter.
With that, I will now turn the call back over to <UNK>.
Thanks, Marty.
Regarding the integration with KU, we continue to make excellent progress consolidating our manufacturing, sales, research and development and distribution functions.
All packaging activities in Philadelphia have now been contracted to our Seymour, Indiana plant.
With respect to manufacturing, 6 of our high-value products have been transferred from Philadelphia and are now being produced at the Seymour plant.
Transfer activities are ongoing for an additional 6 products, 4 of which are in advanced stages of being moved in the current quarter.
We anticipate that by calendar year-end, approximately 50% of the production previously performed in Philadelphia will be moved to our Indiana plant.
With regard to our pipeline, we currently have pending at the FDA 26 ANDAs, including 11 with a Paragraph IV certification.
With one of our Paragraph IV products, Zomig, we are in the process of preparing our appeal, which we expect to file later this month.
We are optimistic that we will receive several additional FDA approvals before the end of our current fiscal year.
In addition to our own filings, we have another 11 applications at the FDA through our alliance partners.
We're on track to file a new drug application for C-Topical over the summer.
We anticipate an approval could come within 1 year, following the PDUFA submission of our application.
With an approval, we will be able to market the product more aggressively with FDA-approved claims.
A brief update on our strategic alliance with HEC.
I recently returned from a trip to China to meet with HEC's leadership team.
Our relationship continues to get stronger, and we are now making excellent progress on a number of fronts, including the distribution of up to 20 of our products in China by HEC.
We have already submitted 2 quotations.
In addition, our joint effort to develop generic insulin is advancing.
We received FDA comments to our pre-investigational new drug application for the product, and we are working together to develop the best plan for filing the application.
As I mentioned earlier, we anticipated the current competitive pricing pressure in our industry and took steps to prepare for and grow our business under these conditions.
These steps included, among others, the addition of C-Topical, our first branded drug product using our patented technology, which allows us to expand our offering with a proprietary product; and the forming and developing of a multidimensional strategic business alliance with HEC.
Our efforts also included the acquisitions of Kremers Urban and Silarx, which not only added a wide array of new capability, but also diversified our offerings with added products; and the planned expansion of Cody Labs, which will allow us to more efficiently grow our pain management business, both APIs and finished dosages.
As you have just heard, we have been working to grow our generic drug business and expand into branded drug business.
We are confident that we will execute on our strategic plan, and our investments and efforts will pay dividends.
Before we open the call to questions, I'd like to mention that Lannett has been recognized as a CIO 100 Award winner for 2017.
I would like to congratulate our information technology team for winning this prestigious award and thank them for their efforts.
With that overview, we would now like to address any questions you may have.
Ashley.
Well, as Marty said, we're looking at the fourth quarter being similar to our third quarter, maybe slightly weaker.
As you know, there's a lot of pressure on pricing right now.
So as far as we can tell, we think it will probably be somewhat similar to the third quarter, but there's no way to predict that right now.
So I'd rather be conservative and not make a prediction, but our feeling is it will be very similar to the third quarter.
<UNK>, I'll take that one.
Our expectation is that the fourth quarter gross margin could tick up a bit from the third in addition to the pricing pressures and other environmental topics we discussed.
We did have some manufacturing variances of a one-off nature.
And we do not expect those to repeat.
So we expect that you'll see some limited uptick in gross margin.
But the factor is the holistic or macro factors that we spoke about.
Those, we do expect to continue as we said in our press release and earnings ---+ and our prepared remarks for the earnings call here.
Well, we're not ---+ first of all, let me start with an answer here and I think <UNK> will add to that.
As far as the numbers go, the R&D expense is low for the quarter.
It's a bit more unusually low, let's say, for the quarter.
We do expect that to tick up on a run-rate basis going forward.
In our own projections, we see R&D expense somewhere in the range of $10 million to $11 million a quarter, something like that.
And then as Kristin Arnold gets her feet on the ground here and gets better intent or has more time in position, I think we'll see our spending increase because obviously the pipeline is critical to us.
<UNK>, do you want to add anything.
We're not trying to reduce R&D for any reason other than the economy, looking at consolidating the 3 sites that was ongoing, but we didn't have a leader in that department as you know.
So our efforts to consolidate R&D and set it up so that it's operating out of Philadelphia really wasn't, let's say, robust.
With Kristin on board, the first thing she's doing is consolidating the sites and setting her sights on what products we're going to be going after.
Some of the other delays in product spend for the R&D also equate to the lower spend.
Sometimes you plan for a bio study and if you don't get it done in the quarter, you don't have that obligation, but you get it in the next quarter.
So it's not like we reduced R&D for any purpose other than just timing.
Yes, Gregg, it was not a surprise to us.
I think what we're saying is that our sales nonetheless were impacted by it.
The law was something we're very, very aware of and again, it was not a surprise.
Well, as you know, there's been these alliances or consortiums or consortium that comes on, how everybody pronounces that expression.
And the latest one, of course, is with one of the wholesalers and one of the chain stores, referring to McKesson and Walmart.
That company that group purchasing, ClarusONE, wasn't available previously.
And it just evolved recently in terms of ---+ actually, it's still an ongoing process, but they're just formulating and putting out requests for quotes now.
So that was the newest entry.
The others were already doing things like that.
So those we were familiar with.
And that's the one we're really referring to.
Yes, it does.
Yes, it does because it's selling directly to the customers.
They're now selling through the industry as a wholesaler into the customer.
Previously, we would sell directly to the customer.
No.
As my Chairman said, we're a public company, which means that the company is always available if anybody wants to make an offer to buy it.
So there's nothing untoward there, except they're running out of things to buy, you might say.
So either we're going to the last holdout or we got the best offer or not.
That depends on the people in the marketplace.
We're not doing anything to dissuade anybody from making any offers and we know that there's a lot of consolidation.
And quite frankly, we expect it.
It's not something we don't think is going to happen, but it's just a matter of waiting our turn.
Well, I would say that we're certainly feeling pricing pressure.
I mean, every customer is looking for a low price.
What surprises me is that they buy it for less money and they're going to resell it at a lesser profit.
So it just punishes the customer when they purchase at those prices.
We certainly aren't new to pricing pressure because everybody wants to reprice, get the product at a lower price because that's how they think they'll make more money.
Trouble is, then they sell it based on their new cost, so it's just a spiral going down.
We have been less subjected to it, you might say, than most of the competitors we've been listening to out there.
So ---+ but it's not like we're immune from it.
We are in the generic drug space.
And clearly, there's a focus on price.
It's always been a price business.
And we have to stay competitive.
But we really haven't seen a severe impact to any one particular product.
Well, the way it's working is, first of all, we've owned this company now a little over 15 months with this ---+ today's May, so 5, 6, about exactly 18 months now.
And quite frankly, we haven't received any complaints with regard to that particular issue.
Now that we own the company, are we getting the complaints directly, we haven't seen one complaint.
We know the FDA's claim that 29% of the complaints they received was on Kremers' product.
So our first question has to do with, well, where are the complaints you claim you received because we want to see them.
And that was part of what we asked for under the Freedom of Information Act.
We're trying to get hold of the negative event they used to decide that the product was not AB rated.
And that's the meeting we're awaiting.
And they've asked us to accept that the language we agreed to, to allow them time to get that information collected together and submit it to us.
Once we get that information, we'll then be able to request the meeting date.
So right now, we're questioning the fundamental reason for removing the AB rating from our product.
And quite honestly, I think we have a very strong argument with regards to our position there.
So that's what we're ---+ for the meantime, we sell the product, we continue to sell the product.
I believe we picked up some new customers on it.
So it continues to be a BX-rated product.
It is less expensive than the authorized generic that's out there on the AB rated from another competitor.
And as a result, people continue to use this product as well as the other BX-rated product on the market.
Unfortunately, we're in the same boat as you, waiting and waiting and waiting.
And when we say any day now, we literally mean any day we expect to get some approvals.
That's what we talked about again in the earnings call.
We expect a number of approvals before our June 30 fiscal year-end.
And I know today is May 2, gives us all about 7 weeks roughly, but we do expect some product to come through.
The problem will be, of course, at this point, they'll come through, be too late for this fiscal year, but they'll certainly be available to us the fiscal year beginning July 1.
So we just have to be patient, as we always are, with the FDA and await the approvals.
But there's no reason for us to change what we're expecting.
We are expecting those products to be approved any day now.
Well, on the levothyroxine, it's essentially the macro factors that we've been talking about.
There's nothing in specifics that we want to go into at this point in time.
And I'm sorry, the second category you asked about.
Yes, I wasn't sure which category you mentioned, Derek or Marcus.
Urology.
That one we talked about previously.
The oxybutynin, that one has dropped off previous quarters.
Nothing this past quarter ---+ I mean, there's no difference this quarter over previous quarters.
Let's put it that way.
We had a competitor go into the space actually 6 months or so, right.
So yes, so this category is more of a competitive situation that has been in place and it wasn't unusual this quarter.
I'll take the first question.
Marty will handle the second one.
Yes, we do expect ---+ we said it, our revenue and our units have grown.
So our sales volume is picking up.
What you're seeing is the price reduction when you give a customer a low price impacting sales.
So sales are down on a price basis, but they're not down on a unit basis.
So we have picked up additional business.
The unit sales on most of the products have been up, at least overall.
And we expect that trend to continue, especially as we get new products, we now have more customers to sell those new products to.
But with the pricing pressure, which is somewhat mild as compared to our competitors, as far as we're concerned, we don't see it impacting us that dramatically unless we actually lose an item as opposed to having to meet a low price.
We're more concerned about, let's say, losing a product to a competitor outright than matching a lower price, which is generally what we have to do.
So I don't see anything except potential more sales, increased sales with a larger customer base.
As far as the move to Seymour, well, Marty will answer the margin.
Yes.
As far as the move, <UNK>, it's the synergy program that we announced over a year ago, we talked about savings, significant savings.
We talked about $50 million of synergy savings in fiscal 2018, and that number grows by 2020.
Just to put it in perspective, the $50 million in 2018, roughly half of that number we projected that we would see that in the cost of goods sold line basically with the efficiencies achieved from consolidating manufacturing in Seymour.
In addition, that synergy savings grows actually when we get to fiscal 2020 because the moving of manufacturing to Seymour, we always had that program in place now since the acquisition.
It's a 3-year program, so it's going to take time.
And to answer your question, yes, we would see ---+ expect to see, like I said, half of the synergy that we've been projecting manifest themselves on the cost of goods sold line.
So that will help us.
No.
We're not expecting anything.
I can't talk what the competitors are going to do when they do it.
But as we speak today, there's been no changes there.
Clearly, most of the products, as I said, that we've really not had any major impact on them in a negative way.
It's really more generally pricing.
People asking for a requote, the competitive environment.
This is my 49th year in generic drugs, <UNK>, so this is like the same old thing.
I'm talking about d\u0102\u0160j\u0102\xa0 vu.
I can sell cheaper than you, that seems to be the theme.
And it's not something we didn't anticipate a few years ago, quite frankly.
So I think my goal was, I'm not going to be able to stop that spiraling environment because there's too many competitors out there.
But I certainly could make sure I can survive it with the plans for C-Topical, the work we're doing with China, the exporting of 20 of my products there.
I mean, that's a huge opportunity for us.
So those were the kinds of things we needed to do.
We don't do any exporting, as you know, currently.
So those opportunities should offset the decline that we might see of the competitive marketplace we have in the U.S.
No M&A.
We're paying down debt first.
My shareholders would like me to concentrate on that.
So all I will say is stay tuned.
We do intend to continue to pay down debt.
That's true.
But optimistically, we have a lot of opportunities where we certainly have some opportunities in the small M&A world where we purchased some products that we'll be launching next year.
So we know for sure we're going to have some additional revenue.
We know at least we'll have some of the product we already have approved by FDA.
Now remember, we're approved in our Philadelphia plant that we were closing had to be moved to Seymour.
So those launches got delayed.
So between the launches, the new products, the products we expect to get approved, 2018, while, I don't want to be an optimist because there's certainly the pricing pressure.
In terms of units and volume, we do see some growth there.
I can't speak for what the prices will be on each one of these items because, of course, that determines where you end up.
But I do feel optimistic about 2018 because a lot of the launches we didn't file this year, this fiscal year, will be launched next year.
We know we're getting more approvals from the agency.
That's a sure thing.
We know we have this export opportunity with the Chinese.
These are things we didn't have in this fiscal year.
Now there's no way all those things wouldn't end up realizing an offset to the pricing environment.
As far the pricing environment is concerned, there's been a lot of pricing pressure that, quite frankly, we haven't experienced as much of it as some of our competitors.
But we're a small company, when you drop your prices on an item, the impact is far greater.
When you don't get to launch products because you're in the middle of synergy, it just exacerbates that problem.
But we believe July 2018, actually, July 1, 2017, our fiscal 2018 will probably be a better year.
And it won't be as impacted by pricing as we are this quarter.
I think, we think, <UNK>, to be fairly consistent, it will ebb and flow with sales.
But right now, I know our projection right now has the fourth quarter ---+ our fiscal fourth quarter to be slightly lower than the third quarter.
But no, it's not going to change dramatically and would ebb and flow with our sales numbers.
We had some pricing pressure on levo in the quarter.
And remember, when we gave that pricing to that large customer, as they transferred more business over to us from our competitors, we sold more units but at a lower price.
Well, the DOJ, well, it's been 15 months now.
We haven't heard anything from them.
Our outside counsel has not heard anything.
So we're thinking this has moved on to other companies.
And there's no longer anything going on with Lannett.
We've been saying that for some time now.
Nothing's changed there.
As far as the other opportunities, yes, we have opportunities to export some APIs from our Cody facility.
We've been in discussions with regards to that.
And certainly some controlled drugs as well.
So we see next year having probably our first export order with any luck.
And then the expansion of that export because the countries we're talking to and the people we're talking about, these will be significant volumes in terms of the products themselves based on the market.
So ---+ but I don't have a number in front of me.
We're still working on how long it takes to get these products launched.
We did know there's an expedited review process, one that's in already our FDA approved product in the U.S. so it doesn't go through their normal channels.
So I'm still trying to understand what that means.
Is that 6 months, 9 months or 3 months.
So I don't have new information, but they're getting back to me within the next few days, so I can answer that.
But there's no question, we'll be doing a lot more exporting next year than we've ever done before.
The longer-term ones with regards to our C-Topical, that requires filings in Europe.
We are moving forward with those filings.
So those take at least, I'm going to say a year to be approved.
And probably at least another 6 months or more to file.
So what we're doing is really planting seeds in the European market for our products, especially the C-Topical for now.
The other 2 products we're waiting for the approval on here in the U.S. before we can offer them there.
So there's 2 products we're waiting for FDA approval on that we're planning to export.
So we've been doing a lot of partnering.
We now have people that want the products, are willing to launch them in the European market and then, of course, in the Chinese market.
As far as raw materials are concerned, we have opportunity to do something with the raw materials we produce at Cody as well.
And those are in the talking stages right now.
But I have a pretty good optimistic point of view that we will have done some exporting next year for sure.
Because we don't know what those 20 products are.
I only know 2 of them.
They do want to buy 20 products.
That's what they've committed to.
Two of them we quoted on already.
We're getting the details as to what they need in the way of ---+ we're shipping it to them in bulk.
We know that.
We know we have to give some pricing that includes shipment and freight to their destination.
They'll do the packaging locally.
The rest of the products, we're just reviewing with them to see which one of our products they want.
And probably means that I'll have a trip there to finalize the products themselves.
But I really don't have any numbers to give you because we don't have any for ourselves either.
Once we identify the 20 products, they'll give me some estimate as to what size orders they'll place initially and then we'll have a fairly good idea.
But we are talking about a very, very big market.
China, as you can imagine, is 3x the size in terms of the population.
So ---+ and I'm not saying we're going to sell to everybody in China, obviously.
But if you sold to 20% in China, you have a huge amount of business coming your way.
And these are products that are not currently available in China.
So there'll be a new introduction, and they really feel very comfortable about the products that they're talking to us about.
I'm not allowed to say all of them, but they have identified categories that they're interested in.
And out of respect for their competitive marketplace, I don't want to give out too many details.
But it's an overwhelming opportunity for a company our size.
That much I will say.
Okay.
Well, we look forward to sharing our progress on our next scheduled conference call in August, and we thank everyone for joining us today.
Thank you very much and have a good day.
| 2017_LCI |
2017 | AMWD | AMWD
#Good morning ladies and gentlemen.
Welcome to American Woodmark's third fiscal quarter conference call.
Thank you for taking time to participate.
Joining me today is <UNK> <UNK>, President and Chief Executive Officer.
<UNK> will begin with a review of the quarter, and I will add additional details regarding our financial performance.
After our comments, we will be happy to answer your questions.
<UNK>.
Thank you <UNK>, and good morning to you all.
We are pleased with our performance for the third quarter of our fiscal year as well as with our year-to-date performance.
For the quarter, we grew sales 14% over prior year with positive growth in both our new construction and remodel markets.
For the first nine months, sales were up 9% over prior year with new construction leading the way.
Within new construction, we continued our extremely strong performance.
With year-over-year growth of 23%, we significantly outperform the market growth of 10%.
As in prior years, we did see some builders pull demand forward from the first quarter of calendar year 2017 to the fourth quarter of 2016 tied to the end of their fiscal years.
The pull-forward was a bit stronger than in prior years and could have a slight impact on demand in our fiscal fourth quarter due to the builders temporarily reducing their pipeline.
This impact should be short-term, however.
As part of the pull-forward, we saw a noticeable increase in the number of spec homes being built, particularly in the Southeast.
However, we were very pleased to see that these homes actually are selling, a strong positive for the industry and a reflection of the existing demand in the market.
As we look forward, both our economy and our industry are susceptible to all of the potential policy changes being talked about.
Some could be favorable; some could create a challenge.
Labor and land shortage remained as key variables in the overall equation, but, at the end of the day, the underlying economics continue to create a very solid foundation for our industry.
With single-family starts sitting just over 800,000 units, solid growth remains.
I continue to believe that demand for lower cost starter homes is rising.
We are seeing a more robust job market for those with college degrees, along with more renter fatigue.
Young families still desire the American dream to own their own home.
The challenge of course is low inventory exists and new construction for the first-time homebuyer remains well below historical averages.
With interest rates on the rise, affordability is once again coming into play.
Yet it all remains relative as rates are still at historical lows and may be offset by improving availability in credit.
As always, demand will ebb and flow, but the trend remains favorable.
As I have stated in the past, our tremendous market share gain within new construction is tied to our investment in our direct-to-market strategy and our extraordinary employees that create an exceptional experience, a formula that's quite difficult to replicate.
From a remodel perspective, we were up 4% overall with home center flat and dealer up a very strong 23%.
Within the dealer channel, where we have the ability to truly leverage our competitive advantage, we continued to gain share.
Traffic is heavy within our dealers and we remain optimistic in our continued growth and ability to over-index the industry within this channel.
Regarding home center, as I mentioned, we were flat year-over-year in revenue.
Ship units were actually up by low single digits for the quarter.
However, revenue was impacted by a combination of mix and promotional activity.
We did see promotional activity begin to drift back towards parity with a corresponding movement in share towards more normalized levels.
However, as reported on their call, one specific competitor continues to feel that aggressive promotional activity as healthy for them and the overall industry, and thus we believe this could remain a challenge going forward.
From my perspective, I would much rather invest in long-term strategic solutions that bring new customers into our retail partners and continue to improve the overall customer experience.
Our ability to positively influence this experience and gain market share is quite evident without having to run extensive promotions.
But at the end of the day, I believe promotions will remain a critical variable that could continue to create a challenge within the home center channel.
From a gross margin perspective, we ended the quarter at 20.7% with an incremental gross margin of 23%.
We generated leverage on the higher sales and continued to improve our operating efficiency.
Gross margin for the first nine months was 21.7% with a very healthy incremental gross margin rate of 25%.
Finally, our operating margin for the quarter came in at 8.7% and we generated $14.6 million of net income, an increase of 21% over prior year.
So, a very solid third quarter for the Company.
We remain extremely confident in our market position and our winning competitive advantage.
A vast number of new and undetermined variables exist that could impact our industry.
However, I do not believe that it will deter the growth to any significant degree.
In fact, I remain confident in a looming cycle that will be initiated when first-time homebuyers begin to account for a larger share of both new and existing home purchases.
This will be a positive for both remodel and new construction.
From an overall Company perspective, we continue to be actively engaged in researching and vetting all opportunities to expand our positioning, as I've communicated in the past.
We have the right strategic framework and a winning competitive advantage in our service platform that we will leverage to expand our business well into the future.
With that, I'll turn it over to <UNK> for the financial details.
Thanks <UNK>.
The financial headlines for the quarter ---+ net sales were $249.3 million, representing an increase of 14% over the same period last year.
Reported net income was $14.6 million, or $0.89 per diluted share, in the current fiscal year versus $12 million, or $0.73 per diluted share, last year.
For the nine months ended January, year-to-date net sales were $771.5 million, representing an increase of 9% over the same period last year.
Net income was $53.9 million, or $3.28 per diluted share, in the current fiscal year versus $45.4 million, or $2.76 per diluted share, last year.
For the current fiscal year, the Company generated $51.7 million in cash from operating activities compared to $53.6 million for last year.
The new construction market continues to perform well.
Recognizing a 60- to 90-day lag between start and cabinet installation, the overall market activity in single-family homes was up 10% for the financial third quarter.
Single-family starts during September, October, and November of the prior period averaged 748,000 units.
Starts over that same time period from the current year averaged 826,000 units.
Our new construction-based revenue increased 23% for the quarter.
As we've stated on prior calls, we continue to over-index the market due to share penetration with our builder partners and the health of the markets where we concentrate our business.
Remodel business continues to be challenging.
From a positive side, unemployment continues to improve.
The January U3 unemployment rate dropped to 4.8% and U6 dropped to 9.4%.
Both measures were lower than the January 2016 reported figures.
Existing home sales increased during the fourth calendar quarter of 2016.
Between October and December of 2015, existing home sales averaged 5.2 million units.
That same period for 2016 averaged 5.57 million units, an increase of 7.1%.
Residential investment as a percent of GDP for the fourth calendar quarter of 2016 held steady at 3.6% versus 3.6% for the prior year.
The index, however, remains well below the historical average is 4.6% from 1960 to 2000.
All-cash purchases in December were 21%, down from 24% last year.
Consumer sentiment increased to 98.5 in January versus the 92 recorded at the beginning of the calendar year, and the 92 reported in January 2016.
The share of first-time buyers remains steady.
The December reported rate was 32% and matched the prior-year rate.
Keep in mind the share rate remains well below the historical norm of 40%.
On the negative side, the median existing home price rose 4% at $232,200 for December, impacting our Consumers Affordability Index.
Interest rates increased in the quarter with a 30-year fixed-rate mortgage of 4.15% in January, an increase of approximately 28 basis points versus last year.
Homeownership rates remain low versus historical averages.
The percent of Americans who owned their own home in the fourth calendar quarter was 63.7%, or 0.1% below last year's rate.
Our combined home center and dealer remodel revenues were up 4% for the quarter with home centers flat and Waypoint growing 23%.
Promotional activity remained higher than the prior year for the third quarter as we responded to competitive positioning and market conditions.
The Company's gross profit margin for the third quarter of fiscal year 2017 was 20.7% of net sales versus 20.4% reported in the same quarter of last year.
The Company generated the year-over-year incremental gross margin rate of 23% for the third fiscal quarter.
Gross margin was positively impacted in the quarter by higher sales volume and improved operating efficiency.
Year-to-date gross profit margin was 21.7% compared to 21.4% for the same period in the prior year.
Gross margin for the first nine months of the current fiscal year was favorably impacted by higher sales volume, lower labor benefit cost, and improved operating efficiency.
Year-to-date, the Company generated a year-over-year incremental gross margin rate of 25%.
Total operating expenses increased from 11.8% of net sales in the third quarter of the prior year to 12% this fiscal year.
Through nine months, operating expenses improved from 11.3% of net sales to 11.1%.
Selling and marketing expenses were 7.4% of net sales in the third quarter this year compared with 7.6% in the prior year.
We generated a leverage in selling and marketing costs through expense management and lower commissions which were partially offset by higher product launch cost.
General and administrative expenses were 4.6% of net sales in the third quarter of fiscal year 2017, compared with 4.2% in the prior year.
The increase in our operating expense ratio is a result of nonrecurring lease exit costs and higher pay-for-performance compensation cost.
With respect to cash flows, the Company generated net cash from operating activities of $51.7 million during the first nine months of fiscal year 2017, compared with $53.6 million during the same period in the prior year.
The decrease in the Company's cash from operating activities was driven primarily by higher discretionary contributions to the Company's pension plans which was partially offset by higher operating profitability.
Net cash used by investing activities was $51.7 million during the first nine months of the current fiscal year compared with $33.7 million during the same period of the prior year due to an increased net investment of $29.3 million in certificates deposit, which is partially offset by increased investment in property, plant, and equipment.
Net cash used by financing activities of $11.2 million increased $6.4 million during the first nine months of the current fiscal year compared to the same period in the prior year as the Company repurchased 178,118 shares of common stock at a cost of $13.4 million, a $1.4 million increase than the prior year, and proceeds from the exercise of stock options decreased $5.4 million.
In closing, our new construction and dealer business continues to over-index the market.
Our home center market shares recovered, but the promotional environment remains heavy.
Our operations team continues to drive productivity, which has improved our gross margins, but increases in fuel and transportation costs are a concern.
The Company had a solid third quarter and our results were consistent with what we communicated to you last quarter.
This now concludes our prepared remarks.
We would be happy to answer any questions you have at this time.
Let me take fiscal year 2018 first and then we will come back and talk about the remainder of fiscal year 2017.
So, for 2018, we are just now starting our budgetary process.
We actually have all of our internal reviews scheduled for next week, so I don't have a lot of inherent data there to share.
Also, I think, as you know, we tend not to give a lot of forward-looking guidance, so our plan would be typically to come to you in the May ---+ or sorry, the June call and give you some more detail there.
However, stepping back from it, I think what you've heard in the marketplace you've heard from competitors, builders, etc.
, I think a low single-digit growth rate in their model channel maybe to mid is likely, and then on the new construction side, starts of 8% to 10% are reasonable.
And based on our track record over the last couple of years, you could look at these two inputs and likely assume that we would perhaps perform a little bit better based on our historical rate on both new construction and dealer.
So, that would be my outlook ---+ very, very high level as I think about 2018.
For 2017, again, we tend not to give guidance for the future periods.
Last quarter coming off of that soft result in total, especially on the remodel side, we did affirm that we expected to deliver low double-digit growth rates.
We got many questions about that.
As you look at the Q3 performance obviously at 14%, that moves us toward that direction.
As an exact value, could it be 9% and 10% for the full year.
I think that's the range we would target.
I can't really give you any specific guidance directly around that.
It did impact the topline revenue a bit.
You heard <UNK> mention units were up low single digit, but that was offset by impacts of both mix and some of the promotional costs, but we do get some gain back on the other side from a leverage standpoint on our operating cost as we have more units running through our factory.
But I don't have an exact number to quote to you.
Well, nonrecurring in nature, so I wouldn't expect those to carry forward.
But the biggest item in there, just to give you a little bit of color on our history and corporate structures, is we did have a plane that was under lease.
That lease expiration was in January of this year, and we let that go and we were under-accrued on some of the expenses and maintenance to turn that in.
So that's what hit us.
That would not be something that would continue because we are not going to get a new lease, and we are simply going to move to a purely variable model using a third party, if we need to, for flights.
So that's the main piece of the story there on the general and admin.
Trends is the critical word you mentioned there.
The good thing is, like we said, the promotional activities restored probably a little bit closer to parity levels, but there are still some ad hoc promotions going on that are very hard to predict and/or forecast as it impacts our incoming demand.
So I think we are, on average, we are more confident because we did respond, as we communicated last quarter and even the quarter before.
We are going to start to trend that direction, but also mentioned there is a cap of what we're willing to go out and spend on the promotional piece just because I don't think it's right for the industry long-term.
So, trend is a question that we are trying to answer even internally, and even as we think about our forecasting for fourth quarter, it's very hard to predict because it's an unknown.
We don't know what competitors are going to do, nor what the home centers themselves are going to do.
So, we do the best we can, but I do feel it has leveled off some.
The good thing in a new construction, I'd say it's less sensitive to product mix than it is to service.
And we made the strategic decision during the recession to not only sustain but continue to invest in our direct platform that we talk about.
I think what you see with our competitors is they've taken a different strategic approach and going through distribution on a larger scale.
So that's really served as a winning strategy for us because we've been able to manage that level of service, particularly with the big builders has been very, very critical and particularly with the growth that you're seeing out there.
Because not only is it our internal growth, our organic growth that we are getting, but it's also the growth that the top 20 builders are getting in the market as well.
So it's just a winning strategy, and it is now what we sustain or continue to over-index at these levels.
Actually, that got harder and harder over time.
We are not going to continue to gain market share at the levels we've gained over the past five years.
But yes, we do expect to continue to over-index and it's based purely on the ability for us to really control that service that we offer to the end customer, which is the big builder.
I would say that's still going to be a variable that <UNK> mentioned on the question from just a few minutes ago.
It's going to depend on what we see in the marketplace.
That certainly has been higher the last couple of quarters versus what we had seen the prior year.
However, if we look back and do a comparison for the summer period, it's probably going to be close to the same as we walk through that, assuming no additional changes from the competitive or the retailer perspective.
Yes, but to be honest with you, we have our promotional ---+ I'll say internally we have our promotions planned, but what we don't know is what can be planned from a competitive standpoint and obviously how that could impact us in our incoming demand.
So the answer is yes and no.
Unfortunately, it's the second that tends to impact us more.
Yes.
We started to take up our promotional ---+ come closer to matching towards the end of the summer.
We do.
You caught me off-guard.
It's obviously much lower than historical for two reasons.
One, starter homes are lower, but we've also made strategic moves internally as well that have taken our ---+ what we call our opening price point product down relative to our overall mix within the new construction market.
So, there's actually two facets that impact that.
Obviously, as I think I mentioned on the last call, either that or the call before, there is still a big unknown question out there as first-time homebuyer start to get back in the market on will they select a smaller home and opt for nicer upgrades, which would certainly be our option for them.
Or will they go with a larger home and really scale back on the quality of materials that are in the home.
I think that's still to be determined.
We are seeing some nicer, smaller homes being built out there with non-opening price point product, which is our preference.
But that's a big question, and it's a good question and it's one that we are watching very closely as we go forward, because we know where our current mix is.
What we really don't have a good understanding of is what it's going to look like six months or a year from now as they really start to make up a larger mix of that total new construction.
I'll tell you we've seen very slight change in our mix, which is to the positive.
But also if you look at, say, average home sizes, though, they are not drifted down yet either.
So you are hearing a lot of builders are starting.
I think they've purchased land.
They've got subdivisions ready to go.
But we really have not seen a change in the number of first-time homes being built out there.
So we have not seen that change in mix yet.
I think it's coming.
We do have some of the key builders that certainly have homes in the ground that are starting to come up, but I think the rate of that change is still a big question mark.
Thank you.
Since there are no additional questions, this concludes our call.
Thank you for taking time to participate.
| 2017_AMWD |
2016 | CNC | CNC
#I think we've obviously gotten a deeper understanding of the Medicare book and I think this question came up in the June Investor Day too, what do we see as the margins for the Medicare Advantage product on a go-forward basis.
And I think we continue to see the opportunity for our standard, if you will, 3% to 5% pretax margins for the Medicare Advantage product.
So some of the dynamic that existed on a legacy basis is what I would call mix, so the proportion of the Medicare business that's in California and there are certain contracts and other things that exist within the California market that would be different as we think about the other markets that we've already indicated we will be expanding into in 2017.
I also think that the ---+ and that's why I commented earlier that I'm glad that we will be adding the medical management systems to some of those products.
Commercial will be the last part of it, but in the Medicaid/Medicare because there's clearly going to be some real benefits from them having the analytical capabilities to improve margins through that data.
Once again, it will take a little longer to get the medical measurement systems in, but as we get those in we expect to have some minimal opportunities to improve it.
I guess I'm confused by your no flowthrough reserve adjustments through the MLR.
Do you mean like prior-period ---+.
Yes, that's right.
Those were opening balance sheet adjustments included in purchase accounting.
I think we've talked historically about the quarterly impact for leap year.
There's additional costs in Q1, so I think our HBR improved, but the biggest reason why our HBR obviously changed is just the acquisition of Health Net and the different mix in the business.
It's hard to hear.
What testing did you say.
That recommendation is just out and so we are tracking that.
I don't believe it is on the formulary in Florida yet, but we can get back to you on that information, but it's a very recent recommendation from CDC.
In any case, we don't really feel this will have a very significant financial impact though.
The cost of tests are very low.
That's right.
We believe that for 2017 the certificate of coverages have been corrected and it's well along the way to being approved.
Anytime.
They've been talking about it.
They understand it.
It's ongoing discussions.
It's kind of routine.
You may want to add something.
So this is a routine approval that we will be getting for the new certificate.
<UNK>.
Yes, this is part of the normal filing process for products for 2017, and that process is not finalized at this point, so we are going through it and there's been, as <UNK> indicated, discussions that we feel confident that based on the discussions that we will have this immunized for 2017.
There's nothing controversial we are asking for.
We are closing, I don't want to call it loopholes, some openings that the state understands and they are not sure why they are there are to begin with in the conversations I've had.
And so it's a non-risk in my mind.
You are right, <UNK>, I'm not going to get into too much detail here, but I think what we've said is, with all the actions we are taking and what <UNK> said is that we believe that's going to resolve the issues.
As we sit here today, right.
Because if we don't resolve the issues, there'd be a PDR at the end of this year and that's not what we are communicating here today.
If we thought this wasn't resolved, we'd tell you that.
We have a track record of saying where things stand, and transparent and they tend to turn out ---+ they not just tend to, they do turn out that way.
A PDR, we've booked it for the right reasons in the right way.
We've made the adjustments going forward to benefit pricing, withdrawing products and I want to emphasize one last point here.
We are not talking about a big broad-based endemic problem across the Company.
We are talking about a product, basically one product in one state.
We are talking about another product in Arizona, which we are exiting and taking care of it that way.
So we are not talking about something that affects all the places where the systems are broken down and we haven't booked the right IBNR and all those things.
We are talking about one product, one state where we've taken the action to do what we can to improve it this year.
We improve on that, but definitely have taken the necessary steps to fix it for next year.
Well, give me an understanding of the color you want.
We are saying that we've corrected the certificates of authority.
Yes, substantially all in the Arizona piece, and I think we've talked about the Medicare piece and what's being done there.
And then you have the substance abuse issue primarily in California and the changes that <UNK> has talked about.
So we've dealt with it all (multiple speakers) all the product problems.
I would say yes.
No, it's part of the acquisition accounting, Matt.
So what happens is is you increase the reserves and the offset is really embedded in goodwill on the opening balance sheet.
So what I would say is that the original creation of the PDR is embedded in goodwill on March 24 and then effectively that PDR amortizes throughout the year to absorb the losses on those products that we've identified and businesses we've identified.
So there's no income into it.
Yes.
No, that's both companies.
That's both Health Net and Centene combined.
Yes, that's for 2015.
That's correct.
And I'd say the majority of it is Health Net-related.
Yes, because we are effectively fair valuing that item as of the date of the transaction, and you have to remember that a lot of the encounters data and edge server submissions don't happen until May.
And ultimately we were relying on, and Health Net was relying on the information from the data aggregators to effectively fair value that as of the transaction date.
I thank everybody.
I'm glad we were able to have this call today because I think it's important we understand the PDR does not affect us on a going-forward basis.
And it's been dealt with and we are looking forward to continuing for it to growing results for the Company.
So talk to you soon.
| 2016_CNC |
2015 | RF | RF
#Well, I think that deploying our capital is important to us.
There's no single one thing that would knock it out of the park.
It's doing a lot of things well.
It's executing our business plan.
It's continuing to grow loans and deposits.
It's continuing to deploy our capital, looking at acquisitions for banks and non-banks, making the investments in people.
You can look at wealth management as a prime example of ---+ we've taken the medicine of making investments in people, knowing that it is going to take time to generate revenue.
We believe further investment in those people, in wealth management, as an example, is the right thing to do.
There are other businesses we're looking at doing the same thing to.
Capital markets is an area where we would like to expand and be larger in, as we differentiate or diversify away from spread.
And so, we are like you.
We're not sitting here waiting for rates to bail us out.
We're making a difference by growing these revenue sources, watching our expenses as we go, but needing to make the investments of dollars to generate revenue growth.
<UNK>, it's a great question, and very relevant question ---+ where the industry is right now.
And, quite honestly, we don't see some one thing that we could do that would alter our forward momentum.
What we are committed to is very steady and consistent progress in strengthening our balance sheet, strengthening our Business.
We've had ---+ we had, over the last couple of years, really trying to put in a whole new set of strategies for how we grow our core business.
And we're starting to see the fruits of that labor, in that we're seeing growth more broadly across our markets, and more broadly across our product lines.
We obviously are augmenting our product lines, and we're augmenting the number of people we're partnering with to grow our Business.
But I think to <UNK>'s point, the biggest thing that would help from an earnings standpoint is the rate environment.
But we can't wait on that.
We can't depend on that.
And, plus, our core business is really the long-term, sustainable health of the Company.
And so, I think you're going to continue to see us, very broadly, in a very diversified way, continue to try to grow all aspects of our Business.
And if we can do that in a very steady and consistent manner, I think we've got a very sustainable business model, and one where shareholders benefit long term.
Good morning, <UNK>.
That's a great question.
I think if you looked at our generation, you could almost have a third of that, that would be used up ---+ 30%, 40% of that would be used up for loan growth.
You are going to have 30% to 35%, maybe 40%, in dividends over time.
The other would be return to the shareholders.
That's what the math would lead you to.
But we want to grow.
We do have the excess, so we have to put that to work.
But outside of the excess, I think it's almost a third, a third, a third.
It's in that 4% or 5% range.
Firstly, the majority of our product in energy is syndicated loans.
I believe it's roughly 86% are syndicated.
Secondly, where we're the lead versus the participant, irrespective we are still required even as a participant to make sure we have all of the appropriate information about that customer.
We work with the agent, and we make our own determination as to what that risk rating should be.
And it can be different from the agent.
Often it is not different from the agent, however.
And they are synced up once a year, typically during the shared national credit exam.
Yes, that's a great question.
So, I had mentioned earlier, we deployed our Six Sigma teams throughout the Bank.
Some of them are revenue-producing, and some of them are expense management.
This particular one was revenue-producing.
And what we had found is, they analyzed our process, and noted that in some cases, when an application would come through our center, that it would get kicked out for certain underwriting exceptions that would then force a human being to look at the underwriting, and force that person to make a decision whether or not they were going to approve it.
Now, by the time that happens, that deal has already been done with a dealer because the dealer requires speed of execution.
So, what we did is we found that those cases where an underwriter is approving the deal, we changed our algorithm to build into that the acceptance so that it wouldn't kick out.
And that improved ---+ that one change improved our pull-through rate quite substantially.
And that was a big driver of our increase in revenue over the past couple of quarters.
We've really tried to focus our teams on the larger dealer groups.
And if you look at this business, obviously quality of answer is important.
Quality of answer is important both to the customer, to the dealer, and to us.
But speed of answer is also very critical.
And so, we've worked on both.
We've greatly improved our quality of answer, and we've greatly improved our speed of answer, all through automation.
And also, in terms of targeting who we want to do business with, from a dealer standpoint, and ---+ so, that rationalization of how we do business and who we do it with has made a tremendous difference in our pull-through rates.
First of all, our branch rationalization process is a continuous process.
And we're constantly looking at transaction activities, marginal costs, marginal profitability.
And trying to figure out what the ---+ our branches deliver in terms of a direct contribution, making sure that all of our branches are profitable on a direct basis.
But when you look at the analytics of the branch system, and where we consolidate and where we expand, that process is very comprehensive.
And you have to factor in the relevance of the branch because, still, 80% of our new account sales come from the branch offices.
And so, we're very careful to determine, if we consolidate a branch, how many of those customers do we lose.
That has a lot to do with where they are being consolidated into ---+ how far away that receiving branch is from the consolidated branch.
We also have to factor in the community impact of that.
Even though a lot of our customers bank with us over digital channels, that bank branch is still a community asset.
And it's still an asset that that community values, and we have to think through all of those issues before we consolidate.
We have tried to really still be engaged in all of our communities, and deliver service in all of our communities, but to try to do that in the most efficient way we can.
So, those analytics are comprehensive, and they're done on an ongoing basis.
And we think that while we continue ---+ we will continue to see consolidation opportunities, we also see the need ---+ where some communities need more branches.
And so, on a net-net basis, when we think about it, we're not sure that our number of branches over time diminishes that much.
In fact, we think, over the next few years, we will be relatively stable.
But we're going to let the analytics drive that.
And so, we let the analytics tell us whether we ought to ---+ where we ought to expand and where we ought to contract.
Yes, this is <UNK> <UNK>.
When you speak about construction, I guess you mean overall just generally in the portfolio.
Yes.
So, we're very focused on managing that exposure fairly tightly as a finite resource across all the markets that we do business in.
The majority of the exposure would break down between homebuilder finance, which is a $700-million-plus portfolio, and then our multi-family business.
I think what you are seeing is, as that portfolio grows, its fundings under previously approved construction facilities.
We really have not been originating a lot of additional multi-family credit over the last six-plus months.
And so, primarily the growth is fundings under a portfolio that currently has a duration of about 23 months-plus-or-minus.
So, fairly short duration, a lot of turnover.
Again, we're managing it as a very finite resource, given what we believe is some softness in a few of the markets that we operate in.
I would say, yes, expect it to moderate.
Well, we have focused on our efficiency ratio.
The big driver there is revenue generation.
And we've made the investments.
We've talked about the growth that we've seen in the NIR.
We've seen the loan growth.
As our revenue grows, and it takes a little bit of pressure off the expense side, but we're working on that, too.
If you take all three ---+ two revenue improvements, NII and NIR, and work it on expense, we do expect the efficiency ratio to drift down where our goal is, to get down into the lower-60%s.
We really want to be in the 55% to 59% range, but we'll have to have a rate increase to get there.
So, absent that, we would be in the ---+ we expect to be in the lower-60%s.
So, it's a focus every day.
With a rate increase, yes.
Thank you.
I believe that is the last question.
We appreciate everyone's time and attention today.
Thank you very much.
| 2015_RF |
2015 | JWN | JWN
#Sure, Ed.
The comment around capital structure is, frankly, about those two items you mentioned but it's also about how we deploy capital.
I think one of the things you might have noticed in the last quarter that the amount of capital we invest in was almost equal to the amount of capital that we deployed back to shareholders.
The inference there is that we want to continue to have a very strong balance sheet and we want to allocate our capital in a way that delivers the best returns, both by reinvesting in the business and returning it back to shareholders.
So, that's basically what we're saying.
In terms of the leverage of the investment, certainly our intent and what we do is we wouldn't make these investments unless we thought we were creating value.
And we still expect them to create value.
I think one of the challenges we all face right now, we're still in relatively early stages, particularly in the e-commerce space, in terms of understanding how that model is evolving and the elements of that model that we need to find to be more productive.
So, we do expect to continue to create value.
We have a long-term aspiration to get back to that mid-teens ROIC, and that will come from these investments starting to generate some additional profit.
Hi, <UNK>, this is <UNK>.
I'll take a stab at that.
Topshop, we were six doors in the second quarter to get to 73.
And, you're right, we plan to be at least at 90 by year end.
That business is doing terrific.
I would highlight on that, our growth in Topshop is not just coming from new doors.
Our top store, some of our best business has been our original doors, at that.
They've been a terrific partner and have made, as great merchants do, those subtle adjustments to really deliver what the customer is looking for.
So, great shape in Topshop.
Brandy Melville we've launched in 15 doors.
I don't think we've announced any plans for expansion past that but it certainly would be our intention to have that be successful and get into some more doors.
Madewell ---+ I don't have ---+ 30.
15 to 30.
And then Shoes of Prey.
To date, we've been pleased with that test or that partnership.
And we're continuing, our shoe team led by Scott Meden, to work with those folks about future opportunities.
But today I think both sides are happy with how that's going.
<UNK>, this is <UNK>.
Yes, we are very happy with our Rack business.
My comments were ---+ and it was in the slides, I believe, as well ---+ that we saw 13% growth.
In <UNK>'s comments, as I recall, he highlighted that we've had 26 consecutive quarters of double-digit gains totally.
The big headline there is that that we're gaining market share there and it is meeting and exceeding our plans.
It's a terrific investment for the Company and our shareholder, and continues to be highly productive.
We recently just did some post audits in some of our newer stores and they are outperforming.
It's interesting, you talked about the online or e-commerce part of that business, we are new at <UNK>rack.com, and that it's married with HauteLook.
When you put those two together it was a 16% gain for the quarter.
The low single-digit comp increase was an improvement in the second quarter from the first quarter.
It's in keeping with our plans and we fully expect to meet our plans at year end.
So, so overall the Rack business is very strong and healthy and contributing in many ways.
Sure.
<UNK>, first thing is, I won't go into too much detail as it relates to 2016.
We like to share more of our thoughts on that plan in the coming February.
But that being said, starting with the East Coast fulfillment center, that's going online in the third quarter.
And the reason you see that large incremental change starting in the third quarter is because the asset goes into service and we start to recognize both the depreciation, as well as the cost of running that building.
Now, early on, that building isn't going to be quite as productive as it will be as our business continues to expand, so we will see some drag from that.
In terms of Trunk Club, Trunk Club is starting to anniversary the recognition of the acquisition accounting because we acquired that business last year at this time.
So, you're going to start to see the year-over-year impact of that start to fade.
But we'll certainly play that out more for you when we talk about 2016.
Yes, <UNK>, this is <UNK>.
The majority of that increase is related to fulfillment cost.
As we continue to see the online segment of the business growing at an accelerated rate, we're seeing variable costs related to that business go up.
<UNK>, you did pick us up a little bit on that.
We didn't quite go into that level of detail the way you explained it.
But what I will say is that part of the issue in the gross profit line, while we have seen some mixes within the business, we also see the Rack growing at a rate that's faster than the rest of the business, which on that line, on that gross profit line, does have an impact of putting a little pressure on that line.
But in terms of those other components, we really didn't get into that level of detail.
And I think what we guided for the balance of the year is consistent with where we expected business to be just several quarters ago.
Well, that's kind of a leading question <UNK>.
What I'll say to that is that we continue to evaluate all our options on there.
We have a diverse base of shareholders and we've gotten input at various levels of input and we're evaluating that.
We haven't made a decision yet as to exactly what we're going to do.
But I think keeping in line with the fact that we like to keep things balanced and we like to consider all our alternatives, those that you mentioned are part of that.
Sure, <UNK>.
On the categories, as we mentioned, there are customer departments that were a standout.
Dresses were good.
We saw strong business in denim, Women's in particular.
Men's tailored clothing was a stand out in our Men's area.
Below our average I think two areas that have gotten some attention, watches and handbags, two areas that had a number of years of outsized growth have been below the average.
I think that's pretty cyclical.
It's hard to be above the average every single year.
But those areas I would call out.
For the Trunk Club's inventory, to-date it's been a Men's business.
They buy their own inventory.
We have found some opportunities for our merchandising group to help them.
But Trunk Club for women is really a transformational effort for our two teams, much like launching <UNK>rack.com was for our HauteLook team.
That was an initiative that really brought our teams together.
It had to be executed in a highly integrated way.
Trunk Club for women is the same.
To execute that successfully our teams need to work together.
We will be leveraging our women's inventory to support that business.
We'll be buying a little bit extra for it but mainly leveraging our <UNK>.com inventory that is housed in our Cedar Rapids fulfillment center.
We've been piloting Trunk Club for women since the beginning of the year, slowly ramping that up.
The customer response has been very encouraging.
And we're on track, as <UNK> mentioned, to have a full launch in September.
And we're darned excited about it.
| 2015_JWN |
2016 | MPWR | MPWR
#Sure.
I can comment on it.
And this year 2016 revenue especially all these growth drivers.
And these products all released about two years, two or three years ago.
One is obviously in the auto segment.
And the other one the cloud computing, the high end computing.
That's including some work stations and high end notebooks and also the servers and the data centers.
And other ones are industrial.
Is it <UNK>.
Is not as good as the last year's.
Similar, right.
Industrial is going to be doing very well.
The three I would emphasize would we Industrial, Storage and Cloud Computing and Consumer, particularly the high end consumer.
Also, Auto.
Right.
Auto is included in industrial.
Okay.
I don't know that the percentage of total revenue, I don't know what the number is because all of the segment, other segment will grow faster and Consumer probably grows the slowest.
Revenue wise I don't see what decreased.
We continue to grow.
Year-over-year the high value consumer is continuing to be a bigger portion of our consumer revenues.
But if you're comparing quarter over quarter, since Q3 was much stronger seasonally for consumer, that would impact our high value consumer revenue as well.
But year-over-year what we are seeing is even if you look at a quarter year-over-year, we are seeing bigger portions of consumer revenue coming from the high value consumer market.
Yes.
Both, yes.
In coms, I would say networking and telecom was relatively flat with the prior quarter.
Most of upside that we saw was in the gateway business where a quarter before we had seen weakness.
So if I look out into Q1, I expect from a networking and telecom it will be flat, and Q1 on the gateway business it depends on how the macro plays out.
If you remember, the gateway is an area where it's not a strategic focus.
It's something that we play opportunistically depending upon the margins for the orders that we receive.
My expectations is that the gateway business is going to be flat and maybe even slightly down.
Remember we had been talking about the new foundry that is coming up and we'd identified the cost of bringing up the new foundry at $3 million.
This is between the mask set costs as well as the wafer development costs, and we ended up spending only about a $0.5 million dollars in 2015 so we will be spending about $2.5 million in 2016 on that.
The other thing that we also commented is that we have begun our investments in Industrial and automotive markets so that is going to be something that going to be driving OpEx expenses this year.
Let me comment on the expense side.
It is clearly, we have a very outstanding product for automotive and industrial.
Our quality is exceptional.
However, we need investment in the systems.
In the quality systems and MPS just have those products just by brilliant design engineers and our peoples.
Now, we need to invest in the infrastructures.
And there is a lot to be done in there which will overall elevate the Company's quality.
And so in 2016, it is time we should do that.
But depend on how much.
How much is really depending what MPS' growth rate.
And during the Analyst Day last year and I said that with our OpEx always grows a little more than half of what the revenue grows.
So this years would be just slightly higher and also we are really controlled depending on the revenue growth.
Just a reminder we talked about our OpEx growth rate would be 50% to 60% of the revenue growth rate and while we expect to be higher this year that does not include the new product cost for the new foundry coming up.
You're welcome.
If you see the fast trending products, we are very opportunistic.
May be more or may be less.
These are not our core interest.
We do have, I underline, a very solid LED product customers.
These are really for the decorating lighting, industrial lighting.
If you have a fast-growing revenue we are very opportunistic to take those revenues if we have the capacity.
Well, competing with a competing solution, I don't see anybody that has anything close to what MPS had.
We are leading by far.
In the past few years, a couple of years, it has been much further now.
And so BCD-5's and we have first a few products and we are launching now with all of the programmable features in it.
One of the key things I would also add, while BCD-5 that makes it special, is that we've also added memory and digital capability.
I wish we have all of the other infrastructure business.
We don't have that much.
Also, to add to that, the networking and telecom area has been doing well right through the year.
So the weakness in the second half was more attributable to the gateway business which is an area, like I said, we only play it opportunistically, if the prices are attractive then we will take that business.
Otherwise, we may not take it in a particular period.
Thank you all for joining us on this call and look forward to talking to you at the Q1 earnings call.
Have a nice day.
Bye bye.
| 2016_MPWR |
2016 | CPRT | CPRT
#<UNK>, this is <UNK>.
On this one dimension alone, it's certainly the case that scrap values improved year over year.
I think it's worth noting a couple things.
One, scrap value most acutely affects our lowest end cars.
So a car that's likely to be rebuilt, likely to be returned to service for some number of years, export or otherwise, is affected much less by scrap.
It's the lowest end vehicles that are affected, not literally ---+ not necessarily the high end cars.
Part one.
Part two is there are other contributing forces, so the strength of the US dollar being an important consideration given the number of cars we export out of the US.
The dollar has clearly strengthened against a lot of our reference currencies, a lot of our export currencies.
So that's an offsetting consideration.
But yes, all else equal, scrap improvement year over year would be helpful, yes.
<UNK>, we've done a fair bit of homework on this question, as you can imagine, ourselves.
When I look ---+ I'd say we have seen the historical analogue in the sense that we have seen accident rates decline for a very long period of time.
So from the mid 1970s to 2011, accident rates declined very steadily, as the last generation of safety ---+ of accident avoidance technologies spread through the market.
It took decades for it to do so, which is also going to be true today.
If the US, for example, will see 15 million or 17 million of new car shipments in a given year, we have a car park of 250 million or 260 million cars.
It is just decades, but the math is fairly straightforward.
It will take decades before all cars have these technologies.
The second note is that over that same period of time from the 1970s, 1980s to 2011, the salvage industry grew well because the decline in accidents was more than offset by the total loss frequency, which is again, a function of repair cost, vehicle age, and so forth.
So we've seen this movie before.
I think a lot of that will be true going forward, as well.
A lot of the technologies that make automobiles safer also make them much more expensive to repair.
You heard <UNK> talk about computers and sensors and so forth.
The typical car is much more complex today than it was 10 years ago.
So the math is decades.
I think it's an open question as to precisely how many, but I think it's decades away.
<UNK>, that's an understatement.
I think we do not historically provide detailed guidance or general guidance, but I think your inquiry is fair.
The most important driver, you did hear <UNK> talk about, which is the unit growth, and therefore, revenue-growth assumptions.
I'd say just looking backwards, say, four to eight quarters, big drivers are currency, scrap values, catastrophic events which can cause higher than normalized cost incurrence.
G&A is largely predictable for us.
We don't provide forward guidance, except to say that it will continue to increase on an absolute dollar basis given this ---+ the [indeployed] meaningful capital and land assets.
So if you went to some other measures of operating performance, returns on invested capital, and so forth, our investments and our infrastructure could, of course, affect those numbers.
I would say that all our recent experiences have done nothing but make us feel more optimistic about these markets.
And the timing is somewhat uncertain, but we will be [pursuing] with systems and resources, and I anticipate real estate, as well.
Good morning.
Simply growth in volume.
It's funny, I used to be on the finance side, and I was always arguing that you need to operate yards at 100% capacity.
And for the six weeks during the time in the year when you have peak, you just operate it efficiently, that doesn't work on the off side.
You have to have a certain amount of excess capacity.
And now as we enter an environment where we're having CAT situations more frequently, for whatever reason, it amplifies the need to have excess capacity in terms of land to adequately serve our insurance customers.
And so because of that, because of the increase in volume, because of the increase in CATs, and because of the growth in our market share, we find ourselves in a position where we really need to expand our network of facilities.
<UNK>, let me quantify it a little bit for you.
Copart, from an inventory perspective, grew 20% in the quarter.
We have over 400,000 cars on the ground.
If you do that math and you then calculate that you can only store about 100 cars per acre, and you sit back and you think about the fact that Copart added over 60,000 units to inventory year over year, you've got to add 600 acres of land to the Company.
And that's the kind of growth that we've been seeing in the last year.
Ad that's, as <UNK> said, we anticipate that growth going forward.
We are ---+ when we talk about our 20/20/20 program, that was where we started six months ago.
We will anticipate opening more than 20 locations at this point and expanding more than 20 locations at this point because of the growth in units and the corresponding growth in inventory, because we have to store those vehicles.
That market, I went in with a team during that event.
That market is about one-quarter of the size of hurricane Katrina, off the top of my head.
So big event.
We picked up a lot of cars, but still relatively small compared to a Katrina.
In terms of a hurricane Sandy, Sandy was less than Katrina, probably one-third, off the top of my head, off the size of hurricane Sandy.
Thank you.
I'll tell you, it's just extremely difficult to give you a response because of the uncertainties of acquiring this land.
Not only is it difficult to locate it, it's extremely difficult to get it properly zoned, and the timing of that creates the uncertainty I'm talking about.
In total, if you look at the total schedule of properties that we're targeting, it's in the many hundreds of acres.
So over the course of probably two years, we'll be expending a significant amount of capital to obtain those acres.
And the math is right.
We've talked about volume growth.
If you've got three years of volume growth at 8%, you're at a 27% growth in the overall market.
And if you assume that your market is 4 million cars, you're well over 1 million additional cars.
It's becoming a real issue, and that's why we're so extremely focused on it.
We have a lot of resources focused on obtaining this land, because without this land, you can't properly satisfy and service your insurance customers.
<UNK>, just a sliver of color here.
The reason, I thin, you hear us reluctant to provide more specific forward-looking guidance on this is because real estate is by nature it is so episodic and unpredictable.
We were pursuing land in southern California for 20-plus years until we found a yard that made sense for us at the location, the permitting, and the value available to us.
So the business is somewhat elastic.
If you look at an aerial photo of our nearby yards in southern California until we opened the new one, they were clearly fuller than other yards within Copart.
We want to be disciplined about how we buy land.
We expect to be aggressive about buying and developing land, but that's also somewhat dependent on availability, permitting, timing and so forth.
So it's a big part of our forward-looking strategy.
It's just very hard to narrow it down to say next quarter it's precisely this many yards or precisely this many millions of dollars.
A lot of the volume that we've had in market share was a year ago in the Farmers account.
There's some new business that's come on in the most recent quarter.
So you'll be seeing that trend extending in the year.
So just as I think <UNK> or <UNK> are about to give you a number, I want to make sure that you understand that number will increase as we go into the new year, from additional market share gains.
It is somewhat difficult to arrive at a specific number with much certainty.
If we look at the growth in the market and we assume it's 8%, and that's 20% of our business, 6.5% to 7% came from market growth.
And so the balance came from either new business or CAT and the CAT level is probably 2% of that.
I won't comment on that other than to say that industry research suggest that one of the drivers of the increase in the cost to repair these cars is the consolidation that's occurring.
You'd have to imply that by that statement.
Mixed.
Every country has its own profile of car that we sell.
Every insurance company has its own profile of car that they provide to us.
Some insurance salvage at a higher damage rate; some at lower damage rate.
Overall trends in used car pricing, FX, scrap metal pricing, things like proximity to port have an impact on the selling price of a vehicle.
There's a lot of inputs and drivers in this ASP movement.
We have.
We've seen just a marginal increase in international activity, but not anywhere near what it was two years ago.
That's fair.
It is actually up, as <UNK> said.
Okay.
Great.
Thank you.
What do you mean by air pocket, <UNK>.
Clearly, it has caused the average age of vehicles to move up, as <UNK> stated earlier.
In terms of a bucket of cars that are missing in that particular year, I think if we can just take an extreme, if we didn't sell any cars one year and the next year we told twice as many cars, I think it would just move the average down.
I don't think it would be indicative of some air pocket or other impact.
So it definitely had an impact in the average age of vehicles, and as <UNK> stated, that is starting to reverse now as we're seeing 17 million new car sales a year.
I'm sorry.
What was the question.
Thanks for the question, <UNK>.
I think you're asking about attachment rates for other ancillary services that Copart provides its buyers or sellers, and we don't customarily comment on those kinds of things.
Thanks, Samantha.
Again, thank you, everyone for attending the fourth-quarter call.
We'll be reporting on the first quarter and the new year, FY17, on the next call.
We look forward to chatting with everyone then.
Thanks so much.
Bye.
| 2016_CPRT |
2015 | DAN | DAN
#Dave, it's <UNK> <UNK>.
A couple of things.
One, you've already seen sequential improvement from Q4 to Q1 related to premium.
We will still experience some premium cost in Q2, but it will be actually on the declining basis.
So, we should see margin progression throughout the rest of the year.
And, as I already mentioned, we should approximate our 10% EBITDA target we had for full-year.
Dave, it's <UNK> <UNK> again.
When you look at our Light Vehicle Driveline business, we've obviously had strong demand with Jeep and the Ford super duty.
We have very strong demand with Jaguar, Land Rover in England as well as we see a recovering market in Thailand.
But, on top of that, as mentioned before, we're seeing the expansion of the Colorado Canyon hitting us full year at better than we expected.
So, kind of a good news across the board.
We're seeing definitely some improvement in the current base of business, but as well as our new business coming on at the better margin rates.
We touched that up a bit.
This is <UNK>.
You're exactly right.
We touched up to about 31%.
What you'll note here is we're seeing some incremental tax expense largely around our US operations.
You will recall in the fourth quarter of last year, we released or had a benefit on the income statement of about $179 million of our deferred tax valuation allowance.
What we're seeing is under the accounting rules we now have to book a tax expense at basically the US rate even though we haven't completed the planning action that we undertook to realize a benefit a year ago.
So, basically what you're seeing is a neck up on that tax expense.
And, as we proceed the rest of the year as we look also at our valuation allowance and our deferred tax asset positions, that probably will be a fourth-quarter discussion item as well.
There's no cash impact to this.
Obviously, with respect to utilization of our NOLs, it's just more of the timing of expense recognition via the accounting rules versus what we had expected when we put our guidance out at 23%.
Thank you.
Let me take a first shot, <UNK>, and you can follow up on this.
If you think about the backlog, and we had the progression and how it was going to increment 2015 forward.
There was an incremental increase of about $140 million expected for 2015 as we progress through the year.
I think it's two-old actually.
One was that was based on an assumption of production, and we'll use one particular platform, being the GM platform, that we launched late last year.
It had an assumption with respect to demand.
So, twofold.
One is we're certainly meeting that assumption if not exceeding it, but I think the more important piece of the puzzle as well is that we are seeing the margins that we expected on that business.
And, obviously from a volume perspective, we're seeing an uptick in our contribution margin.
So, you're exactly right.
It's the best of the best, if you will.
It's a great program for us.
Hopefully, a great program for GM as we are seeing.
Reasonable and good returns on that business in excess of our base business.
And, you're right.
We are seeing some upside on the production environment as we head through not only the first quarter but the rest of the year.
I would suggest there was really no offsets to that ---+ other than set aside FX, right.
But, from a pure volume perspective probably in the current year, might be some positive there.
<UNK>, just on the margin for Q1, definitely the new business is driving the higher ---+ major portion of the margin but also we continue to work on our cost improvement initiatives inside.
So, we do expect that the LVD business will continue to have stronger margins than historically and will be, again, part of our margin expansion into 2016 as well.
<UNK>, this is <UNK>.
No, not at all because much of that if you think about it was what we were experiencing largely in South America, largely around Venezuela.
What the expectation was, obviously as we discussed in early January pre-the disposition was that was going to be the same situation.
Certainly, with the solution that we came up with, Venezuela ---+ that's going to neck down significantly.
I would suggest it's going to be more of a normal course.
Inflation recoveries that we have around the world with respect to certain countries that we operate in that are well-worn paths with the customers.
I think the exception a year ago and really two years ago is largely around Venezuela.
This is <UNK>.
I just want to thank everyone for joining the call today.
We'll see you the next time.
Thank you very much.
| 2015_DAN |
2016 | WSM | WSM
#On the cadence of the comps, <UNK>, do you want to ---+
We usually don't comment on the cadence of the comps.
But I can comment, <UNK> can comment.
But on the promotional environment and what we saw that was different, at least from my perspective, from a financial perspective, if you look at many retailers, we are not alone in the situation.
If you look at Q1 versus Q2, it was much more broad-based.
We saw deceleration from Q1 to Q2.
It was much more across categories than we've seen before.
I think that's where you start to step back and say, this is something a little more than we've got the wrong product category in a particular brand.
For your second question, are you talking about operating margins or are you talking about gross margins.
Okay.
As far as gross margins, there are so many moving parts in there, that's why so hard for us to answer that.
Clearly, I am confident in our supply chain and inventory initiatives, both sourcing and comping the supply chain challenges we had last year.
So I'm confident in that piece of it and that piece moving forward.
Obviously it depends on the promotional environment.
It depends on the mix of revenues that we have, how much is global.
It depends on the level of revenue to determine where does occupancy play out.
So I can't give you a specific answer to that.
But I think the fact that we've seen Q4 to Q1 to Q2, we've seen improvement and we are seeing the success of our supply chain initiatives roll through, I feel really good about the gross margin.
From an op margin perspective, really that is a revenue play.
It really depends on ---+ obviously we said for Q3 we're going to be relatively in line with last year.
So it's a Q4 conversation, one of our biggest quarters, and where the revenue lands.
At the high end of our range we're flat to last year.
And it's a range, so we could be different level on the revenue and different level on the op margin relative to our guidance.
But it does assume that we've got continued improvement in our supply chain.
Thank you all for joining us and we look forward to catching up with you again next quarter.
| 2016_WSM |
2016 | NUS | NUS
#Thanks, <UNK>.
Good afternoon, everyone.
We appreciate you joining us.
As you saw in our release this afternoon, fourth quarter revenue came in at $572 million, which represents continued sequential improvement and a slight uptick over the prior year in constant currency.
Revenue was negatively impacted 7% by the strengthening of the dollar.
Earnings per share of $0.62 were also affected by currency as well as a few other factors that we'll discuss on the call.
Frankly, this quarter was a frustrating one for us and I think it's likely to be a difficult quarter for investors to evaluate.
So I hope to provide some clarity on what we're seeing in the business and, of course, we'll be happy to answer questions, as well.
The quarter was frustrating to us because we saw really strong signals and results from product introductions in key markets such as the Americas and Japan.
But, on the other hand, our December launch of ageLOC Me in South Korea generated only about half of the response that we had expected.
So, first I'll touch on the positive signals that we saw in the quarter and then I'll talk specifically about South Korea.
As you know we are early into what we believe will be a strong product cycle with ageLOC Youth and ageLOC Me.
These products are the most compelling product innovations I think Nu Skin has ever produced.
In fact, our consumer trials and the feedback we're getting from product users have been very favorable for both of these products.
And, importantly, our sales leaders are now familiar with these products and are very enthusiastic about introducing them into their markets.
So we feel confident about the quality of the ammunition we have to move the business forward.
In November, we had a very strong LTO of ageLOC Youth in the Americas region.
The LTO generated about $21 million in sales and we quickly sold through our available inventory.
This launch generated a 16% year-over-year revenue improvement for the region and was a nice follow-up to the third quarter LTO of ageLOC Youth in Southeast Asia, which led to a 44% constant-currency growth rate in that region in the third quarter.
So the first two introductory launches of ageLOC Youth have gone very well.
AgeLOC Me, as you know, is our new customizable skin-care system.
In December we introduced ageLOC Me in the North Asia region using two different approaches.
First, in Japan we offered the product only through high-level sales leaders.
And not only did the product sales in Japan meet our expectations, but we were also very encouraged with strong growth in the number of sales leaders in Japan.
After several years of some fairly tough sledding there, it was nice to see Japan come to life with the introduction of ageLOC Me.
In South Korea, we tried a different approach.
As you know, we have heavily promoted our product's subscription programs over the past several years.
We've found that these programs augment the lifetime value of a consumer.
AgeLOC Me is ideal for a subscription program because it comes with a 30-day supply of serums and moisturizers in measured doses.
So our Korea team decided to offer ageLOC Me at a slight discount in exchange for a 12-month product subscription to obtain the discount.
And, as it turns out, that 12-month commitment seemed to be a stumbling block for many consumers.
As a result, we ended up selling through about half of what we had included in our model for guidance purposes.
And, on the positive side, with the subscription component, we've seen a very high level of follow-on purchasing in January and February.
And it's encouraging to see that the opportunity to customize one's skin care regimen is working well, as the vast majority of those reordering are in fact customizing their order.
So the subscription offer appears to be a nice retention mechanism, but it obviously didn't work to maximize initial sales.
These insights from the initial launch events will be valuable as we leverage them in 2016 and now have the opportunity to roll out two very compelling products globally.
You'll note from our report today that we generated growth in sales leader in the fourth quarter in nearly all of our regions.
The two standouts during the quarter were South Asia Pacific and the Americas with improvements of 24% and 17%, respectively.
We also saw double-digit gains in sales leaders in greater China, which is a healthy indicator.
But we are being cautious about guiding China because of economic conditions and uncertainty there.
And we are also cautious in our guidance with respect to South Korea as we sort out the extent to which the December softness was an execution misfire on the LTO, or whether there are other factors causing general softness in the market.
From a financial perspective, we continue to generate healthy cash flow and continue to enjoy a strong balance sheet.
As reflected in our release, we repurchased $60 million of shares in the quarter and about 5% of our shares outstanding for the year.
Our Board of Directors also today increased our quarterly dividend for the 15th consecutive year.
Currency has, obviously, had a huge impact on revenue over the past few years.
In fact, if we had the same exchange rates we did in 2012, our reported revenue would have been over $400 million higher in 2015.
Our updated guidance for 2016 is reflective of continued strengthening of the US dollar.
So while it's prudent to revise our guidance for 2016, this revision does not dim our optimism for the business nor our prospects for the future.
Our team is fully committed to growth and we're focused on maximizing the impact of these new products, on growing our channel and our consumer base and on executing with excellence.
So with that, I'll turn the time over to <UNK>.
Good afternoon, everyone.
Thank you, <UNK>.
We closed 2015 having made consistent sequential improvements on our top line, as well in our balance sheet and having generated a good year of improved cash flow.
We used our cash to repurchase more than 5% of our outstanding shares during the year and currency negatively impacted our top line by approximately $200 hundred million and continues, frankly, to be a headwind to us.
Our fourth quarter results finished a bit softer than we expected and, as <UNK> mentioned, our results were less than anticipated primarily because of the lower-than-expected LTL sales in Korea.
While we're getting good feedback from the field related to the launch of the ageLOC Me product, we believe initial sales results were influenced by the way we bundled the unit with the annual commitment of consumables.
Overall, we enter 2016 with strong product initiatives, with our primary launches planned for the second and fourth quarters of 2016.
Critical to our success will be growth in sales leaders and consumers throughout the year.
Operating margin for the fourth quarter was 10.8% compared to 15% in the prior year.
Gross margin was 78.8% versus 82.5% in the fourth quarter of 2014.
We continue to experience pressure on gross margin from the strength of the US dollar.
Also consistent with the first three quarters of 2015, we reclassified to cost of sales certain inventory-related expenses from general and administrative expenses.
While this reclassification has no impact to operating income or earnings per share, the $7.9 million which was reclassified during the quarter negatively impacted gross margin by 1.4% when compared to the prior year.
In the current quarter, gross margin was also negatively impacted by approximately 50 basis points from expedited shipping charges related to product launches during the quarter.
We anticipate our gross margin will return to the 79.5% to 80% range in 2016.
Selling expenses for the fourth quarter were 41.5% of sales compared to 42.1% in the prior year.
General and administrative expenses for the quarter, as a percent of revenue, were 26.5% compared to 25.4% in the prior-year period.
We held our global convention in the fourth quarter of 2015, an expense of approximately $7.5 million, with no similar expense in the prior-year quarter.
We incurred a loss of $3.3 million in the other-income-expense line item compared to a loss of $16.1 million in the prior-year period.
Both periods were impacted by foreign currency losses related to the translation of our balance sheet and in our Company accounts, while the prior year also included a $7.4 million expense due to the prepayment fee associated with refinancing our debt.
Our income tax rate for the fourth quarter was 38.7% compared to 38.1% in the prior year.
We anticipate the income tax rate for 2016 to be in the 36% to 36.5% range.
In summary, our revenue was at the low end of our guidance, but we missed our earnings per share due primarily to the lower gross margin, the FX charges in other income and a slightly higher-than-anticipated tax rate for the quarter.
During the quarter, we paid $19.8 million of dividends and repurchased $60 million of our outstanding shares.
Cash provided from operations for the quarter was $80.1 million.
Since the time we provided our initial 2016 guidance in December, the US dollar has continued to strengthen and we've adjusted this trend into our updated guidance.
Based upon January rates, and estimating the Chinese renminbi and Korean won may continue to weaken against the dollar, we now estimate a negative 7% impact from the strength of the US dollar in 2016 compared to our initial forecast of 4%.
It's possible that this currency guidance might be conservative, particularly with the weakening of the dollar against the yen in the past few days.
All things considered, we've updated our estimates for 2016.
We're now forecasting even local currency revenue in North Asia and EMEA versus 2015 and mid-single-digit growth in each of our other regions.
These forecasts combined to a consolidated local currency revenue-growth projection of about 2% for the year.
At this revenue level, we forecast an operating margin range of 10.5% to 11% for the year.
I'd like to provide further detail on how I currently model 2016 on a quarterly basis.
For the first quarter, there are no significant planned LTO events.
We estimate revenue to be $450 million to $470 million and earnings per share of $0.35 to $0.38.
By the way, that reflects a 6% to 7% negative currency impact.
In the second quarter, we introduce ageLOC Me in the greater China region.
We also have a follow-on launch of ageLOC Me in Japan.
These launch events should result in double-digit local currency growth year over year in Q2.
In the third quarter, we don't have any significant plans for product LTOs.
And we'll compare against a successful LTO in South Asia Pacific in the same quarter of 2015.
Then finally, there are several product introductions in Q4 which should produce low- to mid-single-digit local currency revenue growth in that quarter.
When factoring the currency impact of 7% to our revenue, we estimate 26 revenue to be $2.1 billion to $2.15 billion with earnings per share of $2.40 to $2.60.
So, with that background, we will now open up the call for questions.
Yes, I think, <UNK>, where we land on guidance today is reflective of some conservatism.
We just don't want to miss.
And I think that, with respect to the feedback and the input we're getting from our geographic managers, I think they're also obviously feeling that pressure and they may be overly conservative in the way they're guiding the business right now.
But, you know, the issue in Q4 was the LTO event in Korea.
And otherwise, our LTO events have gone really well.
And, in fact, we had such a strong November, particularly with the US LTO and sales in greater China, that we actually went into our investor day meeting in early December thinking that we could potentially even raise guidance for the quarter.
So, it was really a South Korea issue, and I think that our team there is being a little bit conservative given the fact that the December LTO did not hit actually anywhere close to what we thought it would.
So, yes, there's a measure of conservatism here.
But I think we're getting good input from our management teams, <UNK>, don't you.
Yes, I agree with that, <UNK>.
And I think the fact of the matter is when you miss you try and recalibrate to a point where you don't miss again, and that's reflected in the way we put out our numbers today.
I think everything from currency to guidance.
Let me give you a little color on that.
We're trying to evaluate the extent to which economic or other general issues might be weighing on Korea a little bit.
And frankly, it's hard to know.
We're not hearing that from our field leaders or from our management team in Korea right now like we are hearing it from our management team in China, in particular, some concern over economic conditions.
So, that's one of the reasons for conservatism here, as we mentioned in our remarks.
It's just a desire not to be overly aggressive about the Korean environment in the event there are other macro factors at play.
The bundle was not borne out of ignorance on our team's part.
I mean, what they were trying to do was make the product proposition a little bit more attractive from a consumer-pricing standpoint.
So, the discount that was offered was designed to lower the effective monthly cost of purchasing the system and I think they just underestimated the impact of what a 12-month commitment means.
And we think that's what muted the response.
So, what we've heard from them is that their belief, and our belief today, that it was LTO programming that really impacted December's results in Korea.
But we've moderated our guidance for the market, and we'll obviously monitor that going forward so that we give ourselves a little bit of a cushion in case it's something more than that.
Thanks, <UNK>.
All right.
We have no other questions in the queue right now.
So we're just trying to conclude by thanking you for being on the call again today.
And as always, we will be available to answer any questions that you may have that we're able to answer.
Okay, we do have another question in the queue.
So operator, can you go ahead with the next question.
Yes, thanks, <UNK>, for that question.
I think generally, the big reductions in guidance came from greater China and South Korea.
We made some minor modifications overall.
Again, I think when you miss you try and get conservative everywhere to make sure that doesn't happen again.
But the primary reductions in guidance, the big-dollar items, all came from greater China and from Korea.
Yes, the primary factor impacting operating margin is, as you stated, a mostly fixed level of G&A on a lower revenue number.
In fact, we've had a debate as a management team on the best way to manage this going forward.
We still feel more optimistic probably than is reflected in our guidance of our ability to grow the business this year.
So, making significant disruption or cuts to the business doesn't feel at this time warranted.
We are committed to being profitable and making sure that we remain very profitable going forward, but at this point in time believe that we should keep a lot of our programs and so forth in place that are meant to generate growth in the business and support these product launches which we think will be positive.
And then we can kind of monitor it as we go forward.
But the primary factor is, as you mentioned, a fixed level of G&A on a lower revenue number.
Yes, thanks for asking that so I can clarify my feelings related to that as well, because, actually, fourth quarter was decent in greater China.
We saw an uptick sequentially in sales leaders.
We saw a slight uptick in active.
So we enter the year in certainly a better position than we entered 2015, where we were sort of on a soft trend.
So, that was pretty good.
What I did was back out some of our expectation of the LTO in the second quarter.
Given the softness in the LTO in Korea, I kind of reflected that throughout the year also in greater China although we continue to hear very, very positive responses.
We did, in the fourth quarter, a leader preview of about 5,000 units that was right towards the end of December which we received really good feedback on, and our leaders feel really optimistic.
So, probably the impact of the Korea LTO is affecting my forecast for greater China when the indicators would point to some good stability in that business with an opportunity to grow going forward.
Yes, I think, <UNK>, this is <UNK>, I think we're programmed, both <UNK> and me, to be fairly conservative in the way we guide.
And, we always have been.
I think we always try to guide to what we think is a realistic level and we did that on December 4 and we're doing that again today.
And unfortunately, in the interim between these two dates, we laid an egg on our LTO event in Korea and that's it.
That's what's happened.
Let me just add a little more color to perhaps our China sentiments.
You know, the first of almost every year in China is just really hard to read the business because China is typically a soft month globally.
And, this year, January rolls into Chinese New Year almost immediately when essentially the country just rolls up and disappears.
And so it's hard for us today to have really aggressive expectations for China when we can't get a very clear read on it, year to date.
And I think that's what's feeding into our guidance today as well.
Yes.
All right, we have no other questions in the queue.
So again, we appreciate you joining us and are available to answer other questions that we can.
And, as I mentioned, we remain optimistic and enthusiastic about our prospects for 2016 and beyond.
And maybe that's because we're familiar with the product ammunition that we're bringing to the market which we are very enthusiastic about.
And probably even more so, if you knew the sales leaders that we have around the world, as I do, and the level of their capability and the level of their optimism for the future, I think it would be hard for anyone to be anything but optimistic about our potential.
So, we'll get back to work and do our best to make shareholders proud of what we accomplish in 2016.
Thank you, everyone.
| 2016_NUS |
2016 | EXPO | EXPO
#First of all, in general I think we would expect acquisitions to be relatively small.
We think that focusing on us acting as one Company and having a certain kind of culture makes a very large acquisition risky to that so we would focus on a smaller acquisition, so these are more seed acquisitions.
A pipeline may not be quite the best way of describing that.
We always have a few in every year, we have quite a number of companies we look at and often get to the point of making offers on some.
But as we have explained before there are certain areas we are focused on.
They continue to be in the health, sort of pharmaceutical area where we think we could provide high-value toxicology, epidemiology and so forth in that space.
They are also in the computer science space, embedded software and some data analytics related to that.
Those are some of the primaries we have looked at, but I think it would be misleading for us to indicate we have a pipeline of acquisitions.
We haven't done one since 2002, but we are very open to doing the right kind of acquisition as long as we get a company at the right stage, where it's a seed for future growth and where they've got a leadership team that's going to continue to drive the business as opposed to one that is looking for retirement.
Thank you.
Thank you very much.
| 2016_EXPO |
2016 | EAT | EAT
#The family business is important to casual dining and it's important to us.
It is a core equity for us.
We have not seen a softening, if you will, in that part of the business that's any more pronounced than any other of the challenges that the casual dining is seen.
So we don't think that's the issue.
We actually see more people going after that piece of the business competitively.
But we've got a strong base in family business and with millennial families we think that's an opportunity to continue to leverage that.
Our business has the uniqueness if you will, that not everyone has to be able to say hey, listen, there is an aspect of our restaurant that's more bar focused and got a little bit of a different energy to it and then there's this other part of the restaurant that's really more family focused and focuses more on what's happening at your table and around the table.
And more the food aspect of the menu aspect of it, with the alcohol playing a secondary role.
And it works great for us, and I think it works great for our guests and that again is one of those things that allows Chili's to be in a little bit of a unique position.
To be able to really work both fairly comfortably.
Thanks.
Thank you, Kate, and thanks to everyone for participating in the call this morning.
I would like to note that our second quarter FY17 earnings call is scheduled for the morning of January 25, 2017.
With that, everybody have a great rest of your day.
Thank you.
| 2016_EAT |
2018 | ABCB | ABCB
#Thank you, Racho, and thank you to all who have joined our call today.
During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com.
I'm joined today by Ed <UNK>, Executive Chairman, President and CEO of Ameris Bancorp; and <UNK> <UNK>, Executive Vice President, Chief Operating Officer of Ameris Bank and CEO of Ameris Bank.
Ed will make some opening comments about the quarter and our pending acquisitions.
I will spend some time going over the details of our financial results, and then <UNK> will provide closing remarks.
Before we begin, I'll remind you that our comments may include forward-looking statements.
These statements are subject to risks and uncertainties.
The actual results could vary materially.
We'll list some of these factors that might cause results to differ in our press release and in our SEC filings, which are available on our website.
We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law.
Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance.
You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation.
And with that, I'll turn it over to Ed <UNK> for opening comments.
Thank you, <UNK>, and good morning, everyone.
I appreciate you taking the time this morning to join our first quarter 2018 earnings call.
On the call today, as <UNK> said, we'll discuss our earnings results and then I'll provide some insight into our M&A strategies and pending acquisitions.
For the first quarter, we're reporting operating earnings of $0.73 per share, which excludes about $1.1 million of after-tax merger and branch sale costs.
Including these charges, we're reporting $26.7 million in net income or $0.70 per share.
Our operating ratios continue to be very strong.
Our adjusted return on assets came in at 1.44% in the first quarter compared to 1.27% in the same quarter of 2017.
The change in the tax law added 17 basis points to the ROA this quarter.
So on an apples-to-apples basis, our return on assets was comparable to first quarter of last year.
<UNK> and <UNK> did manage to squeak out an efficiency ratio just below 60%, which is excellent for the seasonally slow first quarter and it puts us in a position to achieve a mid-50s ratio later this year.
And lastly, our return on tangible common equity came in very strong at 17.09%, up from the 15.84% we reported in the first quarter last year.
Our quarter was highlighted by few items that I believe point to the kind of year we're expecting.
First, we had solid loan growth for the first quarter, which is seasonally a weak quarter for us.
This year, we had a little better than 10% organic growth in loans, which is ahead of the same quarter last year at 8.5%.
Secondly, we're reporting a seasonal decline in deposit balances.
We're reporting that over the last year.
We've grown deposits by almost $804 million and funded about 92% of our incremental loan growth with deposit growth.
Our pace of deposit growth and our successes continue to improve, and our pending mergers will put us in larger markets where we expect to solidify our pace of growth and funding.
And lastly, our marketing increased during the quarter by 2 basis points, excluding the effect of accretion income.
Considering that we lost about 6 basis points of margin from the reset municipal loans and securities from the recent tax law, I'm delighted that we were able to overcome that and still post an improvement in the margin.
I can't brag on our bankers enough for what they're doing in the marketplace.
The competitive pressures are stiff as we've seen in quite some time.
But our folks continue to produce outstanding results on both growth and profitability.
I'm really proud of these results and excited about the kind of year I think 2018 can be for Ameris Bank.
<UNK> will talk more about our earnings for the quarter in a moment.
So I'll shift to give you an update on our pending acquisitions.
During the first quarter of 2018, we successfully completed the acquisition of the remaining 95.01% of US Premium Finance.
We've retained the management team, and we continue to see solid growth in this division with exceptional credit quality and above average return on assets and efficiency ratio.
We believe that we should get approval on the ACFC transaction in Jacksonville any day now, and we're prepared to close right away.
Our conversion for this transaction is scheduled for mid-June, and we're very excited about the bankers who are going to be joining us in Orlando, Tampa and here in Jacksonville.
And lastly, we just as excited about our pending acquisition with Hamilton State Bancshares in Atlanta and the boost to our Atlanta franchise that this acquisition will add.
We still expect this acquisition to close early in the third quarter of this year, and we should be complete with the integration efforts shortly thereafter.
On additional acquisitions, we're continuing to have conversations on both the bank side and the non-bank side.
I expect some of these conversations will continue throughout the year.
And then as we close and integrate the 2 pending deals, we'll be ready to move ahead with something else, hopefully, along the lines that we've outlined on previous calls and previous one-on-one meetings.
So <UNK>, I'll stop there and ask you to cover more of the financial details of the quarter, and then <UNK> can share details on our outlook and strategy going forward.
Thank you.
As Ed mentioned, we're reporting earnings of $0.70 per share and operating earnings of $0.73 per share for the first quarter, which excludes about $835,000 of pretax merger charges and $583,000 of pretax losses on the sale of bank premises.
Outside of these charges, we recorded net income of approximately $27.8 million or $0.73 per share compared to $21.6 million or $0.60 in the same quarter of 2017.
Due to the Tax Cuts and Jobs Act that was passed in the fourth quarter of 2017, our effective income tax rate declined to 22.4% in the first quarter compared with 32.6% in the same period of '17.
This equates to approximately $3.3 million of reduced income tax expense in the quarter and positively impacted our EPS by $0.08 a share.
We believe our effective tax rate will be between 22.5% and 23.5% going forward.
One of the key metrics we continue to focus on in 2018 is our operating efficiency ratio.
This ratio for the first quarter was 59.95%, an improvement from the 60.88% reported in the fourth quarter of last year.
Our adjusted noninterest expenses declined $494,000 in the first quarter of 2018 compared to the fourth quarter of last year.
Ed alluded to this earlier that the efficiencies we expect to gain from the pending acquisitions and our organic growth should drive our efficiency ratios throughout this year.
And we believe it to be in the mid-50s by the end of 2019.
As Ed mentioned, our operating return on assets or ROA in the quarter came in at 1.44, up from 1.27% we reported in the same quarter of '17.
The reduced effective tax rate discussed earlier positively impacted our ROA by 17 basis points, so assuming an equal tax rate, our ROA was consistent at the 1.27%.
This is noteworthy considering the organic growth we've had in this competitive environment and with the yield curve.
Additionally, we have half of the accretion income in the current quarter that we had a year ago, which otherwise would have lowered our ROA by 7 basis points.
Essentially, all things being equal, our core bank and our lines of business have grown over the past year in a manner that was accretive to our already strong ROA and more than made up for the declining accretion income.
This is outstanding in our opinion and reflects the hard work of our bankers in today's climate.
Our return on tangible common equity was 17.09% in the first quarter of '18 compared to 15.84% for the same period last year.
Excluding the impact in the tax law change, our return on tangible common equity would have been 15.07%, an increase from the fourth quarter of '17, but a slight decline from the first quarter of last year.
That year-over-year decline is attributable to our increased capital levels.
Our average tangible common equity has increased over 19% or over $105 million this year due to the final purchase of USPF and our strong earnings stream.
Our net interest margin exclusive of accretion improved by 2 basis points during the quarter from 3.82% in fourth quarter of '17 to 3.84% in the first quarter of this year.
Again, this is noteworthy given the impact of the tax law change that reduced our margin by 6 basis points related to your muni loans and muni investments.
Our yield on earnings assets increased by 3 basis points, mostly in our legacy loans.
Yields on new loan production increased to 5.19%, up from 4.89% in the fourth quarter of '17.
In addition, reduced levels of short-term assets and steady deposit costs also helped to improve the margin.
Noninterest income increased to $26.5 million for the quarter.
Service charges on deposit accounts remain stable.
Our retail mortgage division had a really strong quarter.
When compared to the first quarter of last year, their production increased over 14%, their revenue increased almost 23% and their net income increased to $4.7 million.
Our mortgage division continued to produce solid financial results.
They remain focused on relationships with solid builders and real estate brokers, and they continue to benefit from many years of producing solid results for their customers.
One of the strongest success stories we have this quarter is in noninterest expense.
Noninterest expense decreased $239,000 during the quarter to $59.1 million compared to the $59.3 million in the fourth quarter of last year.
On an adjusted basis, our noninterest expense actually declined $494,000 to $57.7 million from the $58.2 million reported last quarter.
Included in the first quarter was approximately $1.1 million of increased payroll taxes that are typically outsized in the first quarter of each year, and they tail off dramatically in coming quarters.
On the balance sheet side, total assets increased over $166 million and earnings assets increased to $105 million.
Organic loan growth totaled $153.8 million or 10.8% organic loan growth for the quarter.
This compares to $138.2 million or 10.1% in the fourth quarter of last year and $98.5 million or 8.5% growth in the first quarter of last year.
Pipelines remain strong, and we are optimistic about the growth opportunities in the second quarter.
Our loan growth continues to be diversified both among product type and region.
Commercial real estate accounted for over half of our loan growth with residential and consumer and C&I also showing the strong growth.
As a reminder, our C&I classification includes municipal, mortgage warehouse and premium finance.
Our strongest loan growth markets during the quarter were Jacksonville, Atlanta and Charleston.
We continue to see growth in our lines of business, and we still believe that is sustainable going into the second quarter.
Loan production in the Premium Finance division remained strong as total production was $289 million for the quarter compared to $241 million last quarter and $251 million in the first quarter of last year.
That's a 15% increase in production year-over-year.
We believe we can sustain an annualized growth rate in this division of 10% to 15% over the next few years, while maintaining credit quality and profitability.
Our asset quality remains strong as our annualized net charge-off ratio was 9 basis points of total loans and 14 basis points of nonpurchased loans.
Our nonperforming assets as a percent of total assets decreased to 61 basis points compared to 68 basis points at the end of the year.
We had a nice move in nonperforming assets decreasing by $4.3 million or 8.2% during the quarter.
As expected, we had a normal seasonal decline in deposits during the first quarter of approximately $180 million.
However, compared to the end of the first quarter of last year, deposits have increased almost $804 million while our loans have grown $874 million, which means we have funded approximately 92% of our loan growth with related to the deposit growth.
We believe the pending acquisitions, which will expand our presence in Atlanta and movements into Orlando and Tampa will give us more opportunities for deposit and loan growth going forward.
With that, I'll turn it over to <UNK> for his comments.
Thank you, <UNK>.
And before I'll dangerously go off script here for a second and just recap something that hearing <UNK> and Ed something that I've, kind of, just from a high-level ---+ I mean, we're reporting a 1.44% return on assets, 17% ---+ a little better than 17% return on tangible capital, sub-60% efficiency ratio, it is below 60%.
And double ---+ and all of that on the operating ratio, there's still double-digit growth in organic double-digit growth.
And when you look at those 4 ratios and you combine it with Ed's comments about the 2 deals that are pending, the 2 deals that are pending are accretive to all 4 of those ratios: Our return on assets, return on tangible capital, efficiency ratio and what we think is our long-term organic growth rate.
The fact that we did 11% almost in the first quarter, which is seasonally our slowest quarter, we're pretty proud of.
The only thing ---+ the only comment, <UNK>, that was good for ---+ hard for me to not be able to want ---+ be able to be the one to say those numbers, but that was good.
The only comments I really want to make are kind of about the environment we're operating in, and <UNK> alluded to a little.
And I've heard some comments on other earnings calls about the situation that banks are feeling with respect to loan yields and pressures to grow deposits and still sort of hold costs in line.
And we're definitely feeling those pressures across-the-board.
Given that we came in with loan growth right under 11%, in what's our toughest quarter, I am increasingly confident in our pretty bold loan growth goals for 2018.
We're pretty bullish on the growth we're expecting out the team in Atlantic Coast and Hamilton, which can only be accretive to our growth rate, given their lending efforts in Orlando, Tampa and Orlando ---+ excuse me, in Atlanta.
Looking at the pipelines ---+ looking at their pipelines and their current pace of activity and what they did in the first quarter in those markets, I believe they'll hit the ground running and be pretty successful in our credit culture.
On the deposit side, we are bullish there.
Every quarter, it seems we're seeing our annual pace of deposit growth to continue to inch higher and higher, getting closer to what we think is our long-term sustainable growth rate in loans.
Again, the new exposure we're going to have in Orlando, Tampa and Atlanta, we expect that we'll be able to see another impressive reset in kind of what our long-term deposit growth rate is.
From a margin perspective, we've been successful moving loan and deposit pricing in lockstep and staying aggressive where we need to on both sides of the balance sheet.
On pricing, loans and deposits, I will tell you that it is tough out there.
There are still more disciplined players on credit structure and on credit pricing than they are crazy folks, but the crazy and illogical pricing seems to always get the headlines.
We're aggressive occasionally where we need to be as well.
But in the aggregate, we seem to keep showing solid levels of production.
And we continue to get decent yields and margins because we're looking for good relationships, taking care of the customers that have been with us for a decade.
I would like to see more spread in yield curve, of course, but the fact is we haven't had a lot of spread in the yield curve for several years now.
And we continue to put impressive growth numbers and have held the margins slightly ---+ and have held the margin stable or even seem to increase slightly.
So given that ---+ and again, I don't like the pricing pressures that are out there, but the environment that we're in is really not anything different than where we have been operating.
And I believe we'll be able to operate as we have in the past and still deliver results.
So with that, I'll turn it back to Rocha for any questions.
I'll tell you the first strategy we have is sort of how we've reset incentive plans.
We have a higher percentage of our bankers' incentive plans this year are deposit-orientated, so that helps.
We've been hiring deposit officers in our larger market to ---+ that are focused solely on driving deposits.
We have individuals that are selling deposits solely to our lines of business.
So in markets, where we don't have branch facilities, but where we do have lending efforts.
We've been cross-selling to those businesses.
I'll tell you, our willingness to be aggressive on the deposit side and sort of moving lockstep, again, we're not ---+ we like where the margin is, and we like what it did this quarter especially.
But we don't feel like we've got to have the margin moving higher to hit our numbers.
I think we'll probably get more operating leverage off of the expense side, especially with the deals that are pending in our organic growth.
So we're not looking for the margin to go from 3.84%, 3.85% to 3.95% or so.
So we're willing to be a little more aggressive on the deposit side if we need to be.
Does that answer your question.
6 basis points.
Yes.
Yes, and to the margin.
The margin was 6 ---+ affected negatively by 6 basis points because of the tax law change.
I would tell you ---+ I'd tell you, stable.
Definitely continue to be stable.
I mean, and Hamilton and ACFC are probably going to take ---+ I ---+ if I brought several of our bankers in here, they'd tell you that we're getting a lot of pressure to grow deposits.
I will tell that they're ---+ our bankers are delivering for us big time.
I'm repeating what <UNK> said, really proud what our bankers are doing.
The adding ACFC and Hamilton, I think, it'll take a little bit of pressure off because, again, we're almost funding 100% of our loan growth now.
And when we get exposure to the markets that we're about to move into, I think, it's going to take a little bit of pressure off.
So I'd ---+ I think that pressure is coming off, I think, would only help us on the margin.
But again I'm not ---+ we don't want to ---+ the message is not, around here, that we're trying to grow our margin.
That's not what our bankers are hearing.
We're trying to maintain the margin, keep it pretty stable and continue hitting the growth numbers that we've got laid out.
Can I add something here to your question, I don't feel like I answered it fully.
The impact to our margin on the tax impact was 6 basis points, but I think you specifically asked about loans.
Loans was 8 basis point and then our nontaxable securities were 73 basis points.
So that gave the overall earning asset yield to 6 basis points.
Sure.
It's actually ---+ there's 2 components that you're correct that the bulk of it is the USPF, the final acquisition there.
We ---+ conservatively, we booked the entire contingent consideration this quarter, but this really ---+ we've had that built-in in our model, but just not all to hit in that first quarter.
So our earn back has not changed from our initial estimate, it's just we have all of that contingent consideration in the purchase price, in the first quarter.
Yes, the second component is our accumulated ---+ our investment security, our loss on our (inaudible) about $9 million there.
That was about $0.26.
But we were at 60 until Ed came in and check his finger, and we went digging again.
I forgo ---+ I forewent my last paycheck.
The ---+ I'd be pretty comfortable probably all the way up to 20%.
But what I would tell you is that as strong as the mortgage folks are and are probably listening, I think we're going to outgrow on this year with Hamilton and Atlantic Coast on the core banking side.
But sort of knowing that we were going to get back into the ---+ what you're seeing in the results.
Knowing that we're going to get back into the traditional banking M&A, our mortgage folks got out recruiting pretty hard in the third and fourth quarter of last year.
And what you're seeing is some of the results of their recruiting.
So it's just incremental volumes coming in.
And so I think after we do the ACFC deal and the Hamilton deal, you'll probably see us drop back to 14% or 15%.
But I think we're going to continue to be very aggressive recruiting experienced mortgage bankers that have relationships with construction firms or real estate brokers.
The Hamilton too ---+ the Hamilton ---+ one thing about Hamilton that we're pretty excited about is, they've got an outstanding residential construction group in Atlanta.
And we think the cross-sale, again, given how successful we are with construction firms, we think the opportunity to cross-sell that in Atlanta would be pretty successful.
We're ---+ that's ---+ again, those ---+ that wasn't even baked into our numbers when we made the deal announcement, but something we've kind of getting our mind around right now.
<UNK>, <UNK> might be more conservative in her presentation skills than I am.
But I mean, it's hard.
You're exactly right, honestly.
And like I started off the ROA at 1.44%.
The deals are accretive to our ROA.
And I don't mean by 1 basis point or 2.
It's ---+ given with this tax rate, those deals easily will push us over 1.50% and that alone before any leverage or additional leverage is going to push ROTCE up closer probably to 20%.
It's hard ---+ it's kind of like last year when we had done 20% loan growth.
And I think it was hard to acknowledge that was ---+ we were able to ---+ going to be able do that again year after year after year, but 20% hard to say that it's sustainable.
And the fact ---+ you know honestly ---+ TCE is at 8.30%, and we want to build that back to 9%.
So I don't think we would get ROT ---+ I don't think we'll get leverage ---+ improved ROTCEs from leverage as much as we want to get it from a higher return on assets, which we think is right around the corner.
Successfully integrating the deals that we have plus the organic growth that we are expecting this year should put us in the mid-50s by the end of this year, the fourth quarter of this year.
We ---+ having 2 deals pending has not slowed us down from having conversations and trying to have ---+ and we think we know when the deals are going to be approved and closed and integrated.
And so a lot of our conversations are centered on kind of timing things out so that we'll be ready, probably end of this year to do something else.
And I guess, the next question would be geography, and I would tell you probably anything in Florida or Metro Atlanta.
I mean, we looked at a ---+ I guess, pro forma we're about $11.5 billion.
So recently, we looked at $0.5 billion deal.
And ---+ so it's a good bank.
But we didn't get very ---+ we didn't get pretty ---+ we did not get impressive earnings per share results or economics out of it.
And it had nothing to do with the bank, it had nothing to do with the assumptions or the market or anything like that.
It just really had to do with $0.5 billion against $11.5 billion.
So I'll ---+ we used to probably say $500 million to $1.5 billion, it's probably, I would say, $1 billion is about at the small as we're going to be able to go and still get the good economics, probably up to $2 billion or $3 billion.
No, okay.
I'm sorry, the question was, if it wasn't M&A, what would we do organically.
That is ---+ I'm glad you have asked that.
It's ---+ and Ed can come by me and comment on this because I know he will want to.
The one of the ---+ some of the ---+ one of the things that we're seeing, I mean, M&A pricing is expensive.
The ---+ some of the active acquirers are trading for close to 3x book and everybody has got good or solid operating results and all that sort of reflected in some of the M&A pricing.
And really for the last couple of quarters, we have been much more active in commercial banker recruiting.
And I would tell you, it's not ---+ most of it ---+ most of that recruiting is centered on some of the big banks, larger banks where we're trying to recruit teams.
And I think may be getting close on a few.
But that centered in our larger markets in the ---+ and some in the larger markets, where we're going, not just where we already are.
And maybe a few markets where we think we'll end up.
But I would tell you we're not outside of the markets, where we're already operating and talking to some teams.
Those I feel pretty confident that we can do something this year.
Outside of those markets, I think, we want to be cautious.
But we're definitely seeing more commercial banker, more opportunities to hire commercial bankers and commercial banker teams.
And I think that ---+ that's ---+ I like the timing of that given how pricey M&A has been.
I still think given where our stock trades, and how successful we've been with past integrations, we can still make M&A deals.
So I'm not ---+ don't want anybody to hear that M&A is not an opportunity for us.
I'm just saying it's pricey and the economics that you get are not as good as they were say 18 months ago.
We can still make M&A deals, but we are lacking the opportunity that we're seeing on the M&A ---+ I mean, excuse me, on the commercial banker opportunity.
Do you want to comment on price.
Chris, I would say, I echo what <UNK> says.
But I would point out that when we had a pause on M&A and really focused much more diligently on our core and organic growth, it helped us realize some leverage of our people.
It helped us leverage our efficiency a little, and refine some of our processes and get prepared to grow faster as we go over $10 billion, but it helped us to be successful organically.
And that really was our focus for a while, and it continues to be our focus.
It does not exclude M&A.
But as you know, we're really disciplined on M&A and the economics have to be there, that strategic piece has to be there.
But the economics have to be present as well.
And it is more difficult to get over the economic hurdle today.
So we think we can deliver double-digit growth without M&A.
And so with M&A, we think we can do even better than that.
So we're really pleased with the position we're in.
And we think we will have opportunities for M&A.
But that's not the sole focus of opportunity either.
Thank you, again, for your time this morning.
If you have any questions or comments me or <UNK> or Ed are always available.
All right.
Thank you.
Have a great weekend.
| 2018_ABCB |
2016 | WMT | WMT
#Thanks, <UNK>, and good morning everyone.
Thank you for joining us to hear more about our first-quarter resulted and an update on our overall strategy.
We are off to a good start to the fiscal year.
For the first quarter, EPS was $0.98, which is above the top end of our guidance.
Excluding a $3.5 billion currency impact, we delivered total revenue of $119.4 billion which is growth of $4.6 billion or 4% over last year.
On a reported basis, total revenue increased 0.9% to $115.9 billion.
We exceeded both our EPS and Walmart U.S. comp sales guidance.
As we described in October, we are improving our stores, adding critical capabilities and deepening relationships with customers.
We are encouraged by the Walmart U.S. comp and believe it is attributable to real improvement in our store experience.
Our customers are giving us positive feedback and I am seeing it myself on store visits and you can see it in the traffic numbers.
We delivered comp sales of 1% in Walmart U.S. due to continuing traffic increases which improved 1.5% this quarter.
This was our seventh consecutive quarter of positive comp sales and our sixth consecutive quarter of positive comp traffic.
It is exciting to see the improvement in core retail fundamentals.
For example, I am encouraged by the progress we are making on inventory.
That progress is important in its own right and for cash flow purposes but it can also help create a virtuous loop.
When combined with our investments in training and associate education, wages and store structure, it is giving our associates more time on the sales floor to serve customers.
Our customer satisfaction scores have continued to strengthen and our in stock has gotten better.
Our associates are responding and I'm proud of them, Greg Foran, and the entire US leadership team.
In the quarter we did a better job of managing costs.
SG&A discipline improved as our store teams did a good job of more closely aligning expenses with sales growth.
Better expense management in the quarter gave us increased confidence to initiate our next phase of U.S. price investment earlier than planned.
Over time we intend to lower prices further in a deliberate strategic way to drive our productivity loop.
Doing this in a sustainable way takes time and we are seeing progress.
Globally on a constant currency basis, e-commerce sales and GMV grew 7% and 7.5% respectively.
Growth here is too slow.
The U.S. number is better than the global number but neither is as high as we would like.
We can see progress against several of the necessary capabilities we need to win in e-commerce but we are still working on a few others.
We need them all to come together to see stronger growth.
For example, our marketplace is ramping up but it takes time to build the assortment to the point where customers realize the depth of assortment.
We now offer more than 10 million SKUs on Walmart.com and we are growing that number through a combination of first-party and third-party items.
It makes sense that perception will trail reality and we will work on both during the course of this year.
We will build on the successes we have seen around the world including in the U.S. and we will continue to work through the challenges we have experienced in key markets like Brazil, China and the UK where our e-commerce and mobile commerce sales are softer.
We are pleased with our e-commerce operating system and happy to have our new e-commerce fulfillment centers operational.
Those are necessary building blocks.
I'm excited about the ways we are using technology to deepen our relationship with customers and help them save both money and time.
Our Grocery Pickup service in the U.S. continues to receive high marks from customers and we are continuing to expand it.
I am pleased to share we are announcing nine new markets today bringing our total number of markets to nearly 40 by the end of this month.
In addition, in some markets, we will double the number of stores that offer the service locally in May.
We expect to continue to quickly expand to new markets.
The Walmart app is also allowing us to serve customers in convenient ways whether it is by finding an item in store, researching a product or refilling a prescription.
Walmart Pay is enhancing our ability to provide a seamless shopping experience as customers quickly pay with their phone.
A few weeks ago we began to expand this service nationwide and we are on schedule to complete the rollout by the end of June.
Walmart International had a strong start to the year with 10 of our 11 markets posting positive comp sales and nine of those markets growing comp sales by more than 4% on a constant currency basis.
In particular, Walmex and Canada continue to perform well with strong sales, market share gains and solid profit performance.
China remains a strategic market for our future and is now our fourth largest international market from a sales standpoint.
We recently held a Board of Directors meeting in China and while visiting stores and e-commerce operations, I continue to be encouraged by the pace of operational improvements made by our team in China.
A highly competitive environment and food deflation in the UK continued to challenge the market significantly impacting traffic and comp sales trends in our business.
We are focused on making strategic investments to improve our position in the market and invest in price while being diligent in managing our bottom-line and cash flow.
At Sam's Club, we are pleased with the growth in membership income.
Plus member penetration is near an all-time high and we like the trend we are seeing.
It is clear that members recognize the value that a plus membership brings.
Comp sales for the period were in line with our guidance but we know we can deliver stronger results.
Leading in digital is a focus area for Sam's and the team is doing a good job of delivering for members as we continue to see strong growth in Club Pickup.
Finally, we look forward to welcoming many of our shareholders, investors and associates to Northwest Arkansas in a few weeks for our annual meeting.
This is one of my favorite weeks of the year as we get a chance to connect with you and share more of our thinking about the business.
We also bring in associates from around the world.
It is inspiring to see them and hear their stories.
We hope you will join us for a great meeting.
In summary, we are continuing to do what we said we would do on our strategic plan and we are getting traction as a result.
Now I will turn it over to <UNK>.
Thanks, <UNK>, and good morning everyone.
As <UNK> mentioned, our earnings materials are a little different this quarter.
Our intent is to continue to provide you with a high level of transparency and information but in a more efficient and concise manner.
For example, we have added specific comments and highlights on the performance of each of our operating segments within the financial presentation instead of being spread out among several parts of a lengthy transcript.
Therefore it is important that you review the financial presentation in conjunction with the comments from <UNK> and me.
We hope you find this new format more efficient we look forward to any feedback you may have.
With that, let's turn our attention to the results for the quarter.
I would like to start by taking a minute to thank all of our associates around the world.
Over the past few months, I have had the opportunity to visit with associates in our U.S. stores as well as in China, Japan and Brazil and I was encouraged by the level of dedication they continue to demonstrate.
As a company, we are executing against our strategic priorities and not only delivering short to midterm improvements but positioning Walmart for long-term success.
We still have work to do; however, we are pleased that our first-quarter results demonstrate continued progress.
First-quarter EPS of 98% was above our guidance range.
During the quarter, we saw a benefit from lower utility and maintenance expenses due to a milder winter in the U.S. and slightly lower costs from store closures announced last quarter.
From a revenue standpoint excluding the $3.5 billion currency impact, total revenue increased $4.6 billion or 4% to $119.4 billion.
On a reported basis, our total revenue increased 0.9% to $115.9 billion.
Walmart U.S. delivered comp sales of 1% due to continuing solid traffic which increased 1.5%.
This is our seventh straight quarter of positive comp sales and our sixth straight quarter of positive comp traffic.
Globally, e-commerce sales increased 7% and GMV grew by 7.5% in the first quarter on a constant currency basis which is not as strong as we wanted.
We are pleased with the ways we are using technology to deepen our relationships with customers and helping them save both money and time.
For example, our Grocery Pickup service in the U.S. will be in nearly 40 markets by the end of this month which is up from 22 when we started the year.
Advances we have made in fulfillment capabilities including our most recent center in Southern California, mean customers can get the items they want fast and at Walmart prices.
Although we are making progress on several of our key priorities, we have more work to do particularly in some of our largest international markets.
Gross profit increased 60 basis points during the quarter primarily driven by gross margin improvements in the U.S. which I will discuss in more detail shortly.
During the quarter, we were more disciplined from an expense standpoint.
However as anticipated, total SG&A increased compared to the first quarter of last year primarily as a result of our previously announced wage rate increase which took effect in February.
As you review our financial statement, you will notice a reduction in interest expense as well as an increase in net income attributable to noncontrolling interest.
As a reminder, the primary reason for the year-on-year variances is related to the sale-leaseback accounting correction we made in Canada during the first quarter of last year which impacted these line items and had a de minimis overall impact on operating income and EPS.
Along with solid operating performance, disciplined working capital management allowed us to generate approximately $4 billion of free cash flow which compares to $2.2 billion generated in the first quarter of last year.
We also returned $4.3 billion to shareholders in the form of share repurchase and dividends.
During the quarter, we repurchased nearly 41 million shares for a total of $2.7 billion.
With that, let's now turn our attention to the results for each of the operating segments.
Walmart U.S. had a good first quarter with comp sales ahead of guidance driven by solid traffic growth.
We continued to steadily execute against the plan we laid out a year ago and we are seeing positive results from these efforts.
Our customers continue to tell us they are happy with the changes we are making in our stores as evidenced by our customer experience scores which rose again this quarter versus last year.
Comparable sales were up 1% in the first quarter despite continued impacts from deflation and food which we estimate impacted our total comp by approximately 60 basis points relative to last year's first-quarter comp.
Customer traffic increased 1.5%.
E-commerce contributed approximately 20 basis points to the overall comp.
In addition, our Neighborhood Market format also delivered a comp sales increase of approximately 7%.
We have good momentum in the business as on a two-year stack basis comp sales for Walmart U.S. were up 2.1%.
We saw strength in general merchandise driven by solid sales growth in hardlines, home and seasonal and apparel.
While entertainment continues to be a sales headwind, we did see some improving trends in electronics.
Branded drug inflation and script growth drove pharmacy sales while better in-stock levels and a focus on the right assortment drove sales growth in both consumables and OTC.
Gross margin improved 44 basis points in the quarter.
We delivered improved margin rates in food, consumables and health and wellness as our continued focus on reducing costs both in how we operate the business and in procuring merchandise provided benefits.
In addition, transportation costs benefited from lower fuel prices, we had some improvements in shrink and we also lapped last year's incremental expenses related to the West Coast port congestion.
Operating expenses increased 11.5% over last year primarily due to previously announced wage rate increases.
However, our store teams were more efficient in managing expenses to more closely align with sales growth and a milder winter drove lower utility and maintenance expenses.
Overall the SG&A increase was partially offset by improved gross margins which resulted in an operating income decline of 8.8%.
Inventory continues to be a key focus area for Walmart U.S. and we are pleased with the progress we're making toward our goal of stronger working capital management.
Inventory declined 3.5% in the first quarter including a 5.7% decline in comp stores.
The inventory discipline is driving benefits across the store such as improved in-stock levels and more efficient processes for our associates.
Finally, as we communicated in October, price investment is always an important part of our growth plan.
We began the initial phase of additional price investment late in the first quarter lowering prices on key items in select geographies.
As always we are committed to providing quality merchandise at a great value using data and analytics to better serve our customers.
Heading into the second quarter, the execution of Walmart U.S.'s strategic plan remains on course.
For the 13-week period ending July 29, 2016, we expect a comp sales increase of around 1%.
As a reminder, the comp sales increase for the second quarter of fiscal 2016 was 1.5%.
Now let's turn to Walmart International.
Walmart International had a strong start to the year despite some continuing challenges in certain markets.
As a reminder in all countries except Brazil and China, our financial results are inclusive of our e-commerce performance.
Comp sales remain strong with all markets other than the UK posting positive comp sales.
Also worth mentioning, nine of our markets grew comp sales by more than 4% on a constant currency basis.
This year Easter benefited the first quarter some in International as the holiday last year fell within the second quarter given the one month reporting lag in all markets except Canada.
Overall, net sales grew 4.3% on a constant currency basis.
Reported net sales declined 7.2% due to the $3.5 billion currency headwind although the impact was slightly less than anticipated.
From an expense and cost of goods perspective, we are pleased with the continued progress we're making on our cost analytics program which includes fact-based negotiations and new merchant tools.
We are now expanding the program beyond the UK and Canada to include Mexico in Q2 and other markets in Q3 and Q4.
We are also focused on We Operate for Less initiatives across our markets and we are pleased that we leveraged expenses in the majority of our markets.
Form a profitability standpoint, operating income increased 22% on a constant currency basis and increased 8.8% on a reported basis driven by solid sales and broad gross profit rate improvement.
On a constant currency basis, inventory grew slower than net sales at 2.2% due to a focus on reducing unproductive and obsolete merchandise while on a reported basis inventory declined 6.9%.
Within the accompanying financial presentation you will find detailed information for our five major markets.
However, I will give some highlights on these markets starting with two which are performing exceptionally well.
WalMex continues to lead the way delivering strong results.
As a reminder, WalMex releases results under IFRS and the results discussed here are under U.S. GAAP; therefore some numbers may differ.
Sales momentum continued across all formats, divisions and countries led by strong results in food and consumables.
Total sales and comp sales performance significantly outpaced the rest of the self-service market.
Comp sales for WalMex increased 8.6% in the quarter.
From a profitability standpoint, higher gross margins driven by strong inventory management reduced clearance and good expense management led to strong growth in operating income.
In Canada, comp sales increased 6.7% driven by strong traffic growth of 4.6%.
Comp sales have now been positive for eight consecutive quarters.
The performance was driven by improvements in our merchandise assortment and price investment which led to strong customer traffic growth.
Our e-commerce business also continued to grow nicely with the expansion of online grocery in the greater Toronto area.
Even as e-commerce investments continued, our ability to leverage expenses led to growth in operating income that outpaced sales growth.
The UK continues to struggle, due primarily to fierce competition.
Improvements in price and product availability throughout the quarter were not enough to overcome traffic and food volume declines in our large-format stores.
However, project renewal remains a focus with the aim to simplify and strengthen the customer offer, reduce costs and drive sales.
The cost analytics program which is part of Project Renewal made good progress and delivered savings we were able to invest back into the business.
Our China business continues to grow and is now our fourth largest international market by revenue.
Despite a challenging macroeconomic environment, strong performance during Chinese New Year, double-digit growth in gift card loading and continued strengthening of fresh categories led to good sales growth and positive comps.
In Brazil, despite ongoing economic challenges, our team is making the right decisions to better position the business for both short- and long-term success.
We are pleased with the positive comp sales performance in the quarter.
Overall, our International strategy remains simple and focused and we continue to execute against our key priorities around the world.
Now let's turn to Sam's Club.
At Sam's Club, net sales without fuel grew by 2.9%.
Membership income increased by nearly 4% as Plus member renewables grew by more than 30% and Plus penetration was there an all-time high.
Comp sales excluding fuel increased 0.1% in the period as deflation especially in fresh meat and dairy continued to be a headwind and negatively impacted comp sales by approximately 50 basis points versus the first quarter of last year.
E-commerce performed well and contributed 60 basis points to the comp including sales through Club Pickup which grew by more than 30%.
In addition, our direct to home business experienced impressive growth.
Gross profit rate increased 18 basis points even as we made investments in price and in the cash rewards program.
As planned, investments in people and technology led to growth in operating expenses that outpaced our sales growth.
The team at Sam's is in the early stages of executing against the strategies as outlined at the end of last year.
We know we have work to do and we are on the right path.
For the 13-week period ending July 29, 2016, we expect comp sales to be slightly positive.
So let's wrap things up.
This is an exciting time for the company and our financial strength positions us to make the necessary investments in the business to drive sustainable long-term results.
We are proud of our overall results in the first quarter and there is momentum in many parts of the business.
Based on our views of the global operating environment and assuming currency exchange rates remain at current levels, we expect second-quarter fiscal 2017 earnings per share to range between $0.95 and $1.08.
We appreciate your interest in our company.
I look forward to seeing many of you at our Shareholder's meeting in a couple of weeks.
If
| 2016_WMT |
2016 | EGRX | EGRX
#Thank you, <UNK>, and good morning, everyone.
We're pleased to share with you the progress we're making at Eagle.
Our business outlook for the Company remains bright.
We're encouraged by the potential of our products to deliver solutions that address that life-threatening conditions and improve treatment outcomes, and look forward to some upcoming milestones that we expect will drive meaningful earnings growth.
Since we provided a thorough business update a few weeks ago, I'm going to keep my remarks brief on this call focusing on several key highlights for the quarter.
Then I will turn the call over to <UNK> to review our financial results for the first quarter of 2016.
During the quarter, Teva launched Bendeka, beginning the market conversion from Treanda.
Product did not ship until the end of January, so the launch was slightly delayed, but momentum is clearly picking up and we have a shared goal of 90% market share.
We'll talk a little bit more about market share in just a moment.
Our Docetaxel non-alcohol formulation launched in January, and contributed as expected.
This was our first quarter as a fully commercial organization with our own sales force.
And as a result, Ryanodex sales were up approximately 5% quarter over quarter, the message is getting out and we're beginning to see reorders.
As previously disclosed, we received a complete response letter for Kangio from FDA.
We have now met with FDA, and they are in dialog with the agency.
As soon as we have something tangible to share, we will let you know.
We also advanced our programs focused on Ryanodex label expansion opportunities.
We are encouraged by early clinical results and enthusiastic about the prospects for Ryanodex to be approved to potentially treat exertional heat stroke, as well as ecstasy and methamphetamine intoxication.
This was an active an important quarter for Eagle, largely due to the much-anticipated launch of Bendeka by our marketing part in the Teva Pharmaceuticals.
As Teva stated on its call this morning, it is fully committed to Bendeka.
Bendeka was launched at the end of January, and sales are now steadily advancing.
In Q1, Teva achieved net sales of $38 million for Bendeka, reflecting the timing of the launch.
We are seeing momentum, with estimated net sales for the month of April at $45 million, and an overall conversion to Bendeka as of the first week in May of approximately 71%.
We expect significant market share increases during this quarter.
In the critical hospital outpatient and clinic segments, which account for about 70% of Bendamustine sales market shares already reached approximately 77%.
Teva and Eagle have a joint goal of reaching 90% or greater share.
We believe Teva is committed to enabling Bendeka to reach its full market potential.
We're quite pleased with Teva's commitment to the product, and we are fully committed to supporting Teva in achieving those targets.
As Bendeka sales grow, we expect our 20% royalty from Teva on those sales will be an important earnings driver for Eagle Pharmaceuticals.
Teva and Eagle hold six patents in the orange book for Bendeka, extending from 2026 through 2033 with additional patents pending.
It is reasonable to believe that the market protection for Bendeka is likely to hold for many years to come.
Regarding the Delaware litigation involving generic challenges to Teva's Treanda patents, we are still waiting for a ruling from the court.
We're optimistic that there will be a favorable outcome for Teva, particularly since the claims that have been brought will have to be invalidated for generics to come to market.
Now let's turn to Ryanodex, a product which we believe has the potential for multiple additional clinical indications.
As you know, Ryanodex received first-cycle approval from FDA for treatment of malignant hyperthermia.
We have secured seven years of orphan drug exclusivity, have five patents issued, and two more filed.
The message about Ryanodex's effectiveness is spreading, and our sales force is focused on it.
Sales were up about 5% quarter over quarter, approaching the $2 million mark.
It is early in the quarter, but we continue to see momentum and expect additional growth.
We are waiting for comments from the FDA regarding Ryanodex for the treatment of exertional heat stroke, for which we've already been granted fast-track designation and the orphan-drug designation.
Our study at the [Haje] last year showed 122% increase in incremental improvement in the Glasgow coma scale at 90 minutes in the subset of non-intubated patients.
Substantiating that the use of Ryanodex drives the improvement of cognitive function, which is the critical CNS factor motivating Eagle to pursue these new indications, exertional heat stroke, ecstasy and methamphetamine intoxication.
We have the potential to be the first drug to market for the treatment of exertional heat stroke.
We look forward to updating you on the final meeting date with the FDA soon.
The National Institute on Drug Abuse, part of the National Institutes of Health, is preparing to undertake pre-clinical animal studies evaluating the use of Ryanodex in the treatment of ecstasy and methamphetamine intoxication, a potential additional indication.
Ecstasy and methamphetamine intoxication, which can result in life-threatening brain hypothermia, accounted for 125,000 emergency room visits in 2011.
Our intent is to file an IND related to ecstasy and methamphetamine intoxication, and ultimately meet the with the FDA.
Now I would like to ask our CFO, <UNK> <UNK>, to update you on our first-quarter financial results.
<UNK>.
Thank you, <UNK>.
For the first quarter of 2016, our revenue totaled $29.6 million, compared with $36.3 million in the first quarter of 2015.
The revenue mix consisted of product sales, royalty revenue, and license and other income.
As this is the first quarter we are recording Bendeka revenue, let me add some color about how we are accounting for the product.
In addition to royalty revenue, there are two components that we include in our income statement.
Bendeka is accounted for as part of both product sales and cost of revenue.
When we ship inventory to Teva\
Thank you <UNK>.
To sum up, we believe the outlook for Eagle Pharmaceuticals remains bright, with multiple upcoming growth drivers.
I realize there is a focus on the outcome of the generic litigation in Delaware, and rightfully so.
In event that the outcome is favorable, Eagle will be in a stronger position with strong earnings, significant cash, no debt, and a deep pipeline.
And importantly, a significant portion of our revenue will be coming from Bendeka, a branded exclusive product rather than from a generic marketplace.
We believe we're well-positioned to continue to build value.
Thank you for your support and for joining us this morning.
I am pleased to answer any questions you may have.
Thanks, <UNK>, for the question.
Appreciate it.
As you know, as of May 1, we have the contractual right to launch our big bag, the 500 milliliter bendamustine formulation.
We have not launched it, obviously.
There are a number of variables that influence the decision.
What we can say is that we are very focused on this, and will be updating everyone regarding our plans in the future, in the near future.
Yes, were there a number of variables that influence the decision, <UNK>.
As we said, we are focused and we're going to provide an update here in the near future.
But what I will say is Bendeka is being very well received by patients and physicians.
The feedback has really been very positive on how the shorter time infusion rate is being received by the people that are touching it and using it, which is great.
And you are right, we will have to focus on how that goes, what's going on with the litigation.
We have a public hearing coming up very shortly on the J-Code appeal.
And from our standpoint, we just need to look at all these variables and I think we will have an answer before too long.
Okay, so thanks, <UNK>.
Yes, I think that we want to stand by the guidance that we gave at the last conference call and also at this one.
So we would expect to see sales and marketing expenses at $18 million to $21 million, and G&A at $19 million to $21 million and R&D around $30 million for the year.
Right.
Yes, we would expect the royalty number to really be the bulk of what's reported there.
And cost of revenue to be approximately equal to product sales.
Thank you, <UNK>.
So first on the IPR, it appears, from our view, that the IPR is positive.
We have the first IPR coming out and positively for Teva, and the IPR, the patent office, not going further.
Remember the standard at the patent office is lower than the standard in the court.
So even though there is no direct influence on the court by the results of the IPR, we are certainly encouraged by the fact that in the first IPR we had a positive event on the 270 patent, which is a key patent here.
And in the second IPR proceeding, the key claims, claims one, three and five also went well for Teva.
And when you look at that and then combine that with the higher hurdle at the District Court of clear and convincing, which favors the innovator, we are optimistic that things will work out.
But obviously, there's no way to tell.
We will know in a few weeks, probably by early June, and we will just have to see how things unfold.
On the salesforce, we've certainly reduced the number of people that we have right now in terms of what we plan to hire because of the delay in Kangio.
And we have put our effort now behind Ryanodex, and it's having a pretty good impact.
If you look the last couple of quarters of Ryanodex, it's growing nicely.
As I stated my comments here earlier, that I realize it's early in Q2.
But we are seeing continued growth of Ryanodex to date, and so I think we're getting good use out of the salesforce.
We are making reasonable progress on the docetaxel launch, and we still hold out hope for Kangio.
We did meet with FDA, we are in dialog.
Let's see how that goes, and as soon as we have anything tangible there we will give everybody an update.
But business development is a focus.
We are commercial now, and we do have the salesforce between ourselves and Spectrum and it would be nice to be able to add more products.
We think we can add a few products into the infrastructure here at Eagle without adding much expense to the system.
We are looking.
We have not found anything yet that quite fits us, but we are aggressively reviewing opportunities and hopefully we will find some good fits.
We are open, <UNK>, to look at all opportunities.
The way we see things, the Delaware court case obviously is so important to us.
But in the favorable situation where there's a positive decision there, we find ourselves with a long number of years where we have really wonderful royalty coming in from Bendeka.
And the way we view that is, Bendeka is a branded product.
We are not subject to some of the issues going on in the generic environment, and that's a great place to be.
Add the pipeline that we have, it's not just the methamphetamine, the ecstasy and the exertional heat stroke coming out of Ryanodex, but it's the AMRI relationship, it's a couple of products that we have in our pipeline that we haven't fully spoken about,.
Remember we have the Pemetrexed, the Alimta filing later this year.
I think once we get past that court decision, we will step back.
We will look at Eagle and see how well poised we are, again, with cash and a pipeline and no debt, and obviously the clean balance sheet.
It gives us a lot of opportunity to acquire baskets of products or products.
Or quite frankly, <UNK>, we would be in a situation or maybe patients works where we would not be in a situation where we have to have increases to the pipeline or the portfolio through acquisitions.
So why don't we take it step-by-step and see, and leave it at the fact that we would love to be able to bring some more products into the salesforce.
Thank you, <UNK>.
So I will say, go down the road whenever it is that there are generics in the market.
Hopefully, later as opposed to sooner.
I think what we would find ourselves in a situation where we would have the two best products in the marketplace of three.
Now as I mentioned earlier, Bendeka is showing some very positive results early.
There's some, what we would call, safety data coming out that will be public here soon, that I think will add to everybody's enthusiasm about infusing bendamustine over 10 minutes.
And so we are reasonably optimistic with a commercial organization maintaining a large portion of the Bendeka market, even in the face of generic competition.
I think the longer number of years that Bendeka is out in the marketplace, so patients and physicians and nurses could enjoy and see the tangible benefits of the product, the better situation we will be in, in order to protect that share over time.
It's hard to predict how many people will ultimately enter that market, or when they would enter that market.
And certainly the price within the market is going to have an impact on the profitability of the product, but probably not the market share of the product and we will just have to see how things unfold.
And contractually, again, if there is no unique J-Code, if the situation stays the way it is, we have the right to terminate the relationship and take back Bendeka and also launch our big bag.
That's still an option for us that we are reviewing.
So what I will say here, <UNK>, is lots of variables, lots going on, but what we do know is Bendeka is the better product.
It has wonderful benefits.
Early on we are seeing that with the response from patients and from physicians, and it should maintain itself as probably the workhorse in the marketplace.
Yes, sure.
So we are ---+ the contract is obviously addresses the situation, and we are evaluating that situation on the exact timing now, <UNK>.
Keep in mind that we do have a preliminary ruling now, we are going to CMS hear shortly to argue our points.
We will see how that goes, and then in the fall there will be a final decision coming out of CMS.
You're welcome.
Okay, thank you, <UNK>.
Let's take it one at a time.
So of that $155 million or so that Teva reported, about $38 million of that was Bendeka, the rest was Treanda.
So we received our royalty on the Bendeka piece obviously.
And then what we did just state that the month of April, it looks like sales of Bendeka was about $45 million for the month, and we continue to see the ramp up hopefully in May and June as we end the ---+ at the quarter.
I don't recall specifically Teva's sales number, but I thought that their Q1 number was about 1% off of where their Q1 number was the previous year.
And there may be some seasonality, there may be an anomaly there and terms of what their Q1 sales are.
We don't know, but the range was similar to what it was in the first quarter of the previous year.
Thank you.
Thank you, everyone.
I appreciate the time everyone took today, the continued support of the Company, and we look forward to continuing to update everybody as future developments unfold.
Thank you very much.
| 2016_EGRX |
2015 | VIAB | VIAB
#Thank you, <UNK>.
Yes as far as ---+ look, we obviously are still only in the early part of the second month of the quarter.
But we ---+ and so we are not assuming immediate ratings improvement and giving our prognostications.
We are giving you our best guess and trying to be realistic about the quarter.
The reason that we have a view that we are going to resume ---+ to resume growth in advertising revenue in the full fiscal year next year is that obviously we had a tough year this year.
We have begun to expand the scale of our targeted advertising initiatives, Viacom Vantage, Viacom Velocity, we have added a lot of human resources to those efforts.
It was an important part of our upfront discussions with major advertisers.
And by the way, given the overall difficult nature of the upfront marketplace, which the overall television market was down in volume, we did well and came very, very close to the level of volume that we had last year notwithstanding what took place in the ratings.
We have a larger volume of signature original shows.
We have more events that we are ---+ event shows we are building, we have more scripted series.
These are higher value and we are increasing accordingly our ad revenues from significant advertisers who want to engage with those kinds of programs on our networks.
And again, our distributor partners are enhancing their own products and we are beginning to see some ramp up in things like dynamic ad insertion and video on demand.
I mentioned new products in the mobile arena also offer advertising opportunities.
So we feel that we are going to be able to climb back up as we add all those different factors in.
Well, there are several aspects to what I will call the measurement issue.
So we do expect to see ---+ we want to see more in the ratings that matter.
There is more and more delayed viewing of programming.
So obviously the live, same-day kind of ratings become less and less meaningful as we go forward.
And so, I think in terms of what is the currency today, the C3, there is a lot more viewing taking place in that 2 and 3 part.
Then there is also more viewing taking place beyond that and there is also viewing taking place on other platforms.
This is where our Viacom Vantage product, which we have now introduced in a major way with 10 of our largest advertisers in different sectors and we are going to add to that number, allow us different measurement metrics to complement the traditional ratings and therefore improve monetization.
What we found across our schedule is that we have better ratings on our prime dayparts.
Where there is significant weakness is in other dayparts where you have a lot of repeats, off-network syndication, this is true across television.
So ---+ and that is in part because there is a lot of choice on the part of viewers.
This is why strategically we are increasing the amount of original programming and a lot of it, as I mentioned, whether it is animation, whether it is serialized low-cost programming that we run across dayparts for example on Nickelodeon, we are working to improve the performance of those dayparts.
The original shows that we are launching, particularly when you add the other viewings taking place, measure fully up to what we were achieving on shows that aired over the last several years.
So a show like Bella and the Bulldogs is performing at the same kind of level when you add the ---+ there is delayed viewing on all the rest as iCarly did when it launched.
So this is a process that is not overnight day by day, but it is a continual adjustment which we are doing.
The personnel realignment and improvements that we are making are bearing fruit already.
There is ---+ we are accelerating ---+ accelerating is a word we use a lot here at Viacom.
So we are accelerating our efforts to speed up next seasons of shows that work.
Like the Teen Wolf example I gave you, we are accelerating the development and production of the kind of programming that works whether it is scripted series, animation, events.
We very recently had the second annual Kids Choice Sports Awards, which is a new event.
And it is a very successful and popular show with advertisers.
The BET experience also recently launched and continues to grow year after year.
So we will continue to look to add the kind of programming that works particularly well with the young audiences and the millennial audiences.
That includes on-air talent.
I am personally very excited about the potential of Trevor Noah on The Daily Show in reaching and bringing to that great show a younger average audience, which is a hard audience to reach.
We are ---+ if you want to get reach on young audiences, if you want to get kids, if you are a toy company, Nickelodeon is the place to be.
So we are being extremely proactive in taking all measures that are necessary to address the changing media landscape, and it is a changing media landscape.
I think we will come out on the other side in a much stronger place.
When I said we did very well in the upfront, we did very well in the kids upfront.
So one of the flipsides of our having challenging ratings on Nickelodeon is that some endemic advertisers who had thought that they could get into the scatter market to get into that hard eight to push some of their product found that they couldn't get in ---+ not because we didn't want them to come and but we had scarcity.
So we had a lot of scarcity in it.
So we ---+ some of these players came back in into the upfront marketplace.
So, we believe we have made adjustments, that is in answer to an earlier question.
That is why we have optimism that the situation on ad revenues will improve as we get into next year.
In part as the fruit of our labors in addressing the issues that we saw.
Yes, as I said, we successfully concluded ---+ you mentioned Charter, we successfully concluded our renewal with Charter.
We have a good strong relationship.
I assume it will be a growing relationship as the transaction of its progress continues.
And we talk about ---+ we have a common interest with our distributors.
Our common interest, as has existed before, is to work together to improve the value of the ecosystem to consumers.
Now there is work to be done there.
Charter is an example of a company that is being proactive in providing more video on demand, more availability of networks on multiple devices inside the home, outside the home.
As those initiatives come to fruition the value for the consumer will expand; the churn rate should improve.
So there is a very positive impact on having on the distribution side forward-looking operators who will build the ecosystem which benefits both sides, because the value of what they are offering consumers depends on the content.
And we and many of our competitors are continually increasing the value of the content, we are producing more original programming.
We are less reliant on old shows, 20, 30, 40-year-old shows.
We are providing fresh content that is going to be usable in more ways.
And so, we view all distributors as our partners and as we do renewals we discuss all these new services.
And we, as I said in some cases, we are full marketing partners with them in promoting our services but also the value of the overall product.
Operator, we have time for one more question.
Thank you, <UNK>.
As it relates to Channel 5, the deal that we have done with our partner, Sky UK, was a pre-existing [partnership] that involved our Cable Networks.
We did a very significant deal where we extended our affiliation agreements for multiple years and we work together and we ---+ and they will be handling our advertising inventory along with our Cable Networks.
That is a very positive step, as you know.
Channel 5 had some issues with one of the advertising agencies in the UK entering into the Sky UK deal, resolve that issue as we go forward.
So it was a very significant deal.
Channel 5 is proving to be a very important and successful strategic acquisition for us.
As I mentioned, it made us the second largest private media network company in the UK.
It gives us a lot of programming heft, which benefits us in the UK, but will also fuel a rapid expansion of our networks especially in Europe, as well as driving our consumer products business.
And of course it came with a lot of favorable financial attributes which lowered the effective purchase price.
As far as retransmission possibility down the road in the UK, I don't know what will happen there.
It is certainly not an immediate prospect.
It is not something we factored in in our acquisition plan, nor in our strategic plan.
And we will see where that goes.
We are not at all dependent on that in moving our overall UK business forward in a very positive way as it has.
We want to thank everyone for joining us for our earnings call.
| 2015_VIAB |
2017 | CLD | CLD
#Good afternoon.
Thank you for joining us.
With me today is <UNK> <UNK>, Cloud Peak Energy Inc.
's, President and Chief Executive Officer; <UNK> <UNK>, Chief Financial Officer; and Gary Rivenes, Chief Operating Officer.
Today's presentation may contain forward-looking statements regarding our outlook for our company and industry; financial and operational guidance; volumes, prices and demand; the regulatory and political environment; growth strategies; capital resources; and other statements that are not historical facts.
Actual results may differ materially because of various risks and uncertainties, including those described in the cautionary statement in today's earnings release and in our most recent Form 10-K and Forms 10-Q.
Today's presentation also includes non-GAAP financial measures.
Please refer to today's earnings release for the reconciliations and related disclosures.
Our earnings release is available on the Investor Relations section of our website at cloudpeakenergy.com.
I'll now turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
Good afternoon and thank you for taking the time to listen in to our Q1 2017 results call.
As <UNK> said, I'm joined by <UNK> and Gary.
After the drop in shipments we saw in Q1 last year, we were pleased to see shipments continue steadily through the first quarter.
We shipped 14 million tonnes as our customers took their contracted coal.
Unfortunately, while most of the country had a very mild winter, our shipments to Asian customers were limited to 500,000 tonnes by severe weather in the Pacific Northwest which impacted rail capacity.
In April, we've seen a marked improvement in export rail service.
Adjusted EBITDA of $20.4 million during the quarter was much better than last year when shipments were significantly below plan.
During the quarter, there was one report of medical injury at our Antelope Mine.
An employee required stitches after cutting his hand.
The one injury means our year-to-date All Injury Frequency Rate is 0.34.
There were 36 MSHA inspection days at our sites during the quarter with one significant and substantial citation issued.
There were no environmental citations at any of our sites during the quarter, and it is now over 3 years since our last environmental citation.
The operations ran well during the quarter, as we shipped our planned amount of coal.
To put this in context, last year we had contracted 65 million tonnes going into the year, but were shipping at a 51 million tonne rate at the end of Q1.
This year we've contracted 56 million tonnes but are currently shipping at a 58 million tonne rate.
Shipping at our planned rate helps operational efficiency greatly.
The cost reduction measures we put in place last year allowed us to keep our cost below $10 per tonne during the quarter.
We continue to increase our operating efficiency and improve our maintenance practice to help offset rising strip ratios and haul distances.
I continue to be impressed by the ability of our employees to find ways to improve our operation safety and efficiency.
The new administration has clearly brought a completely different approach to the fossil fuel industry and coal in particular.
Immediate actions such as those to halt the Stream Protection Rule, lift the moratorium on federal coal leasing and suspend the change to coal valuations are most welcome after years of anti-coal regulations.
While the immediate relief from new and pending rules is very important, we need to work with the administration to establish a framework where coal can have a stable, long-term future.
The first goal will be to establish an environment where utilities have the regulatory certainty they need to stop closing coal plants and then to consider building new ones.
Given the long-term nature of such decisions, achieving this will not be easy.
Reducing the massive subsidies to renewables and switching some portion to develop advanced coal technologies such as carbon capture and storage would also be a great first step.
I'll now hand over to <UNK> to run through the financials before returning to cover the outlook.
Thank you, <UNK>.
In contrast with the first quarter of last year, this year has started with customers taking their contracted coal.
In Q1, we shipped 14 million tonnes, which is 1 million tonnes greater than the first quarter of 2016.
This higher volume as well as the continuing effect of our prior year cost control efforts, supported our first quarter cost per tonne of $9.78.
This is a $1.37 per tonne improvement as compared to the cost per tonne in the first quarter of 2016.
With our realized price per tonne of $12.10 during the period we were able to record a first quarter cash margin of $2.32 per tonne.
And our owned and operated mine segment generated adjusted EBITDA of $33.7 million.
We also shipped 0.5 million export tonnes during the first quarter.
As this was fewer tonnes shipped in the period than we had contracted, we incurred a negative impact from the quarterly rail and port payments charged during the period.
We also incurred higher demurrage expense because of the adverse weather conditions for rail shipments.
The Logistics segment adjusted EBITDA loss was $2.6 million for the period.
While this compares favorably to the prior year loss of $6.9 million, it is not indicative of the expected full year results.
We continue to expect full year export volumes of approximately 5 million tonnes and positive full year segment adjusted EBITD<UNK>
SG&A costs were $10.7 million for the period, which is $3 million lower than the first quarter of 2016.
This continues to show the impact of our work to reduce labor and benefit cost across the company.
Our consolidated adjusted EBITDA for the first quarter was $20.4 million as compared to the $1.3 million adjusted EBITDA loss reported for the first quarter of 2016.
We ended the first quarter with $100.5 million in cash.
Our total available liquidity at March 31, was approximately $455 million, which is the aggregate amount of our cash balance and available borrowing capacity on our credit agreement and our AR securitization program.
Throughout 2016 and early 2017, we made considerable progress improving our financial position.
We exited reclamation self-bonding and reduced total reclamation bonding by over $190 million.
We completed an exchange offer on our senior notes that reduced our debt by over $90 million.
We renegotiated our throughput contracts with Westshore and BNSF that removed over $480 million of contractual commitments, while retaining the access to ship to our seaborne thermal coal customers.
In continuation of those efforts, during the first quarter we issued 13.5 million shares of common stock for net proceeds of $64.7 million.
The equity proceeds allowed us to retire the remaining 2019 senior notes for $64.5 million.
The combined transactions have reduced our outstanding debt by over $150 million and we now have no debt maturities until 2021.
As we look forward, we are able to reaffirm our range of 55 million to 60 million tonnes of shipments for 2017.
Even with the challenging ramp up and weather interruptions to our export business, we continue to anticipate exporting approximately 5 million tonnes during 2017.
As we explained during our February call, reaching the top of our adjusted EBTIDA range would require an increase in the price of our export sales from then prevailing levels.
As this has not yet occurred and to reflect sales during the quarter, we are lowering the top end of our adjusted EBITDA guidance range by $10 million.
Our 2017 adjusted EBITDA guidance range is between $80 million and $110 million.
The midpoint of our adjusted EBITDA range does assume some improvement on export prices for the remaining unpriced export volumes or some incremental in-year domestic sales.
With the focus on necessary capital repairs to maintain the health of our equipment, along with anticipated land purchases, the guidance range for capital expenditures remains between $20 million and $30 million.
Depreciation, depletion and amortization expense is expected to be between $70 million and $80 million for the year.
And cash interest for 2017 as updated for the impact of the 2019 bond retirement, will be approximately $45 million.
With that, I will hand the conversation back to <UNK>.
Thank you, <UNK>.
I'll now cover the international outlook before moving to domestic.
Since mid-2016 we have seen international coal prices rise rapidly, largely driven by increased Chinese imports and then retreat, before Cyclone Debbie disrupted Australian coal exports in late March.
The main impact of the cyclone appears to be in a disruption to the rail infrastructure that served met coal mines in Queensland.
The supply disruption pushed up met coal prices sharply and helped firm thermal coal pricing.
Even as the rail lines come back into service, I think the full impact of the cyclone will not be clear for some months.
Overall, any reduction in supply should help all pricing.
We are encouraged by the 7% electricity demand growth in China, their reduced domestic production and the large increase in Chinese thermal coal imports since last year.
Our coal mainly competes with Indonesian suppliers of subbituminous coal who have not had any major supply disruptions recently.
However, our Asian customers continue to tell us that Indonesian coal quality is deteriorating and quite variable from ship to ship.
Cyclone Debbie also reinforced to many of our customers the benefits of having a diverse supply base.
Given this background, we are continuing to receive strong interest from our Asian utility customers.
We've currently contracted 3.3 million tonnes to deliver in 2017, and are planning to export 5 million tonnes for the full year.
To reach 5 million tonnes, we will need to see the recent improvement in rail service continue for the rest of the year.
As I'm sure you're aware, yesterday Premier Clark of British Columbia sent a letter to Canadian Prime Minister Trudeau urging him to ban US coal export through British Columbia in response to US duties on Canadian softwood lumber.
We value our Canadian trading partners and hope the decision makers will act in the best interest of all involved.
And we will continue to monitor any further developments.
On the domestic front, it is encouraging that utilities are taking their contracted coal after a second extremely mild winter.
The impact of $3 gas prices on PRB coal burn is clearly shown by PRB coal burn being up 16% in Q1 this year compared to last year when gas was below $2, even with a milder winter.
PRB stockpiles of 82 million tonnes do remain at elevated levels after the mild winter, though they are down from 97 million tonnes last year.
While there was very little buying going on in Q1, we have recently seen an increase in RFPs as utilities look to contract coal for the second half of the year.
We are currently contracted to sell 56 million tonnes this year.
Of this committed production, 55 million tonnes are in the fixed price contracts with a weighted average price of $12.19 per tonne.
The 2 million tonnes we contracted or priced since our last call were at a weighted average price of $11.39 per tonne, reflecting the mix of 88 and 8400 coal and prevailing prices.
Currently we've contracted 29 million tonnes to delivery in 2018.
And of this committed production, 27 million tonnes are under fixed price contracts with a weighted average price of $12.51.
To sum up before we take your questions.
2017 appears to be playing out as we planned, with customers taking their contracted coal.
It would appear that the large drop in domestic demand we have seen in recent years has leveled off, as coal plant closures have slowed and gas prices increased.
We are currently expecting coal production to remain relatively flat this year, though a hot summer could cause an increase in second half demand.
Our exports are picking up after a slow start due to weather-related rail delays.
We continue to see strong interest from Asian customers who want to take all the coal we can get to the port.
While we would like international prices to be a bit higher, we are encouraged by strong import growth into China this year.
With that, we can now take your questions.
So just to refresh, when we talked in February at the earnings call, we talked about 5 million tonnes at about a $5 margin.
And we only shipped 500,000 tonnes.
We still are reaffirming the 5 million tonnes, though.
Clearly, the margins we incurred some loss there.
So if you back into maybe a range of expected results of backing off, we came down $10 million off the high end of the range.
But if you attribute maybe some of ---+ it's a component of that.
So if we were $25 million at February and with the tonnes that we priced at prevailing prices, we're probably saying it's in the $15 million to $20 million range of contribution coming from Logistics.
So we'd need $5 million to $7 million a quarter going forward.
I think really, <UNK>, it's probably about 24 hours since the letter went out, it really is too early to give any specifics.
So I'm sorry, we don't have any further comments other than say obviously we're very watchful.
I think really, <UNK>, the impact was that we only shipped 0.5 million tonnes and, therefore, that ---+ and we also incurred some demurrage.
So it's all in there.
I think <UNK>'s guidance that we expect it to maybe come out to $15 million to $20 million for the full year.
Hopefully we'll get some of the prepayments on some of the shipments back.
We have seen a marked improvement in April.
I think we might have loaded 4 ships already, so that's great to see.
And I think to go into the specifics any further really is just going to get us all confused.
No, no.
If we carry on, on the rate we're going in April, we'll be comfortably there.
And, no, it's looking good.
There was some very bad weather in the Pacific Northwest even while the rest of us had this extraordinary mild winter.
So we've been very pleased with the way things have stepped up in April.
And as we said in the remarks, as long as we continue at that pace, then we're comfortable that the rail import system can handle 5 million tonnes.
Okay.
Well, I think if you actually go back over our comments over the last few years, in terms of the development of the Spring Creek Complex, which is obviously our big export ---+ or our big opportunity, we've been pointing out more and more that we see the domestic market for that coal, which we've been talking to customers about and developing.
So obviously exports are important to us.
We want to develop the 5 million.
But whatever you do, don't ---+ well, first of all, certainly I'm very optimistic that we will continue to be able to export, as we are at the moment, and that there is also a domestic market for those development projects, particularly because of the cost of leasing high quality reserves in the Southern Powder River Basin and as existing reserves run down.
So, yes, don't get ahead of yourself on the potential impact on the Spring Creek Complex.
Yes.
So we've sold ---+ well, contracted 27 million tonnes with ---+ sorry.
We've contracted total of 29 million, of which 27 million are the fixed price of 12 ---+ weighted fixed average price of $12.51.
Absolutely.
And, Luke, you can see that it's roughly at the, you know, roundabout the way the OTC's been bouncing around in that quarter.
As normal, our contracting is not too far away from where the OTC is.
Well, I think we should acknowledge that obviously Canada exports a lot of coal out through Vancouver through the Neptune and the Westshore terminal.
US coal is only a small, maybe ---+ I'm not sure exactly what percentage.
I'll say 20% of that.
We believe, as we saw the response from Westshore to the Premier's letter that it's valuable business, it's important, and supports a lot of economic wealth and jobs in Vancouver.
So we think it is important.
We also think that Canada is a minerals resource-based company and so certainly [plan to export].
There's no indication to me that there's a want of ban of coal exports.
It was more specific than that.
And I think that that's the important thing I took from that.
And hopefully that's why it will be possible to resolve the actual issue.
And of course there's a lot of things going on at the moment between the US and Canada; this is one small part of it.
So hopefully it'll all move forward.
And the thing I'd say is it was only 24 hours ago and our ships are still going.
So we've seen no impact yet.
Let's see how this plays out.
Well, I'd say there was two things, actually, that he said on the guidance.
One is we'd like a few more bucks on the export coal or a few more domestic tonnes.
And I think we haven't seen the increase in the thermal, maybe the Indonesian pricing that we generally sell against, which has been a pretty decent level, but we'd like a few bucks more on that.
There's still plenty of time for that to play out.
And I think as we said, the increase in Chinese imports has really been quite large this year.
So I think there's still plenty of time for that to play out in terms of pricing for that coal, for the Indonesian coal that we sell against; so I think there's opportunity there.
But compared to 3 months ago, I'm more optimistic that we'll sell additional tonnes in year.
I'm not sure what price they'll be at, but I think domestically if there's any sort of summer, then it does appear that with gas staying above $3, the people are burning the PRB coal and they're starting to get interested in buying a bit more.
So I think there's those two levers to get us further up the guidance range.
But obviously we'd like both to occur.
I'm sorry, we can't go into that.
It would, as I'm sure you [can work out], it would depend on an awful lot of maybes on exactly how something happened.
At the moment, we're planning to export that coal.
We've got it contracted and we're going to continue contracting other coal.
As I said ---+ well, if you read the letter, it was a request.
It wasn't actually ---+ and we don't know of any trains that have been turned back at the border yet.
So I think we've got a long way for this one to run.
Thanks for the question, <UNK>, and thank you very much for the kind comments about the way we managed to sort of navigate this pretty tough time for the coal industry.
So thank you for that.
In terms of as we look going forward, I think it's 2 things that strike me.
One is, at $3 gas, PRB goal is being burned by our customers and it sort of ---+ so that's where I talked about the leveling off in the rapid decrease we've seen.
We've seen lots of plant closures.
We've seen them slow up.
And now we've actually seen at $3 gas, that people are burning a lot of coal.
It will bounce around, I think, the actual demand from year-to-year depending on gas prices and weather and how they interplay, and obviously demand, industrial demand and GDP.
But and so I think it's, as we look forward at the moment, it looks a lot better than the last 4 or 5 years of just demand being driven down, which has been very, very tough for us to handle.
So I think there might be some stability appearing.
Within that, at the moment I think pricing for the coal doesn't actually determine its value against $3 gas, but rather the fact that there is overcapacity in the basin.
I don't know when that overcapacity will be used up.
But I know that pretty soon, if we're an example, then if we want to increase production, we either have to go into high strip ratio areas or take on more employees.
And once we actually have to look at those decisions, then we actually we're going to need incentive pricing to make it worthwhile doing that.
And we're also using up reserves.
So as you look at those things, I think there will come a point, hopefully soon, when the price will go up because we'll get off the sort of cost basin and look more at the price we need to actually make sure it's viable to mine the next tonne.
And hopefully we're moving towards that.
As that happens, then we'll find out where the true value of the coal is against $3 gas.
Obviously, gas above $3 is good.
If you really believe it's down at $2, we saw what happened long term at $2, then we saw what happened last year when people burned a lot more gas.
But I think all the indications are that many drillers need $3 gas to make money.
So that gives me some comfort.
In terms of the further on possible consolidation, M&A, then I'm sure you understand I can't talk about or speculate about any of the specifics.
I absolutely understand where you're coming from, and that if you look at a large fixed cost heavy capital business that's going through some structural changes where demand is being driven down to a new level, then you'd expect there to be economic drivers consolidation.
And I would absolutely agree I see those.
How something might play out, obviously, I'm not able to comment on, though.
Obviously, I think anyone who looks at the business can see what you're seeing in terms of potential efficiency.
So I think we'll have to wait and see.
But the first thing is, if you look at the Powder River Basin now, we've actually got producers who have come out of Chapter 11, we've got maybe a floor on demand, we've got gas settling out.
So we're in a whole lot better shape than we were for the last year or 2 years.
So I think with those things, we can actually now all start looking forward and looking to what might be the next rational moves in terms of increasing the economics and productivity of the basin.
But I think the important thing is that people are burning the PRB coal and we've got a stable business as we go forward.
Well, thank you very much for your interest in Cloud Peak Energy Inc.
Obviously, we'll look forward to see how the summer plays out and to talking to you in July when we do our Q2 call.
So with that, we'll leave it there.
Thanks.
| 2017_CLD |
2016 | FAF | FAF
#Thank you.
| 2016_FAF |
2018 | CNSL | CNSL
#Thank you, <UNK>, and good morning, everyone, and thank you for joining Consolidated Communications first quarter call.
We've had a busy start to 2018.
Our plan and strategy of investing and expanding our fiber network is working, as we upgrade broadband speeds and enhanced product offerings, bringing more robust solutions to our customers.
As examples of our execution, I'd like to begin by highlighting progress within our 3 customer channels.
First, within commercial and carrier channels, we have grown data in transport revenues 1.4% year-over-year.
This was driven by a 4.5% growth in legacy Consolidated business, which is partially offset by declines within the FairPoint markets.
We are demonstrating continued success in our legacy markets and are excited by the opportunity we see within the FairPoint markets as we execute on our proven playbook of investment and growth in data and transport revenues.
The commercial channel closed a number of strategic sales during the past quarter, including a 31 site library system in Minnesota and major land installation for a large non-profit in Maine, in several governmental, finance and educational deals across our combined footprint.
These sales represent sizable monthly recurring revenues and contribute to revenue growth in Ethernet, cloud voice, and managed services.
In addition, we further enhanced our sales execution plans by completing the roll-out and training of our consultated value-based sales approach in all of our newly acquired FairPoint markets.
This is an important step to position ourselves for future sales performance, and we are making good progress.
As an example, our Metro Ethernet revenue on a combined basis has increased 7% year-over-year.
This quarter in our small business channel, we launched a new data and voice solution which we brand as BusinessOne.
The BusinessOne product bundles are specifically designed to meet the needs of small and medium-sized businesses giving them options and flexibility for the voice and data services at competitive rates.
We're very excited about this new offering, which is generating solid customer interest.
We remain focused on retaining revenue and solving business problems for new and existing customers.
We continue to expand and enhance our commercial products and services.
This week, we announced the launch of SD-WAN, the technology that provides simplified management and automation of WAN connections.
SD-WAN is an emerging technology that offers businesses more flexibility in connecting to critical branch operations and the central cloud services, as well as optimize network performance by traffic prioritization.
We also expanded our security offering by launching our distributed denial of service mitigation solution known as DDoS.
We all know how critical network security, monitoring and detection is to businesses, and our DDoS solution ensures that during cyber attacks, legitimate traffic is still able to reach a customers network, protecting their up-time and mitigating the risks associated with malicious attacks.
Customers are excited about the many benefits we can offer them with these solutions.
Consolidated offers a comprehensive approach to network connectivity, managed IT services, security and an expanded suite of cloud services that solve business challenges for our customers and allows us to differentiate ourselves from our competitors.
Now turning to the carrier channel.
We have fully integrated the FairPoint carrier sales team and are excited about the depth of experience and strong business relationships within this combined team.
We see continued opportunities for new sales and capacity upgrades, which will help us to offset remaining price compression.
Our carrier team had a strong first quarter, selling 235 new fiber connections for wireless carriers compared to 181 new connections sold during all of 2017, with the majority of these in the first quarter coming from our northern New England markets.
These new sales increased our total number of wireless transport connections to 3,640 under contract as of the end of first quarter March 31, which is a 13% increase.
Turning now to consumer.
Our legacy Consolidated network enables us to deliver speeds of 50 meg or higher to almost 90% of broadband-capable homes.
The higher speed availability drives higher adoption of OTT services and increases consumer ARPU.
We expect to see similar impacts in the former FairPoint markets, as we complete our fast start initiatives.
We have been a leading provider with our premier over-the-top content offerings.
We announced key partnerships with OTT providers as an extension of our broadband strategy, and while our DirecTV partnership is just beginning, we expect to see marketing traction drive adoption.
Our strategy to use over-the-top to drive faster speeds through an optimized home experience is showing early success.
Over-the-top customers, who also purchased broadband, subscribe to a data package 50% faster than our network average.
Our consumer strategy is to secure the data connection into the home, provide competitive speeds, introduce over-the-top content and other ancillary services, while increasing ARPU.
I will now provide a more specific update on our FairPoint related activities.
I'm pleased to report progress on our planned strategy of investing in and expanding on the legacy FairPoint fiber network.
In February, we announced our plans to complete broadband speed increases for 500,000 resident and small businesses across our northern New England service areas.
To date, we have already upgraded 62,000 locations or were 12% toward our target and on schedule to complete these upgrades by year-end as planned.
As a reminder, these upgrades will nearly triple the broadband speeds available to most of these locations.
We continue to make great progress with our fast start integration initiatives including implementing payment process enhancements offering improved options, enhancing real-time payment capabilities for our customers.
Self-service payments made up more than [50%] of all live payment transactions, which were previously handled by our call center, and this happened in the first 60 days after deployment.
Also we have implemented CCI standard call management platforms for the non-northern New England legacy FairPoint market, streamlining customer contact methods and allowing for more efficient call handling.
We're proving the customer experience and gaining operational efficiencies as we remain focused on achieving our synergy target of $55 million within 2 years of closing.
As of the end of the first quarter, we have recognized over [$38 million] in cumulative run-rate synergies, which is ahead of our original plan.
We continue with our disciplined and proven approach to integration.
I'm proud to announce, we declared our [52] consecutive quarterly dividend this week, and are in a great position to support our dividend.
We will continue to focus on delivering broadband growth across our commercial, carrier and consumer customer groups.
Now I'll turn the call over to Steve for the financial review.
Steve.
Thanks, Bob, and good morning to everyone.
As Bob outlined in his comments, we had a very productive first quarter, and based on our results we are off to the strong start for 2018.
Today, I'll review our first quarter financial results compared to the pro forma results for the same quarter last year, as if we've [done] FairPoint on January 1, 2017.
I'll also provide a brief overview on our 2018 guidance.
Operating revenues for the first quarter were $356 million, down 4.3% from $371.8 million last year.
As expected, the vast majority of the year-over-year decline, almost [90%] continues to come from the pressure on voice and access revenues.
As we will talk more about in a moment, we are pleased with the net growth in data and transport revenue from the commercial and carrier channel.
Additionally, in the quarter we recognized $4.9 million in revenue in Local Switching Support based on our recent FCC order.
This will have a recurring impact of approximately $1 million per quarter.
Now let's look at each one of our customer channels.
In the first quarter, commercial and carrier revenue decreased $3.4 million or 2.2%.
The primary driver of the decline was voice services revenue being down 7.4% with 75% of that coming from FairPoint.
For the second consecutive quarter, we are reporting net growth in data and transport, as the strategic revenues increased $1.2 million or 1.4%.
As Bob mentioned, legacy CCI data in transport service grew 4.5%, while FairPoint decreased 3.3%.
The FairPoint decline is largely attributable to price compression and pricing step downs associated with 2 large contracts.
It is our view that this price compression continues to slow in our fast start initiatives gain momentum, we expect the FairPoint commercial and data revenue to stabilize and return to grow.
Our expanded cloud and MPLS services generated year-over-year revenue growth, and we are in plan to launch this products ---+ in the FairPoint markets in 2018.
These are in addition to the SD-WAN and DDoS products, we have already launched across all of our markets in 2018.
Other commercial revenue declined [375,000] due to the timing of revenue recognition for equipment sales and special projects.
Consumer revenue was down $7.6 million for the quarter, voice revenues were down $6 million with a majority of the decline coming from FairPoint.
In the aggregate, consumer broadband increased slightly in the first quarter.
We expect to see improvement in the second quarter consumer revenue trends, as winter seasonality starts to normalize, and we start seeing the early benefits from our fast start initiatives.
Video revenues for the quarter declined $1.9 million, as compared to the same quarter of 2017.
We expect this trend to continue as we encourage our customers to transition from linear video products to over-the-top streaming content ---+ video content, which complements our broadband strategies.
And as a reminder since video is such a low-margin product, the change in revenue mix is accretive to margins and free cash flow.
Transitioning the subsidy revenue, the FCC recently approved our petition to allow recovery of Local Switching Support, that had been (inaudible) subtracted from our intercarrier compensation.
During May, we expect to receive a cash payment of up to $13.3 million for LSS support for the period from January 1, 2015, through March 31, 2018.
In the quarter, we recognize $4.9 million of revenue from this settlement, and the remaining $8.4 million will be an offset to accounts receivable recorded with the purchase accounting for the FairPoint acquisition.
Our ongoing annual recovery of LSS associated with the petition will be approximately $4 million per year.
Operating expenses, exclusive of depreciation and amortization $239.3 million, compared to $255.3 million for the same quarter last year.
The $16 million improvement in expenses is primarily result of synergy realization from corporate, network and operational efficiencies associated with the FairPoint merger.
In addition, expense trends benefited by approximately $3 million from the change in the treatment of [sales] acquisition cost in accordance with the new ASC 606 revenue recognition guidance.
Offsetting these declines were $3 million in storm recovery and weather-related expenses incurred from the multiple [northern] New England markets during the first 3 months of 2018.
Net interest expense for the quarter was $32.7 million, compared to $28.5 million pro forma interest expense for the first quarter of 2017.
Interest expense increased primarily due to increases in LIBOR, and for the additional non-cash interest costs associated with the new hedge agreement we executed during the first quarter that increased our percentage of fixed debt to approximately 75%.
Other income, net increase $4.5 million to $8.4 million, primarily due to our pro rata share of increased earnings from our ownership interest in the 5 partnerships with Verizon wireless.
In the quarter, we received cash distributions from these partnerships of $9.5 million, as compared to $5.6 million a year ago.
Our first quarter 2018 distribution includes the prior year [tariff] of $2.4 million associated with the accounting for prepaid data roaming.
We expect second quarter distributions to be at least in line with the $9.5 million received in the first quarter.
Adjusted EBITDA was up 5.1% to $135.1 million in the first quarter.
The year-over-year increase is primarily due to synergy realization, growth and strategic revenues, as well as the increases in wireless distributions and recognition of the LSS (inaudible).
EBITDA growth was diluted due to loss in high margin voice and regulated revenues.
In the first quarter, CapEx was $60.8 million or 17% of revenue.
From a liquidity standpoint, we ended the quarter with approximately $11.1 million in cash on hand and $88 million available under our revolver.
For the first quarter, our total net leverage ratio on a pro forma basis was 4.31, after adjusting for full ---+ our full synergy target, the net leverage ratio would have been approximately 4.1.
We do have an attractive capital structure, a low cost of debt and no maturities until 2022.
Cash available to pay dividends was $44.3 million, resulting in a strong dividend payout ratio of 61.9% for the quarter, as compared to 80.5% in the first quarter of 2017.
Today, we are affirming our 2018 guidance, which was provided at the time of our fourth quarter earnings call.
To recap, we expect cash interest costs to be in the range of $123 million to $128 million.
And we expect capital expenditures to be in the range of $235 million to $245 million.
Cash income taxes are expected to be less than $3 million.
And as a reminder, based on our NOL position and taking effect through recently enacted tax form legislation, we do not expect to be a federal cash tax and compare until 2022.
With that, I'll now turn the call back over to Bob, for closing remarks.
Thank you, Steve.
In summary, we are recognizing the financial, operational and capital structure benefits of the merger.
We remain confident in our plan and strategy to invest in our network, deliver results and return value to our shareholders through a longstanding dividend, and the integration is progressing quite well.
Thank you for taking the time to join our call today, and we'll now take questions.
Operator.
Yes, Mike.
Good morning.
Regarding SD-WAN, with the portfolio of markets we operate, and on product set, we see SD-WAN being not a competing product, but more a complementary product to our other offerings.
With its software-based nature, the market need that it's feeling for us is for multi-location customers, who have mixed technology environment, and therefore are not easily serve today.
So what SD-WAN is doing for us is it's allowing us more ways to win with our customers connecting locations that weren't previously part of their wide area network to importing cloud products or their host [offices].
So simply it gives us more ways to win.
With regards to the competitive landscape, the most active cable competition is beyond consumers in the small business space, and we provide a better secure bandwidth alternative, we believed in the cable ---+ and while they continue to be active in that space, we continue to be ---+ very effective in keeping our fair share.
And so, the speed increases we're investing in, the BusinessOne product, that's well positioned to make a hosted voice and data package easier for small business to digest and for us to implement.
It's getting great traction, and so we feel very well equipped to compete with the consistent competition we've seen in that space.
Yes, it is early, <UNK>.
What I can say is the increase in order activity is hitting new records in the northern New England property especially, upstate New York is with the direct builds also seeing some early traction.
So ---+ well, it's too early.
I would tell you that we processed a record number over 7,000 speed upgrades in the first quarter, and 40% of those alone were coming from the FairPoint ---+ former FairPoint markets, primarily northern New England.
So that's a good indicator.
And you know there's a lag to gain of installments in the revenue hit, and in the 60,000 to 67,000 that we brought online came in later in the first quarter.
So as you can imagine order volumes heavy, and it's nice to have that problem, and we're going to keep finishing the upgrade projects and feel real optimistic.
No.
I have to say that we've completed with aggressive, and even some smaller cable competitors that could move fairly quickly for years, and it's a constant focus on a market-by-market basis, which allows our portfolio markets to serve us well.
I would say specifically, not all bandwidth is created equal, and we all know that there is a desire to push people to higher speeds, because it helps ARPU, but actual utilization is what we guide through our consultative sales approach in our call centers by asking customers how many IP-enabled devices they have, and reinforce giving them the bandwidth amount that they need, and that's why our 50 meg product is growing so strongly.
So we feel very well equipped, our dedicated port, oriented bandwidth allows us to compete quite effectively, and the QoS that prioritizes traffic inside our bandwidth for real-time applications like Skype and FaceTime and things like that being higher in stack, allows us to ride a quality experience.
So if you look at our legacy Consolidated markets, we've been able to realize great penetration, and we see the same opportunity in the legacy FairPoint markets.
Sure, <UNK>.
Thanks for the question.
That's capital allocation, best use of cash is something that we continuously talk about between Bob and I, and with our Board and that certainly, I mean, we're preserving all options on the best use of cash.
But I think for right now the way we're thinking about it is that we're going through a period of heavy integration, we just acquired a company, we're doubling in size.
So we're very focused on the investment to make sure we're successful on the integration path and extracting all the synergies at least up to the $55 million level, if not more.
We're also investing into the fast start initiatives that are involved in our 17% investment in the business, and we're focused on execution.
We will continue to evaluate all options in terms of the best use of cash, and we will see where we go from there.
Good morning, Alex.
We're doing some very targeted marketing.
Two things; one, let me back up, February 20, we did the brand launch, and that created a wave of activity and generated call volume in just curiosity, for what things might change for customers, and so that's been great for the commercial teams, it's created an uplift there, and it's certainly have been good for the consumer marketing effort.
And fortunately, we've been pressing that upgrade process with the amount of sites we brought on already.
But in terms of additional marketing, we're being very measured and specific [on a buy] almost neighborhood area, our basis, as we upgrade nodes, we're going specifically after those streets and neighborhoods to get a lift there, and also doing that to help the ops team to keep up with order [volume].
So it's a nice problem to have, but it's natural that we're working through that process of more workload and doing in a measured way, so we can have a good install experience for the customer.
Three parts to that, to the first part, it's really both.
It's a bit of going through the transaction towards the middle of July last year.
There was an emphasis in the FairPoint management to appropriately focused on shoring up the FairPoint ILEC territories.
And we're more interested in expanding the facilities.
And so we'll invest in projects that even extend beyond the FairPoint legacy ILEC boundaries.
And so bottom line is, there is some opportunity that we're willing to fund that the former management process didn't support, which certainly invigorates the sales team.
And second, carriers are starting to spend again, they're letting more projects, the bids that we were getting, they were more research oriented turned into proposals that get signed, and so the volumes picked up.
So we see it across both the legacy FairPoint markets and the legacy Consolidated markets, but certainly the opportunity, pent-up demand opportunity was bigger on the FairPoint side.
What did I miss.
Yes.
We're doing more on ---+ a future proofing, if we will, it allows them to grow into higher speed, that's good for them, and it's good for us, because it secures a longer-term arrangement and gives them a path to increasing speed as their demand in traffic [wants it].
So thanks for the question, <UNK>.
So you're absolutely right.
We are off to a very fast start with the Verizon settlements.
Part of that is due to their internal change on how they're accounting for prepaid roaming, we are benefiting from that.
So part of first quarter and second quarter is kind of catching up with their internal process changes.
So I think, in the past, we've said for this year expect kind of 30 to 32, I think what, again, we don't have ---+ based on the information that we have to date with our conversations with Verizon being on the partnership boards, we would probably change our guidance to 33 to 35 for the full year, but again, that's ---+ a little bit of hesitation, because with your comment on 5G and their build outs, we don't miss, again, based on what we know today, we don't expect that to have a huge change ---+ huge impact in 2018 on us directly.
But again, we are limited partnerships, we're happy to cash the checks as they come to us on those distributions.
Well, I think, <UNK>, as we talked about in the past, we've seen that price compression through the beginning or late '16 through '17, and really, since we've done our first small cell implementations, we've been doing a hybrid dark fiber fronthaul, and service backhaul type just as an example, implementation.
So there's going to be more mix in those solutions, but they're starting in the more urban or densely populated areas, and we think we're in a good position to help enable that in our size markets, and we're working hard on create solutions to be in front of their need and offer proposals to the wireless guys.
So we see this as a net uptick and opportunity for us, and we're all over business development activities to figure out how we maximize it for both them and us.
Great.
Well, I appreciate you all joining us for our first quarter 2018 results, and we look forward to updating you on our second quarter financial results next time.
Have a great day, and thanks for joining us.
| 2018_CNSL |
2018 | WOR | WOR
#Thank you, Shaun.
Good afternoon.
Welcome to our third quarter earnings call.
Certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act.
These statements are subject to risks and uncertainties and could cause the actual results to differ from those suggested.
We issued our earnings release this morning.
Please refer to it for more detail on those factors that could cause actual results to differ materially.
We are recording this call, and it will be made available later on our website.
On our call today, President and COO, <UNK> <UNK>; and Executive Vice President and CFO, Andy <UNK>.
Andy will start things off.
Thanks, Cathy, and good afternoon, everyone.
The company delivered another solid quarter with earnings per share of $0.61, excluding restructuring and the impact of the new tax law, up $0.04 or 7% from the prior year.
We saw improvement in Steel Processing and Pressure Cylinders and modest declines in Engineered Cabs and the joint ventures.
Strength in agriculture and heavy truck helped steel, while Cylinders benefited from the colder winter and hurricane relief efforts.
Unique items in the third quarter were as follows.
Inventory holding gains were $800,000 or $0.01 per share as compared to a loss of $3 million or $0.03 per share in the prior year quarter.
Pressure Cylinders had one-time charges of $3.6 million during the quarter, primarily in our Oil and Gas and Alt Fuels businesses from obsolete inventory and a legal settlement from a prior acquisition.
While our tax rate for the quarter was negative, our current expected annual effective tax rate for the year is 10.3%.
We had several one-time charges that impacted our tax rate this quarter that totaled $41.2 million or $0.66 per share.
$40.6 million was the reduction in our deferred tax liability, and $7.3 million was the impact of the lower tax rate on current year-to-date earnings.
These 2 benefits were partially offset by a $6.7 million transition tax on foreign earnings.
As we mentioned previously, our annual tax rate for fiscal 2019 is expected to be 24%.
Cylinders operating income, excluding restructuring, was up $6.4 million or 58% to $17.5 million.
Strength in Consumer and Industrial Products was offset by the previously mentioned issues in Oil and Gas.
Revenue and margins continue to improve in Oil and Gas overall.
The integration of Amtrol is largely complete, and while we still continue to focus on extracting synergies, the business contributed $7.3 million during the quarter.
Steel Processing operating income was up $4.9 million, excluding restructuring from the prior year quarter to $31.1 million.
Inventory holding gains for the quarter were a modest $800,000, but the recent rise in steel prices will likely lead to larger gains in the coming quarter or two.
The business continues to be hampered by weak toll volumes and a return to more normalized spreads in the coated business.
Engineered Cabs operating income fell $2.3 million to a loss of $4.1 million.
Higher conversion cost from labor and some underutilized capacity at one of our facilities hampered profitability despite a 15% improvement in sales.
Volumes in key cab end markets are trending positively, and we're beginning to successfully transition in new business.
Equity income from our joint ventures during the quarter was down $2.9 million.
WAVE's contribution fell $1.9 million, driven by higher allocations from the parent companies and lower volumes.
ClarkDietrich was off $1.3 million, but up sequentially and contributed $1.5 million as competitors began to show pricing discipline.
Serviacero's business continues to perform well and contributed $1.3 million.
We received dividends from JVs of $22.6 million for 114% cash conversion on equity income.
Cash from operations was $100 million for the quarter driven by solid earnings and a reduction in working capital.
We spent $14 million on capital projects, distributed $13 million in dividends and repurchased 1 million shares of stock for $47 million during the quarter.
Yesterday, the board declared a $0.21 per share dividend for the third quarter payable in June of 2018.
Debt was little changed at $782 million at quarter end but up to $200 million year-over-year from our bond issue in the first quarter.
Interest expense was up $2.1 million to $9.8 million as a result.
Trailing 12-month adjusted EBITDA is now $392 million.
We have consolidated cash of $147 million and almost $540 million available under our recently renewed 5-year revolving credit facility and AR securitization.
Our net debt-to-EBITDA leverage ratio is a modest 1.6x.
We continue to be quite pleased with the overall performance of the company.
The integration and financial performance of Amtrol has gone well, and the addition of their people, products and processes have strengthened our Consumer and Industrial Products businesses.
Our lean and innovation capabilities continue to spread throughout the company and are beginning to differentiate us in the marketplace.
We've a clear vision, an effective strategy and are optimistic about the road ahead.
Recent activity around tax law changes and steel tariffs has created a lot of noise in our business.
The tax law changes are positive for us, likely lowering our effective tax rate by 8% or so to 24% over the long term.
The impact of the Section 232 steel tariffs on our business varies, but our seasoned purchasing and price risk management capabilities and our Transformation playbook are enabling us to navigate the changes quickly and effectively, so that we can continue our goal of growing our earnings and rewarding shareholders.
<UNK> will now discuss the operations.
Thanks, Andy.
Our Steel Processing business had a record third quarter for direct-customer shipments, which were up 5% compared to last year.
Our strengthened direct shipments outpaced the 3% increase in direct shipments reported in recent Metal Service Centers Institute data.
Toll processing volume decreased 17%, reflecting continued softness in the toll galvanizing business at our Spartan joint venture.
Combined, direct and toll volume was down by 6%, and the mix of direct and toll was 57% direct versus 43% toll compared to 52%, 48% last year.
Direct shipments were particularly strong in both the agriculture segment, which was up 28% and heavy truck, which was up 15%.
Automotive shipments to the Detroit Three decreased 2%, while all other automotive shipments increased 4%.
TWB, Steel Processing's laser welding joint venture with Baosteel transitioned their new Monterrey, Mexico facility to full production, including 2 state-of-the-art high-volume rotary lines and a traditional continuous feed line there.
TWB also continues to expand aluminum-welded blank production at their flagship facility in Michigan.
Serviacero, our Mexican steel processing joint venture saw direct shipments up 5%, while toll shipments were down 20%, with overall shipments combined down 3%.
Serviacero started production on their new heavy-gauge blanker in their expanded Monterrey facility during the quarter.
In our Pressure Cylinders Oil and Gas Equipment business, revenue was up 50% compared to last year, as market conditions continue to significantly improve in most U.S. oil and gas producing regions.
In Alternative Fuels, revenue was up 21%, primarily due to higher shipments of LPG cylinders to European automotive manufacturers.
<UNK>et conditions continue to improve in this business, particularly in North America where we're seeing the return of spreads between diesel and natural gas sufficient to create a compelling economic case to switch to natural gas, something that has been missing from the market for the last 2 years.
A significant portion of the product lines we acquired from Amtrol are now included in our Industrial Products business, including the Amtrol Alpha line of LPG products produced in Portugal and sold throughout the Europe, Africa, the Middle East and India.
Revenue in Industrial Products was up 55% compared to last year.
Excluding Amtrol revenue, it was up 14%.
The balance of the product lines we acquired from Amtrol are now included in our Consumer Products business, including Amtrol's line of products for residential and municipal water well systems.
Revenue in Consumer Products was up 51% compared to last year.
Excluding Amtrol revenue, it was up 9%.
Engineered Cabs revenue was up 15% compared to last year, as we continued to see signs of strength in the major components of the off-highway equipment market.
In our WAVE joint venture, sales volume was slightly weaker in the U.S. and Europe and slightly stronger in Asia.
WAVE imports a material amount of steel from foreign sources.
The Section 232 tariffs recently announced in the U.S. may impact the 30% to 40% of WAVE's total raw steel usage that's imported, particularly for the lightest gauges they use.
WAVE has adequate nontariff sources of supply for this steel, although, they're often higher priced.
Of course WAVE will also have the option of paying any tariff that may apply to steel from foreign sources.
In response to the recently increasing steel price environment, WAVE implemented a price increase in February and recently announced another price increase for implementation in April.
As Andy said overall, we're very pleased with the quarter and also pleased with where we are as a company.
Across the company, we have more people actively engaged in transformational improvements and innovation than we have ever had.
Now we'll be happy to take any questions any of you may have.
So <UNK>, your question is, our ability to pass through the recent price increases at WAVE and ClarkDietrich, right.
All right.
So as I mentioned in WAVE, we've ---+ we already announced a price increase in February.
And we recently announced another one that will be implemented next month.
So that WAVE is easily able to keep up with the price increases.
That's historically been the case for the WAVE business.
ClarkDietrich also has announced price increases with the intent also of keeping up with the price.
So both of those businesses, we have confidence, will be able to pass the price increases to their customers.
The competitive dynamics are different between WAVE and ClarkDietrich.
The metal framing side of the business historically has been much more competitive.
There's a number of ---+ there's many, many more competitors in that market.
I will say that historically, both of those businesses, when there are rapidly rising steel prices, are very successful at moving price increase.
And I think the one thing that I see in this one is, obviously, there's not too many people on the planet that aren't aware that the U.S. has implemented these tariffs, because it's so ---+ been so broadly displayed across the news media, and so I think the acknowledgment amongst their customer base is, this is the reality, and at the end of the day, I think, not only are their customers aware but also their competitors are aware, and they're viewing it as an opportunity to move the price up.
So I'd even say in the businesses where we have a hedged price of steel, we still are going to be able to have some price movements, because the environment allows it.
As Andy mentioned, everybody knows that the price is going up.
We use the same kind of forecast for forward volume in terms of build rate that most people do.
And so you can see that as well as we can.
As I mentioned, the Detroit Three volume for us is off just slightly, just a couple of points.
And the non-Detroit Three, which for us is the new domestics typically, that's the largest component of that, we're actually up.
So overall, automotive is pretty steady for us at the moment.
Recently, we've had near-record steel prices.
Why do you think your JV earnings, many of whom are steel processing companies with steel inventory, haven't surged nor your Steel Processing earnings as much as in the past, and your shares, which made a record a year or 2 ago when the stock market was lower, before the Trump elections, haven't gone up with the market or the higher steel prices wherein the past they had.
Is your hedging program that good.
So I guess the first part of your question, <UNK>, is the runup in steel prices really hasn't flowed through the income statement of both the Steel Company and our other businesses that you called processors.
There's ---+ you have to remember there's a lag effect of, let's call it, a quarter or sometimes 2, maybe 1.5 quarter, because of the way they buy steel and the way they sell steel, so it's going to happen.
There's just a little bit of a lag there.
And then ---+ your question on the stock price.
It is interesting.
We actually just recently ran a correlation between us and the mills, and I think it was around 60% maybe that our stock price moved in correlation.
Ironically, today, it seems to be moving in lockstep with the mills.
So I think we've maybe disassociated ourself a little bit from the mills and are viewed a little bit more like a metals manufacturing company by a number of investors, so that may explain part of it, but it's an interesting question.
Hard to explain sometimes.
You know how much of your shares are owned by ETFs that might comp you with the mills.
Off the top my head, I do not.
But it's a pretty high percentage.
Just had a question on the comments you made on some of the inventory.
I think there were some losses in the Oil and Gas business, so maybe you could explain some of that.
I don't think that's something we were anticipating.
Yes, so there's really 2 things going on there.
There's about $1.2 million of essentially a legal reserve that we took related to the settlement of an escrow around an acquisition we did several years ago.
And then the balance of that $3.6 million, which should be $2.4 million, is basically inventory write-offs for products that we were carrying, that we thought we could sell that we just couldn't.
And it's primarily in Oil and Gas, but there was also 1 specific product in our Alternative Fuels business.
So think of it as obsolete inventory that was written-off during the quarter.
Okay.
And maybe, <UNK>, if you could give some color in terms of what you're seeing in the Oil and Gas business right now in terms of the trends and maybe the regions and the backlog.
Obviously, much stronger across-the-board as everybody can see from the publicly available information.
We are ideally suited to serve customers in the Marcellus and Utica in the east.
And obviously, the strength there with ---+ the strength there not only coming from the increase in price but also the availability of gathering lines now, so there's still so much of that acreage that was not drillable and completable, because it couldn't be hooked up to the pipeline.
That's now caught up.
And so the strength there is increasing.
And then, of course, we are also ideally suited in the west for the Eagle Ford, the Denver-Julesburg and then in the Bakin.
And all of those are doing very well at the moment, so it looks like we're seeing strength return to those markets, and that's reflected in our forward order book.
It's up significantly double digits.
This is the tanks or the separation equipment or both.
Is there a differentiation between the backlog there.
It's both, Phil.
Okay.
Terrific.
And Andy any color you could provide us on the potential magnitude of FIFO holding gains for Q4, if we assume that steel prices hang out around, call it $800, $850.
Yes, I mean, it's definitely going to be double-digit million.
So let's call it north of $10 million, but there's still a few months left in the quarter, so the actual number is to be determined.
But it's going to be meaningful.
Okay.
And one more for me if I could.
So the toll processing volume's down quite a bit in the Steel business domestically, and I think you had mentioned that the Serviacero toll processing business is down quite a bit.
Is there any correlation or link that you could draw between the 2 in terms of why the direct might be strong and the tolling isn't.
Is there something, broadly speaking, going on in the sourcing in automotive.
Yes, Phil, I don't think that there is a broad change in the market.
I think that the differences in tolling that we're seeing are more specific to facilities for us.
As I mentioned, our galvanizing toll business is down at Spartan.
We believe that, that will turn around in future quarters.
Our pickling toll business is down particularly in our Middletown, Ohio facility, down by Cincinnati.
And that was related to the quality issues we were having on that particular pickle line.
We've got those sorted out now.
But while we were sorting through that, we had to reduce the volume on that line, and of course, lost some volume there.
So we think those 2 things are temporary and pretty much individually applying to facilities for us.
Could you give us a little color on the Engineered Cabs and other segment, the losses there were each a little bigger.
Sure.
Engineered Cabs, they are going through a period where they've transitioning business out from a large customer and replacing that business with a number of smaller programs.
The good news and the bad news about the Cabs business is, when they win business, it takes somewhere between 12 and 18 months to bring those new programs online.
And so while their end markets are up, as we saw with revenue up 15%, it's taking some time to bring those new ---+ newer programs online.
The other thing that's going on in Engineered Cabs is, in one of our facilities, we have a pretty significant labor challenge in terms of finding good labor that we can keep around, and so we've had a lot of temporary labor that has significantly higher cost, which we're working to address right now.
So there the cost of producing a cab in that one facility is way up as a result of labor.
That's something we think we can work through and so expect to decline in the future quarters.
And then your second question was on the other.
There's only 1 business left in other which is our Energy Innovations business.
It's a very small business.
Typically, what you're seeing there in terms of fluctuations is related to unallocated overhead that we have as a company.
So oftentimes, we have accounts that we will accrue things at corporate, and then in the next quarter, we'll allocate them out.
A good example is some of our healthcare charges, and so those are a little bit hard to predict.
But I expect that number to be less negative in the future quarters.
Great.
Well, thank you all for joining us today.
We look forward to speaking with you in June for our fiscal year-end earnings call.
| 2018_WOR |
2015 | NI | NI
#Thank you and good morning.
On behalf of NiSource and Columbia Pipeline Partners I would like to welcome you to our quarterly analyst call.
Joining me this morning are <UNK> <UNK>, Chief Executive Officer, <UNK> <UNK>, Chief Financial Officer, and <UNK> <UNK>, currently Executive Vice President and Group CEO.
Soon to be, <UNK> will be taking on the role of the NiSource CEO, after our planned separation.
As you know, the primary focus of today's call is to review NiSource's financial performance for the first quarter of 2015, as well as provide an overall business update.
Following the NiSource prepared remarks, we also will share a brief overview of the first quarter results for Columbia Pipeline Partners which were also released this morning.
We will then open the call to your questions.
At times during the call we will refer to the supplemental slides available on our website.
And finally, I would like to remind all of you that some of the statements made on this conference call will be forward looking.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements.
Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.
With all those items out of the way, I'd like to now turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
Good morning and thank you for joining us.
We have a crisp agenda today.
I'll touch on several key strategic take-aways, <UNK> will review our financial results and then <UNK> and I will share key execution highlights for NiSource's utilities and CPG.
If you'll turn to Slide 3 in the supplemental deck that was posted online this morning, you'll see a few key take-aways for the quarter as well as an update for the separation of NiSource and Columbia Pipeline Group.
For the quarter, results were solidly in line with our plan.
The NiSource term delivered $0.85 per share non-GAAP in the first quarter versus $0.82 per share in 2014.
Our teams also continued to execute on core infrastructure investment plans at all of our businesses, and capital expenditures across our utility and pipeline segments remain on track.
As a reminder, for 2015, we expect a record spend of $2.4 billion.
We also remain on track to complete the separation of NiSource and CPG, which we anticipate will happen on July 1, 2015.
At the time of the separation, shareholders are expected to receive one share of Columbia Pipeline Group common stock for each share of NiSource common stock.
As you know, the transaction is expected to be tax free for shareholders and the Company.
In preparation for the separation, experienced leadership teams have been named for both companies, and just recently the respective NiSource and CPG executive teams discussed their go-forward financial plans with the three major credit rating agencies.
As we said when we announced the separation, we expect both companies will be investment grade.
Current expectations are that CPG will be formally rated prior to its May debt recapitalization transaction, and the NiSource's credit ratings will be addressed at or about the time of separation.
With each step of the separation process, including the debt recapitalization process, we're positioning NiSource and CPG to be ranked among the leaders in the respective business segments.
We expect both will be well-capitalized and have robust and transparent long-term growth plans, growing dividends and solid leadership, and the capacity and focus to deliver enhanced long-term growth.
To profile the business strategies and growth plans with the respective companies, we've scheduled two separate web casts on Thursday, May 14th.
First <UNK> <UNK> and team will provide an overview of NiSource's pure play utility business, including its investment opportunities and its commitment to customers in the communities it serves.
Following the NiSource call, CPG's executive team will host a similar call.
The team will highlight CPG's solid core business, its strategically located assets, and its portfolio of transformational modernization and growth opportunities.
The NiSource web cast will start at 9AM, and the CPG web cast will begin at 10.30AM, both Eastern Time.
The event with the Company presentations will be available at www.NISOURCE.com.
In addition to the May 14th web cast we'll maintain regular communication regarding the separation process through our normal channels, including press releases, and filings with the SEC.
Now I'll turn the call over to <UNK> <UNK> to review our first quarter financial results, highlighted on Page 4 of our supplemental slides.
Thanks, <UNK>, and good morning, everyone.
As <UNK> mentioned, we delivered non-GAAP net operating earnings of about $268 million, or $0.85 per share, which compares to about $258 million, or $0.82 per share in the first quarter of 2014.
On an operating earnings basis, NiSource was up about $20 million.
On a GAAP comparison, our income from continuing operations was about $268 million for the first quarter, versus about $266 million for the same period in 2014.
At the segment level, you will see in today's release that each of our three core business segments delivered financial results in line with our expectations during the first quarter.
CPG delivered operating earnings of about $163 million, compared to about $159 million in 2014.
CPG's net revenues, excluding the impact of trackers, were up about $22 million, primarily due to new growth projects placed into service and new firm capacity contracts.
NIPSCO's electric operations delivered about $67 million in operating earnings compared to about $74 million in the same period in 2014.
Net revenues, again excluding trackers, were relatively flat due primarily to lower off-system sales.
And finally, our gas distribution business came in at about $306 million, compared to about $280 million in 2014.
Net revenues, again, excluding the impact of trackers, were up about $43 million.
As the numbers attest, we continue to deliver solid financial results.
Full details of our results are available in our earnings release issued and posted online this morning.
Now turning to Slide 5, I'd like to briefly touch on our financing and liquidity position.
We retained a strong liquidity position with approximately $2 billion of net available capacity as of March 31st.
Of our $2.4 billion capital investment program planned for 2015 at NiSource and CPG, approximately 80% of these investments are focused on revenue generating opportunities.
Our debt to capitalization remains solid, at about 54%, as of March 31st.
And as <UNK> mentioned, we remain on track with the NiSource CPG separation, including establishing a strong financial foundation with expected investment grade credit ratings.
A CPG long-term debt offering of $2.75 billion and the NiSource tender transaction will begin soon.
As we've noted previously, the proceeds of CPG's debt offering will be used to fund a one-time cash distribution to NiSource prior to the separation.
With that, I'll turn the call back to <UNK> and <UNK> to discuss a few execution highlights from our business segments.
Thanks, <UNK>, and good morning, everyone.
Let's shift first to NIPSCO, our Indiana electric and natural gas business summarized on Slide 7.
The NIPSCO team is continuing to deliver on our customer-focused strategy of investment opportunities approaching $10 billion for electric infrastructure and $5 billion for gas infrastructure over the next 20 plus years.
The FGD unit under construction at NIPSCO's Michigan City generating facility is on schedule to be placed in service by the end of 2015.
Following the completion of the Michigan City unit, and with those we placed in service over the past two years, all of NIPSCO's coal-burning facilities will be fully scrubbed.
NIPSCO's two major electric transmission projects are also progressing as planned.
Right of way acquisition and permitting are underway for both projects and preliminary construction began on a 345 kV Reynolds Topeka line.
You'll recall these projects involve an investment of about $500 million for NIPSCO and are anticipated to be in service by the end of 2018.
We remain on track and committed to our Indiana electric and gas modernization programs.
As set forth in our TDSIC plan we have about $190 million in planned spend this year.
These investments help ensure continued safe, reliable and affordable service to customers.
And as you likely saw earlier this month, the Indiana court of appeals issued a ruling regarding some of the elements of the approved electric modernization plan.
The court upheld key components of the Commission's order and one item related to the level of investment detail within the order will need to be revisited as part of the regulatory and legal process.
As the first utility to file a plan under the TDSIC statute, we recognize the potential for temporary delay.
We're evaluating the ruling and remain committed to our modernization investments, which are essential to our ongoing plan for upgrading our system to serve (audio difficulties) now and into the future.
NIPSCO's agenda remains focused on customer service and high value targeted programs that enhance the reliability and environmental performance of its systems.
Investments in our electric infrastructure are expected to reach nearly $400 million in 2015.
Turning to our gas distribution operations on Slide 8, you can see a similar story of large scale infrastructure investment paired with complimentary regulatory and customer programs.
Touching on a few regulatory highlights in recent months, in March, Columbia Gas of Pennsylvania filed a rate case with the Pennsylvania PUC to support continuation of our well-established infrastructure modernization and safety programs.
If approved as filed, the case would increase annual revenues by approximately $46 million.
We expect a decision in that case later this year.
Columbia Gas of Massachusetts filed a rate case on April 16th with the Massachusetts Department of Public Utilities, seeking an annual revenue increase of approximately $49 million.
The filing reflects the Company's commitment to maintain natural gas safety, customer service, and reliability.
A decision is expected in the first quarter of 2016 in that case.
Also in Massachusetts, later today we expect a decision from the DPU for our 2015 gas system enhancement plan.
Cost recovery associated with the 2015 investments outlined in the plan would begin tomorrow and increase annual revenues by approximately $2.6 million.
And Columbia Gas of Virginia's settled rate case remains pending before the Commission.
A final order on the $25 million revenue increase is expected later this year.
In more recent news, just last week the Public Utilities Commission of Ohio approved Columbia Gas of Ohio's annual infrastructure replacement and demand side management rider.
The rider provides for recovery of its well established pipeline replacement program and energy efficiency program investments.
So overall we expect to invest approximately $900 million during 2015 across our Company's gas distribution businesses.
These investments help improve reliability and safety for our customers and communities, provide additional customer access to natural gas service, and reduce emissions.
Through well established recovery mechanisms in all seven states, these investments are expected to generate incremental revenue and sustainable returns for shareholders.
So in summary, NiSource's gas and electric utilities are in full execution mode on all fronts and very well positioned for the future.
Thanks again, <UNK>, and I'll hand things back to you.
Thanks, <UNK>.
As you can see, continued solid performance on a strong, well established growth strategy.
Before briefly discussing the results of Columbia Pipeline Partners and opening the call to your questions, let me reiterate several key points.
We remain focused on and are on track with our current business customer plans.
We remain on track with the CPG separation scheduled for July 1st.
We expect both Companies will be well financed and very well positioned to execute on their distinct strategies.
And now a couple of dates and actions related to the separation that I should highlight once again.
We expect to receive our CPG credit ratings in a matter of days, and after securing these ratings, we'll initiate the debt recapitalization process, including CPG issuing its own long-term debt in a separate tender offer for NiSource debt.
On May 14th, as I mentioned earlier, NiSource and CPG will host separate web casts to outline their respective growth strategies and associated infrastructure investment opportunities.
In early June we anticipate that we'll confirm the distribution record date, the effectiveness of the Form 10, and the so called when issued trading period.
All of this would cull culminate with the planned distribution of shares on July 1, 2015, and CPG trading on its own the following day.
We look forward to diving deeper into these dates and actions during our May 14th web cast.
With those highlights, <UNK> will now briefly discuss Columbia Pipeline Partners' results.
Thanks again, <UNK>.
As you know, we successfully completed CPPL's IPO in February, which raised approximately $1.2 billion.
And just yesterday we announced a prorated cash distribution of about $0.09 per unit to holders of record as of May 13th.
This distribution corresponds to the minimum quarterly distribution of $0.1675 per unit, or $0.67 annually.
This morning we issued a news release highlighting CPPL's results for the post IPO period.
As you know, the key drivers for the period mirror the key drivers at NiSource's CPG business segment, and our adjusted EBITDA is consistent with our expectations for the quarter.
These results are squarely on par with CPPL's strategy for delivering value to unit holders and remains consistent with our guidance for the year that is presented in our registration statement.
<UNK>.
Thanks, <UNK>, and thank you all for participating today and for your ongoing interest in and support of NiSource and Columbia Pipeline Partners.
Shiday, we're ready to open the call to questions.
This is <UNK>, <UNK>.
It was approximately in aggregate $35 million or so.
Yes, it was approximately $10 million lower quarter over quarter, and just lower opportunities to realize off system sales.
I think industrials managed the winter months much better this quarter than they did last year at this time.
<UNK>, this is <UNK>.
On the industrial side, you're right, some of it's steel but a lot of that was related to last year's polar vortex and some self-generation, some of the industrial segment not running.
So a little more opportunity for us in that segment last year.
So we see some flattishness in the industrial sector but nothing that's significant relative to plan.
Not a lot more color on it.
It's a backbone gathering system.
The need for the system is driven by the robust results of Utica drilling in that region.
It's going to be anchored by one key tenant but likely to have additional folks requiring capacity.
It could be as large as a Btu a day, so I think it's, again, just evidence that gas is there, the demand for capacity to get the gas out of the region is there.
So we're bullish.
We're certainly going to be providing detail on our approach, growth rates and the like on May the 14th.
So, yes, stay tuned.
Yes, we'll obviously provide additional details during the May 14th webcast.
We expect board-outs to clear at the end of June, so stay tuned, shortly after June, for much, much more detail.
But certainly May 14th will be instructive.
Tripling.
Tripling the size.
Yes, on May 14th, we're obviously going to draw the distinction in and around Columbia Pipeline Group, and we will be referencing a group of peers, and as you would expect they are the usual big players in the space, but we'll certainly be making the point that we think we comp against, how we comp, and so you'll see that complete profile on the 14th.
Yes, to that point, expect long-term visibility.
As you're suggesting in your question, much of this growth peaks in 2017, 2018, and then we see cash flowing in 2019 and 2020.
So to appreciate the full CPG story, you really need to look at the Company and its performance over that longer period of time.
So, clearly we expect to do that.
We will do that.
I think there will be plenty of granulator near-term, long-term, medium-term, so that folks are going to have a good basis to assess the Company and its growth.
<UNK>, this is <UNK>.
It doesn't change anything we're doing.
We remain committed to the investments and are working with the stakeholders, as we always do, to evaluate the options for moving forward, but we see a number of potential options.
And we see this generally as a ruling that upholds the core of the statute and the core of the framework, and just ask the Commission to take a look at the long-term plan details to reaffirm the plan ultimately.
So we see it as ultimately supportive and a temporary delay.
Thanks, <UNK>.
Yes, you were working early this morning.
That's correct.
<UNK>, I don't see a lot of deviation in that calculus.
We've worked very diligently with the rating agencies, as we always do, on our long-term financial plans, and feel that the size of this transaction adequately addresses the balance sheets for both Companies going forward and puts them in that solid investment grade rating range going forward.
Yes, <UNK>, <UNK>.
The [$130 million] number for the year holds.
That's a correct number.
What about the quarters.
Okay.
On the quarter, I think it's both the predecessor company and the post IPO period, so those two pieces are cut into two.
We'll get you that exact number.
Yes, we'll follow up with you, <UNK>, to confirm.
Yes.
Widely publicized that the producers in our neck of the woods have dialed back drilling activity in 2015, and you'll see numbers 30%, 40%.
You'll see some folks that have held the line, if not maybe increased marginally.
But we have seen what we consider to be prudent dialing back of drilling.
Having said that, <UNK>, I think Mountaineer XPress, Gulf XPress, the new midstream project that we announced today affirms that the producers continue to be very, very bullish on the region and theystill expect production to increase year-over-year and certainly increase in 2017, 2018, 2019, and the balance of the decade.
So, prudent dialing back but still strong, strong commitment to the Marcellus and Utica region.
Shiday, thank you so much, and to everybody on the call, again, we appreciate your participation and your support.
We certainly look forward to chatting with you on May 14th, both at NiSource and Columbia Pipeline Group.
So thanks, have a good day.
We appreciate it.
| 2015_NI |
2017 | ROST | ROST
#I'll take the first part.
Over the last 10 years, we've decreased the size of our stores by about 15%.
And the decrease is really just based on a reduction of inventory that we've seen over the years.
Today as we go out, and look for new stores, we right-size them, based on the market, and demographics, et cetera.
On the other part of your question, <UNK>, I would say that occupancy costs are fairly stable at this point.
There's good availability, in terms of locations, the rents are pretty stable.
And our new store opening rate is about ---+ we add about 6% more stores every year.
On the base of stores, we have, we opened 80 to 90 stores which is about [6%] increase each year.
And I would expect that we'll stay more or less at that level for the next year.
We're, as <UNK> said in her remarks, we were very happy with dd's performance in Q4.
And for the full year 2016, it turned in a very solid sales and profit performance.
And actually over a longer period of time, we've been pleased with that business.
But we've always been fairly deliberate about how we roll out and grow our businesses.
This was true with Ross, and it's also true with dd's, that on base of about 200 stores, we feel pretty comfortable being able to open 20-ish, 21, 22 stores.
I think it's unlikely, that we would accelerate that.
I think there are constraints, in terms of being able to do that in a high quality way, whether it's real estate locations or building the operational team.
We prefer to open and roll out dd's in a much more deliberate way.
Thank you for joining us today, and for your interest in Ross Stores.
Have a great day.
| 2017_ROST |
2017 | LAMR | LAMR
#Thanks, Katie, and welcome all to Lamar's Q1 earnings call.
As I mentioned in the release, the tone of business is improving.
Pacings for Q2 are stronger than Q1 results.
I would describe our expectations for Q2 acquisition-adjusted growth as up 2-ish.
In addition, we expect expense growth to moderate to more customary levels as the year progresses.
We also expect maintenance CapEx to come in at plus or minus $40 million.
We are consequently maintaining our previous guidance for 2017 AFFO per share.
<UNK> will give you more detail on the unusual Q1 expense items and the timing of maintenance CapEx that affected Q1 AFFO, after which I will touch on the usual operating metrics followed by Q&<UNK>
<UNK>.
Thanks, <UNK>.
Good morning, everybody.
There were a couple of expenses in the first quarter of '17 that were not in Q1 that contributed to our expense growth in the quarter.
I'll just walk through briefly.
First of all, legal fees at corporate were up $600,000 over last year's first quarter.
On airport division, the revenue sharing increased $800,000 in Q1 over Q1 of last year.
And we had an increase in Workmen's Comp claims of $1.1 million that we did not have last year.
Workmen's Comp, of course, is, at times, the luck of the draw.
Accidents happen, and as much as we try to control that through our safety program, sometimes bad things happen.
Anyway, that's kind of a recap on the expenses.
Maintenance CapEx, you saw, we came in at about $9.5 million versus $6.5 million last year.
Maintenance CapEx, as is growth CapEx, is a timing thing.
It doesn't mean that we're on track to spend more this year than last year, because we were up approximately $3 million in the first quarter.
$1 million of that was IT hardware that we had planned for.
That was spent in the first quarter.
It was equipment that we needed to replace old equipment in our IT shop.
So that was a onetime expense that won't be reoccurring.
<UNK>ut as <UNK> said, we're looking at a run rate of $40 million for the year.
<UNK>.
Great.
Thanks, <UNK>.
Hitting a couple of the operating metrics, digital same-board revenue increased 1% in Q1 of '17 over Q1 of '16.
Our national, local sales mix in Q1 of '17 was, we were 79% local, 21% national.
And as we mentioned on our call 3 months ago, our national was actually a little stronger in Q1.
Q1 national was up approximately 5%.
Local was down approximately 1%.
And again, as we said 3 months ago, we don't expect the year to play out that way.
Looking forward through the end of the year, it looks like local and national should make roughly equal contributions to our pro forma growth by the time we close out the year.
I'm going to spend a little more time on the verticals just because that kind of color seems to be of interest, given the way ad spend is playing out so far in 2017.
Our largest category of business is service.
That was up 10% in Q1 this year over last year.
Health care was down 5% Q1 this year under Q1 of last year.
A little color on that: we continue to believe that political uncertainty around the ACA is causing our health care customers to be a little bit cautious in their ad spend.
Retail was up 3% in Q1.
Amusement, entertainment and sports was up 11% in Q1.
Automotive was down 1% in Q1.
Education, another vertical that has struggled of late, was down 9% in Q1.
And Telecom, which represents 3% of our business, it's our ---+ last of our top 10 verticals, was up 23% in Q1.
That, again, was a little bit of an anomaly in timing and probably resulted in that outperformance for us in national.
So with that color on the verticals, Katie, let's open it up for questions.
Sure.
So, yes, we look a little bit different than our counterparts, Clear and Outfront.
In visiting with John <UNK>, our Head of National Sales, about where ours came from, it pretty much confirms what they are seeing in the top 5 DMAs.
We're down, for example, in Chicago and New York.
<UNK>ut we're up in national and middle markets.
So it's just ---+ I think it's an anomaly driven by where national clients are putting their business.
They're buying a little deeper, and they're bypassing some of the major metros.
In terms of verticals, it was pretty clear, telecom was a major part of that.
So Verizon and AT&T were spending pretty big in, again, in those DMAs 10 through 75, let's call it.
I think we also got a lift in those same DMAs from beverage.
Coca-Cola came in pretty good for us.
On the downside, we took a little hit in the beer category, but when you added it all up, I think it was a function of where they were buying, where they were putting their ad spend, not so much a function of how much they were spending.
As we look in ---+ at the end ---+ at the back half of the year and what remains to be sold through 2017, let me sort of relate it to our AFFO guidance, because what we're assuming are not really heroic things.
For us to hit the bottom of our AFFO range, we need to have pro forma revenue growth of 2-and-some-change by the time we close out 2017.
We need to make sure expenses don't get away from us.
We need expense growth in that same range of 2-and-some-change.
And then we need maintenance CapEx to come in at plus or minus $40 million, and that's sort of the simple recipe to get us to our guidance.
And those things appear to us, all the data points we're looking at, to be doable.
So we're cautiously maintaining our guidance, and we think that 2017 is still intact.
I believe we are.
It's not big numbers, <UNK>.
I think you can look at what's going on with other media and the numbers they're reporting.
And clearly, they're losing share.
Most of that is going to the Googles and Facebooks of the world.
<UNK>ut because we're growing in the face of a shrinking ad pie for traditional media, by definition we're taking a little bit of share.
Yes, thanks, <UNK>.
I think this is ---+ on the tuck-in acquisition front, this is going to kind of be a "steady as she goes" year.
As you know, when you take a look at our free cash flow after everything, after all CapEx, after interest, after the distribution, we have a little more than $100 million leftover at the end of the day.
And it feels to us like that\
Yes, thanks, <UNK>.
It's the former.
I mean, if you look at our footprint, 80% of our sales come from markets that are outside the top 20 DMAs.
And in the world of middle-market media in general, and middle-market outdoor in particular, the sales mix in places like <UNK>aton Rouge and Tallahassee and Little Rock and places that look and sound like that tends to be in that sort of 85%, 15% range, 15% national, 85% local.
And consequently, we do have a much larger local sales force than our colleagues.
We've got about 960 account executives that touch those local customers every day.
So I would say it's mostly a function of where we are and somewhat a function of our sales tactics and very large local sales force.
Well, the first quarter wasn't great.
So being up 1.3%, you're slicing it pretty thin on what drove that.
I would say as a general comment that today Lamar's platform is at normalized occupancy.
And, historically, normalized occupancy for our bulletin product, which is our largest product, is around low 80s percent occupancy on an annualized basis.
And for our poster product, it's sort of low 70s annualized occupancy.
And we're there.
So anything we're picking up now to us feels like driving rate.
And so I would say it's coming from rate.
And to the extent we're able to hit our goals for 2017, it's going to have to come from rate.
Well, thank you all for listening in.
We look forward to visiting with you in 3 months' time to talk about how the second quarter went.
Thanks again.
| 2017_LAMR |
2018 | LQDT | LQDT
#Thanks, <UNK>, good morning, and welcome to our Q2 earnings call.
I'll review our Q2 performance and provide an update on key strategic initiatives.
Next, <UNK> <UNK> will provide more details on the quarter and our outlook for the current fiscal third quarter.
During Q2, we continued to make steady progress, driving growth in our Retail Supply Chain Group and GovDeals segments.
We also continued to drive cost discipline and needed investments in our technology platform.
Reflecting the demand for our scale, services and strong client results, we added over 300 new sellers and approximately 40,000 new registered buyers to our marketplaces during Q2.
Notably, our Retail Supply Chain Group segment delivered approximately 13% growth in GMV and recorded its highest GMV quarter since Q3 of fiscal '15.
Our Retail Supply Chain segment continues to secure and grow programs with large and midsized retailers and manufacturers.
Despite lower than expected seller activity on the East Coast related to severe weather, our GovDeals segment continues to drive solid organic growth and expansion of seller accounts.
Our Capital Assets Group segment had mixed results in Q2 due to project delays and lower than expected availability of product flows.
As expected, our DoD business, which is included in our capital assets group segment, declined versus the prior-year period, as we executed the wind-down of our Surplus Contract and received lower volumes under our Scrap Contract.
Lastly, as we wound down our DoD Surplus Contract, we aligned our development and product management resources with the remaining deliverables under our LiquidityOne transformation initiative, resulting in lower than expected technology expenses.
Next, we'll take a look at highlights of our segments.
Our Retail Supply Chain Group, RSCG segment, continued to grow the top line organically by double-digit as our new business pipelines is doubled from a year ago, service fees related to our Returns Management software platform, more than tripled from the prior-year period, as we experienced encouraging interest in our Returns Management solutions, which help clients track, manage and sell both online and store returned goods.
Our GovDeals marketplace growth continued in Q2, driven by the addition of hundreds of new clients in the U.S. and Canada, such as the state of Tennessee, the Los Angeles, California School District and the City of Albuquerque, New Mexico.
During Q2, GovDeals completed over 51,000 auctions, including the sale of vehicles, heavy equipments and a king airplane, which sold for over $0.5 million.
GMV and our Capital Assets Group segment, which includes our DoD contracts and commercial industrial clients, was below our expectations during Q2, driven by delayed plant closings in our industry vertical, a slower than expected rebound among our oil and gas sector sellers, as organizations evaluate the desired holding period for their assets.
However, interest on our solutions remain strong, and we recently hosted over 40 of the world's largest energy companies at our Energy Insight conference, which brought together thought leaders in the energy supply chain to discuss asset recovery strategies and tools that capitalize on the energy sector market recovery.
In addition, our Capital Assets Group commercial activity in Asia, remains a bright spot with first half results, well ahead of plan as our global buyer base and services continue to help multinational industrial firms monetize their assets in China and throughout Southeast Asia.
Our strategy remains focused on the long-term growth of our commercial and municipal government marketplaces.
On a global scale, by investing in technology to improve the net recovery realized by clients selling on our platform and by making it easier for buyers to find and buy assets on our platform.
In support of this strategy, our LiquidityOne transformation initiative is focused on delivering an improved online marketplace platform to enhance our customer experience, our operations and our ability to scale to a much larger business.
We expect to deploy these enhancements to all of our marketplaces by the end of calendar year 2018.
This initiative will further align our business processes and optimize our platform technology.
Under our product roadmap, we plan to deploy a new version of our GovDeals and AuctionDeals self-service marketplaces during Q3, and a new consolidated marketplace by the end of calendar year 2018.
In closing, continued investments in our people, processes and platform will enhance the value we bring to clients and will drive our transformation.
As we begin to harvest the investments we're making over the next few years, we're excited about the tremendous potential to grow our business.
Liquidity Services is committed to driving innovation and significant value creation for our customers and shareholders as we execute our long-term growth strategy.
Now let me turn it over to <UNK> for more details on Q2 results.
Thank you, Bill.
Good morning.
First, I will comment on select second quarter results.
We finished the second quarter above the company's guidance range for GAAP net loss, GAAP diluted EPS, adjusted EBITDA and non-GAAP EPS.
Results were within the guidance range for GMV.
In the second quarter, we reported GMV of $152.2 million, reflecting increases in our Retail Supply Chain Group, or RSCG segment, and in our GovDeals segment.
Compared to the second quarter last year, RSCG GMV was up 12.9%, driven by expansion of existing programs and growth in the number of consignment sellers.
GovDeals' GMV was up 8.1% despite weather events in the Eastern U.S., during the quarter, causing some dampening of activity.
The Capital Assets Groups or CAG segment, was down 30.1%, reflecting delays in large project activity and lower-than-expected North American consignment activity, along with our lower DoD scrap volumes that combined with a less favorable mix of scrap assets compared to last year.
The CAG segment's GMV was also negatively impacted by the Surplus Contract compared to last year.
We reported revenue of $60.1 million, which, compared to last year, is down mostly due to the effects of the DoD Surplus contract.
Our GovDeals segment revenue was up, yet offset by a decline in our CAG segment and a slight decrease in our RSCG segment revenue.
Our GAAP net loss was $5.7 million, an improvement compared to $8.3 million a year ago.
Adjusted net loss was [$3.5 million], also an improvement from the $6.6 million loss in the prior year quarter.
Our second quarter adjusted EBITDA loss was $2.2 million, an improvement compared to a loss of $4.4 million in the second quarter of last year.
The improvement reflects the realignment and restructuring efforts across our business, improved results in our GovDeals and RSCG segments and lower expenses related to the LiquidityOne transformation initiative.
This was partly offset mainly by decreased results in our CAG's segment DoD contracts and also CAG's delayed industrial projects, and slower commercial business activity in North America.
We continue to have a debt-free balance sheet.
At March 31, 2018, we had a cash balance of $99.7 million.
Capital expenditures during the quarter were approximately $900,000, and we currently expect capital expenditures for the second half of 2018 to remain approximately in line with the current run rate.
As these second quarter results reflect, we are making progress on our 2018 goals to grow our commercial and municipal government marketplaces, despite the CAG commercial headwind and to execute on our business realignment efforts and for LiquidityOne implementation.
Looking ahead to the third quarter of fiscal year 2018, we anticipate our GovDeals and RSCG segments will continue to grow as we continue to see strong pipeline activity for both existing and new sellers.
Commercial activity within the CAG segment may continue to be impacted by variable timing of large projects and the extent of the availability of supply within the energy and industrial verticals.
We will continue to benefit from our restructuring efforts and to drive for efficiencies across the organization, including in IT.
We also expect our overall spending for the LiquidityOne initiative to be in the $1 million to $2 million range for the quarter, up from our second quarter spend level.
Compared to last year, offsetting these expected improvements will be the GMV and margin reductions from the DoD Surplus contract, as we have sold the residual inventory.
We execute on final wind-down activities and complete the closure of 2 warehouses.
In addition, our DoD Scrap Contract is expected to have comparatively lower performance related to reduced property flows and lower value mix of assets.
We also expect LiquidityOne spending to be back to normal levels in the third quarter.
Manager's guidance for the next fiscal quarter is as follows: We expect GMV for Q3 of 2018 to range from $150 million to $170 million; a GAAP net loss is expected for Q3 2018 in the range of negative $9.6 million to a negative $6.8 million, with a corresponding GAAP loss per share for Q3 of 2018 ranging from a negative $0.30 to a negative $0.21 per share; we estimate non-GAAP adjusted EBITDA for Q3 of 2018 to range from a negative $5.5 million to a negative $3.5 million; a non-GAAP adjusted loss per share is estimated for Q3 of 2018 in the range of a negative $0.26 to a negative $0.19 per share.
This guidance assumes that we have diluted weighted average shares outstanding for the quarter of approximately 32.1 million and an effective tax rate in the single digit.
We will now take your questions.
In Q3, we will have residual costs that will be concluded by the end of the quarter.
Going forward, we will have neither contribution on the top or bottom line from the DoD Surplus contract.
Yes right, what I would just reiterate that part of the sequential impact to EBITDA is the tail of expenses related to DoD facilities and the penultimate wind up of that contract that will go away following this quarter.
We have not broken it out, but it's meaningful.
While <UNK> is pulling that number, let me just comment that the scrap businesses changed fairly materially over the course of the last 6 to 12 months.
The volumes being received under the program have come down, both due to an inferior mix of metal alloy and some changes in the way the DoD recycling programs are run where facilities under the old regime used to refer material to the (inaudible) disposition services.
They are now holding that property and recycling it locally.
So that volume, which we used to get, we're not getting any longer.
In any event, I think that Scrap Contract is, individually not as material, it's part of the CAG segment.
So <UNK>, we do disclose in the Q, which comes out this afternoon, but the scrap revenue, which is very similar to the GMV, but we disclosed the revenue percentage so you can back into that our scrap revenue for this second quarter that just ended is about $6 million.
It's still in the pipeline.
It has not switched over.
I think what it reflects is a combination of investments that have been ---+ investments that are made in new business development staff over the last 12 months, which is pulling through new business.
Two, we've expanded our role with existing accounts.
And finally, we have added a returns management software platform, that is allowing us to capture fee-for-service business from both manufacturers and retailers to help them track management sale, store returned and online returned merchandise.
And as e-commerce continues to grow, that signature service offering for us, being a full-service solution to help these organizations reduce the friction and reduce the cost of managing returns.
I don't have recall of the total number of accounts.
And I don't believe we've done that in the past.
But certainly, what I can tell you about the GovDeals business is that we continue to expand market share as the #1 player in the municipal market.
We have expanded geographically and are picking up very sizable municipalities in places like California, state of Washington, state of Colorado, state of Ohio, state of Tennessee, state of New Mexico.
This is just a significant amount of goodwill and brand value that is associated with the focus of our municipal government sales force account management team.
And I think that recovery rates that we're generating for the clients are very enticing.
Most of these clients are moving away from live auction events and see a lot of value in reducing the storage cost and manual processes associated with those offline sales.
A lot of opportunities to continue to grow that business.
Yes, that's, I think, a fair comment.
We're still in the high single-digit penetration of the market.
And we haven't even added in Canada.
I think Canada is another area where we're seeing a lot of traction.
The buyer base that we built up provides great value for sellers in Canada as well.
And then, I would add, it's not material at the present time, but an area that we're very excited in is our self-service commercial offering, which builds on the same business processes that we perfected with GovDeals, where equipment dealers and other owners of capital assets transportation equipments can load assets into these online sales that we have, tap our buyer base and get it great recovery.
So I think we'll continue to be investing in self-service solutions for the commercial and retail supply chain business, that leverage our technology, leverage our data, leverage our buyer base at a very high-margin offering.
And we have, in that self-service commercial space, began already investments in sales and marketing in that area, as we've gotten ---+ started to get some volume.
Again, not material, as we started it, but we're certainly driving that business and down hopefully the same path, as the GovDeals traditional municipal and the government business.
And a much bigger market than the state and municipal business, because it's all commercial.
So we're being, as my comments at the beginning stated, it's ---+ there's a lot of variability in the timing of these projects and also in the asset flows even on the consignment side of the energy and industrial space.
So we're being cautiously optimistic of when these things hit.
But we haven't quantified it, but it is significant.
And then it does have a significant effect on ---+ did in the second quarter fiscal year that we just finished.
It could have a good effect going forward, but again, quantifying is ---+ we're a little hesitant in quantifying it.
Well, let me just add, by anecdotal examples.
We have regularly, in history of the CAG business, managed individual asset sales in the $2 million, $5 million, $10 million range.
And our current pipeline consists of that type of project work with clients that have identified the assets where we have proven buyer markets and resell channels.
So the timing of those sales have a confluence of labor management, operational questions, tax questions, in some cases cross-border VAT implications and they have a longer gestating period, but when they do it, they are needle moving type of transactions.
I would say a modest contribution from those delayed programs.
Sure.
Well, let's first reiterate that Liquidity Services believes that investment in superior technology and platform ecosystem tools is what will ultimately drive the highest net recovery for sellers selling assets on our platform.
And an example of that would be our use of APIs and the ability for clients to move information in and out of our platform without having to physically move the assets.
And a number of our clients are tapping into that set of tools to leverage our buyer base and marketplace to sell inventory from their physical locations.
And that's part of our long-term strategy with LiquidityOne is to leverage the platform and ecosystems to allow many people to participate, whether they want full-service support or not.
And we see that delivering the buyer liquidity, the different channels for new product, product that is, let's say, modestly used and then product that is scrap or salvage condition, we have channels for all of those.
Retailers appreciate that.
We are a one-stop solution.
They can take advantage of their own facilities, their own personnel to do the labor and asset manifest and preparation of those assets for sale and then tap into our buyer base and sell on a self-serve basis, or they can totally outsource that process <UNK>, and move all of their redirect flows of goods from consumers from directly to our facilities, which are national in coverage, including Canada now, so North American coverage and they have a turnkey solution for the physical flow of goods, the financial transaction, the information flow.
And we have been experiencing demand for both full-service and self-service.
Particularly now that we have returns management software solution, that allows clients and their supplier base to rely on us as a trusted intermediary to receive all returns, validate the condition of the return, provide the feedback loop to those parties on the credits owed between suppliers and retailers and then immediately be able to move these assets into a recovery channel to maximize value.
So there's a fewer touches involved, higher throughputs so the assets are sold sooner for more money and it's an asset-light approach for these clients.
I think the idea that the business is still positioning itself to deal with more and more e-commerce transactions and the need for robust, scalable solutions to keep consumers happy in terms of the returns process and recover maximum value, back to these clients whether they be manufacturers or retailers is very important.
And I have seen in the competitive landscape a winnowing out, if you will, the (inaudible) of players that can truly provide the technology solutions combined with the supply chain solution.
There are players that can do very thin point solutions or just one small part of the process, but very limited solution providers in the end-to-end supply chain, plus marketplace, plus good returns management tech solutions.
So in that regard, we feel very good about our competitive position.
Yes, I think within retail, we've seen nice growth with manufacturers, who are, in many cases, taking more ownership and control of their brands and how those brands are sold to the consumer on first retail sales.
And wanting to have some viability alongside the erosion of traditional brick-and-mortar retail.
So I see that trend continuing with direct-to-consumer manufacturers being a strong grower for us.
I think certainly, we have positioned ourselves with the largest and the most successful omnichannel retailers.
And I think that's going to continue to grow.
I think the energy marketplace is ---+ has high potential, but is currently sluggish.
We had an Energy Insights conference in Houston, hosting over 40 of the largest energy company representatives and their thought leaders.
And we're viewed as the market leader in the energy supply chain.
People are looking for assistance both in terms of asset redeployment, asset management and asset sales solutions to help these global organizations extract more value for their supply chains.
And so that I think has long-term potential and, eventually, will be a contributor versus a drag as it was in Q2.
Well in the wind-down process, we were converting the residual inventories to sales.
And I commend the team for doing a really good job on that.
We still have a bit of fixed costs as an overhang into Q3, the current June quarter.
That will go away beyond June quarter.
And what we'll expect to rebound and recapture some margin as we conclude near the final sunset of warehouse facilities associated with that DoD Surplus Contract.
Yes, with regard to retail supply chain, you've got a tremendous amount of focus and attention on forward supply chain activities, how do you merchandise and sell to the primary customers, consumers, that is always going to be, in my opinion, top of mind for these large and emerging e-commerce and omnichannel businesses.
And so on the back end of the supply chain, we fill a void and allow these organizations to innovate in our sandbox with partnerships to test and trial and then ramp programs that allow better control of dataflow on what's returned, better targeting of resale channels, and then better recovery of value by creating those channels.
And I think that's a symbiotic relation.
And I think we're really positioned to solve an industry problem in that regard.
And you're right, I do believe that GMV will reflect that penetration.
So we're aligned to continue to grow our market share and volume of goods sold.
And I do think there is a convergence of the desire for some of our customers, who want to have facilities that they have control over, stage some of the sales and use our tech platform and our buyer marketplace as the solution.
So we're very, very comfortable, allowing them to use apps and other tools that we create to access our marketplace and that third-party seller community is growing.
And it's a healthy part of our own growth story to have a variety of third parties accessing our marketplace, loading property and selling through their inventory or equipment, as the case may be.
So in terms of broadly, e-commerce driving more online sales, driving more online returns, creating a back-end source of cost for these companies, we solve that problem.
And on the capital equipment side, I think the variability around these larger projects, which may slip from one month to another, from one quarter to another, I think that will subside as we continue to grow out the number of organizations that we're working with and grow the overall volume of business that we do.
And $1 million to $5 million transaction will become a smaller and smaller part of the whole, and therefore, variability will decline over time.
Well, it\
Well, let me frame that in a couple of areas.
First, in terms of customers that we serve, the tools we have architected under our LiquidityOne platform, allows us to serve both Fortune1000 enterprise customers as well as small businesses.
And the reason for that is we've got tools that are now available to allow these organizations to self-serve.
And I think that's a really important capability that we're developing.
In terms of lessons learned, I think, the cadence of the rollout reflects the opportunities to work with the lower-volume marketplaces first and learn about new customer feedback, both internally and externally, and then what are the things that we need to do to scale to the next level of size and volume.
We're very committed to the .
net platform and the Azure cloud.
We've got a number of tools that are available in that cloud.
Everything that we have is moving to the cloud.
We have the ability to expose APIs to allow organizations to transmit information about their equipment or inventory to us through a variety of means.
So that's going to be a very important capability.
And I think the team that's running the project, led by Roger Gravley, they're primarily business leaders, that have technology experience and software development experience, as opposed to being pure technologists.
I think that's incredibly important part of a role like this.
And I think, we see a path to breakeven because we're going to be eliminating the tail of the DoD wind-down cost after this quarter.
Once we conclude LOT, the $1 million to $2 million of quarterly costs go away, we think that we will get post LOT efficiencies in all the areas.
I think our buyer experience and buyer participation will drive higher recovery.
I think we'll have more buyer core interactions on our platform.
There will be different ways and more ways to interact with us using our data and our My Account tools.
I think we're also going to be making it easier for sellers to load property into our marketplace.
And I think it will be less expensive, the labor costs associated with supporting our business, will be lower post the LOT.
And I think finally, we will enjoy modest organic growth, because of the new capabilities, associated with our platform, whether it be new self-service tools, accessing property that probably would have circumvented our market place, now being in our marketplace because we've made it easier for sellers to work with us and move information in an automated fashion with our business.
So and then finally, the returns management software platform, which is part of our LiquidityOne investment.
I think that's getting serious interest by many large players to solve a need in their supply chain strategy and it is a niche business.
I mean managing returns is not the typical focus for a retailer, or a manufacturer.
So we fill that void, and we're very focused in this area and we think that will help us post the LOT drive volume and growth.
| 2018_LQDT |
2015 | OSUR | OSUR
#Great.
Thanks, <UNK>, and good afternoon, everyone, and welcome to our call.
The third quarter continued our strong performance in 2015.
Consolidated net revenues were $29.9 million, and they came in at the high end of our guidance for the quarter.
The drivers for this performance were our molecular collection systems business, and continued momentum for our rapid hepatitis C test.
Molecular collection systems revenues increased 7% over the prior year period.
Third quarter sales of our OraQuick rapid hepatitis C test increased 62% over the third quarter of 2014, and 23% sequentially from the second quarter of this year.
Together with the exclusivity payments recognized under our HCV co-promotion agreement with AbbVie, total HCV-related revenues were $6.3 million for the third quarter.
Revenue growth combined with favorable margins generated a $1.5 million net profit for the third quarter.
This is the third consecutive quarter of profitable performance for the Company.
Later in the call I will provide additional highlights regarding our business, but before I do that, <UNK> will provide more detail on our third quarter performance and expectations for the fourth quarter.
So, with that, let me turn the call over to <UNK>.
Thank you, <UNK>, and good afternoon, everyone.
Our third quarter 2015 consolidated net revenues increased 7% to $29.9 million compared to $27.8 million reported in 2014.
Our consolidated net product revenues of $25.7 million increased 5%, largely as a result of higher sales of our OraQuick HCV, Intercept and molecular collection systems products partially offset by lower sales of our OraQuick HIV product.
Other revenues were $4.1 million in the current quarter, of which $3.4 million represents the recognition of exclusivity payments under the AbbVie agreement, and $750,000 represents revenue associated with Ebola-related funding we received from the Biomedical Advanced Research and Development Authority, or BARDA.
Other revenues in the third quarter of 2014 included $3.4 million of AbbVie exclusivity payments.
Total HCV-related revenues including the AbbVie exclusivity payments increased 21% to $6.3 million in the third quarter of 2015 compared to $5.2 million in the third quarter of 2014.
Our HCV product revenues increased 62% to $2.9 million in Q3 from $1.8 million in the prior year.
Sales of our OraQuick HCV professional product in the domestic market increased 47% in the third quarter of 2015 to $1.9 million from $1.3 million in the prior year.
This increase is largely due to the addition of new HCV customers and higher sales to current customers who have expanded their HCV testing programs.
International sales of our HCV test in the third quarter of 2015 increased 104% to $957,000 from $470,000 in the same period last year primarily due to the timing of purchases by a multinational humanitarian organization.
Also contributing to the higher international sales was the expansion of our HCV business in Asia.
Domestic sales of our professional HIV product decreased 23% to $5.5 million in the third quarter of 2015 compared to $7.2 million in the third quarter of 2014.
This decrease was the result of customers continuing to move some of their testing to fourth-generation automated HIV immunoassays or to competitive point of care tests that are perceived to be more sensitive.
We expect continued pressure on our professional HIV business for the foreseeable future.
Sales of our OraQuick in-home test increased 20% to $1.6 million in the current period from $1.4 million in the third quarter of 2014, largely due to the timing of orders placed by our retail trade customers.
Our molecular collection systems revenues, primarily representing sales of the Oragene product line in the genomics market increased 7% to $7.3 million in the third quarter of 2015 compared to $6.9 million in the third quarter of 2014.
Commercial sales increased approximately 20% primarily as a result of higher sales to existing US-based customers.
Sales to academic customers decreased 11%, largely due to the fulfillment of an order in 2014 for a large academic research project that did not repeat in 2015.
Substance abuse testing revenues rose 38% to $3 million in the third quarter of 2015 compared to $2.1 million in 2014.
This increase is largely due to higher sales of our Intercept device as a result of the recovery of customers previously lost to competition, improved domestic employment conditions, and an increase in oral fluid testing due to certain customers recognizing the advantage of its ability to detect recent drug use.
Our third quarter 2015 cryo revenues increased 7% to $3.5 million from $3.2 million in the third quarter of 2014.
Domestic sales of our professional product remains largely unchanged at $1.6 million.
International sales of our professional product increased to $258,000 in the third quarter compared to $43,000 due to the reintroduction of our product into the Asian marketplace.
Sales of our over-the-counter products in the international markets decreased 9% to $1.5 million in the third quarter of 2015 compared to $1.6 million in the third quarter of 2014 primarily due to distributor ordering patterns.
So, turning to gross margin, our gross margin for the third quarter of 2015 was 69%, compared to 67% reported for the third quarter of 2014.
Margin for the current quarter benefited from a reduction in royalty expense and the increase in other revenues largely offset by the impact of a less favorable product mix.
Looking at operating expenses, our consolidated operating expenses for the third quarter of 2015 were $19.1 million compared to $17.8 million in the comparable period of 2014.
During the current quarter, higher detailing costs associated with our HCV co-promotion agreement with AbbVie and increased legal [expenses] were partially offset by lower R&D spending and a favorable change in the exchange rate between the Canadian and US dollar.
From a bottom line perspective, we reported net income of $1.5 million, or $0.03 per share on a fully diluted basis for the third quarter of 2015 compared to $1.1 million or $0.02 per share for the same period of 2014.
So, turning briefly to our balance sheet and cash flow, we continue to maintain a solid cash and liquidity position.
Cash and short-term investment balance at September 30 was $108.2 million compared to $97.9 million at December 31, 2014.
Cash generated by operating activities in the third quarter of 2015 was $18.5 million compared to $18.8 million generated in the third quarter of last year.
Turning to guidance for the fourth quarter of 2015, we are projecting consolidated net revenues of approximately $29.5 million to $30 million.
We are also projecting consolidated net income of approximately $0.03 to $0.04 per share.
Our current expectations for Q4 exclude a $1.1 million order for OraQuick HIV and HCV devices that has been received from a public health jurisdiction that normally orders at the end of their fiscal year.
Given certain constraints surrounding the warehousing of inventory by this customer, we were not comfortable in assuming that they will take delivery of the product before year-end, which would be required to recognize the revenue.
As we look further ahead to Q1 of next year, it is important to remember that the first quarter of the calendar year is historically our softest quarter for revenues.
We do expect this pattern to continue in 2016.
An additional item to note is that our existing universal shelf registration statement that became effective in 2012 is set to expire during the fourth quarter of 2015.
We intend to file a new universal shelf registration statement consistent with our previously communicated practice of always having a shelf registration statement in effect.
And with that, I will turn the call back over to <UNK>.
Okay, thanks, <UNK>.
As noted earlier in the call, DNA Genotek had another very strong quarter.
The $7.3 million in current quarter revenues represents the second highest quarterly revenue total in DNA Genotek.
s history.
Through the end of September 2015, DNA Genotek generated more than $22 million of revenue, which represents growth of over 25% compared to the first nine months of 2014.
The revenue split for the third quarter was largely consistent with prior quarters, with commercial customers representing 60% of the total, and academic customers contributing the remaining 40%.
Commercial revenues were up 20% year-over-year in the third quarter.
The largest contributor to the growth of our commercial revenues was 23andMe, which delivered $1.7 million of revenue for the quarter.
This represents more than 200% growth over the third quarter 2014, when 23andMe was dealing with certain regulatory issues.
You will note that DNA Genotek's third quarter revenues were down sequentially from the second quarter, as expected, primarily as a result of the ordering pattern of a large breast cancer genetic testing company.
This customer made its initial purchase in second quarter to deploy our Oragene DNA sample collection product into its large network of collection centers.
This initial purchase contributed to DNA Genotek.
s record revenue performance in Q2.
Although this customer purchased additional product in Q3, the amount purchased was naturally down from the initial stocking order last quarter.
Overall, third quarter performance across a number of commercial customers was strong, and we are very pleased with the advances we have made in this market.
On our last call we discussed DNA Genotek.
s new product initiatives in microbiome and tuberculosis, and I am pleased to report that these initiatives are progressing as expected.
We continue to acquire new customers in the microbiome space.
We are also continuing to execute the trials and the validation studies through partners and prospective customers to demonstrate the capabilities and value of our tuberculosis products.
Turning to infectious disease testing, revenues from this part of the business were up 1% compared to the third quarter of 2014.
Lower sales resulting from the continued challenges impacting our professional HIV business were largely offset by continued growth in revenues from our OraQuick HCV test.
We expect both of these trends to continue for the foreseeable future.
With respect to HCV, this part of our business continues to show promising growth.
As previously mentioned, total HCV revenues were up 62% during the third quarter compared to 2014 and were up 23% sequentially from the second quarter of this year.
These results were driven by strong growth in both the domestic and international markets.
We expect continued growth and also anticipate sequential growth in the fourth quarter.
As noted during our last several calls, a major focus continues to be our co-promotion agreement with AbbVie.
Our efforts in the physician office market have included refreshed training for both the AbbVie and OraSure field sales teams, improved messaging for customers, and increased detailing by AbbVie.
In the retail market, the pilot program mentioned on prior calls has continued in order to help assess the effectiveness of using our test to identify positive patients and link them to care.
We will continue to look for ways to maximize the benefit of this collaboration on our HCV business.
The final area I will address is our ongoing efforts to commercialize the OraQuick Rapid Ebola Antigen Test.
In the quarter we announced significant progress toward the commercialization of this product.
In September, BARDA exercised an option to provide an additional $7.2 million in funding, primarily for clinical and regulatory activities required to obtain US FDA 510(k) clearance.
This option is part of the $10.4 million aggregate funding contract between OraSure and BARDA that was announced in June 2015.
The Company also announced that the CDC will purchase approximately $1.5 million of the Company's OraQuick Ebola Test.
The CDC purchase is expected to be fulfilled by the end of this year with approximately $500,000 in revenue recognized in the third quarter, and the remainder expected here in Q4.
The CDC is purchasing the OraQuick Ebola Test for field testing in West Africa.
This is the second such purchase of this product for field testing made by the CDC.
We will continue to focus on the completion of regulatory activities and on securing sustainable purchase commitments for this product.
So, in conclusion, our financial performance for the third quarter was strong, with solid revenues and another quarter of profitability.
Our molecular collection systems and HCV businesses continue to be the growth drivers for the Company, and we expect that to continue for the foreseeable future.
We are also making good progress on the commercialization of our OraQuick Ebola Test, and we look forward to wrapping up a record 2015 with a solid fourth quarter, and we look forward to continued growth in 2016.
And with that, I will now open the floor to your questions.
Operator, if you would please proceed.
This is <UNK>.
Hi, Kate.
Answer the last question first, so we indeed expect domestic HCV revenues to be up sequentially in Q4, so that's high confidence there.
Relative to AbbVie detailing, Abbvie detailing was at a peak in the third quarter, so I think it remains to be seen if that level of detailing continues into Q4.
We will obviously monitor that closely.
As I think <UNK> emphasized, expenses in the third quarter were impacted by an increase in AbbVie detailing expenses, and actually at this point in time, we have exhausted our obligation from a financial perspective to AbbVie detailing.
So, we should see a sequential decrease in expenses associated with AbbVie detailing in the fourth quarter.
That doesn't mean that their detailing will necessarily ---+ their detailing activity will be necessarily reduced, it just means that our financial obligation as it relates to AbbVie detailing will be reduced substantially in the fourth quarter.
Kate, we apologize, but we missed a large part of that question.
Could you repeat that, please.
Yes, we're getting a lot of echo on your line, Kate.
So, I don't know if you're on a speaker or if you can pick up.
So, DNA Genotek has plenty of capacity to meet existing demand and expanded demand.
We are going to be increasing capacity, and that new capacity is going to come online in the first quarter of 2016.
So, we do not expect any issues from a capacity constraint either in the near term or into 2016.
And we don't expect any effect on our gross margin profile, Kate, from bringing online that additional capacity.
So, they just recently relaunched their program here in the US for carrier screening, and we certainly have been coordinating our activities with them to make sure that we have sufficient product for them to accommodate what needs they may have.
But I wouldn't say that we have seen any extraordinary purchasing from them in advance of the launch, but we certainly are prepared to support them in every way we can to make that launch successful and to have products available to respond to their needs.
Yes, it is, <UNK>.
In addition to that customer purchasing more than they typically have done in the quarter, I think in large part due to timing, we have seen nice growth in the Asian marketplace for our HCV test, and that, too, was a contributing factor to increased HCV revenues in the international space.
Right.
So, that $7.2 million, as <UNK> indicated, is there and available to fund our activities in support of securing 510(k) clearance for our rapid Ebola antigen test.
And those activities include the finalization and locking in of the actual product itself, validating that, scaling that up from a manufacturing perspective, having sufficient product to conduct clinical trials in support of the 510(k) claim, and then filing.
And so all the costs associated with that, whether it be from R&D, clinical and regulatory, that will be reimbursed by BARDA as we progress through that phase of development.
That is likely to take us out through the 2017 timeline, and so we will recognize revenue coincident with the incurring of costs associated with that program.
And we will give visibility as to how that is going to roll out as we move through time, but as you might suspect, the conduct of the clinical trials, the amount of money that we're going to spend for those clinicals, the accrual of patients, all is somewhat vague at the moment as far as timing and expense levels.
But we will endeavor to give you as much visibility as we can as we move through the process.
Yes, that is correct.
Okay.
I just want to thank everybody for being on the call this afternoon and look forward to talking to you again at the conclusion of Q4.
Have a good afternoon and evening, everyone.
Goodnight.
| 2015_OSUR |
2018 | CORT | CORT
#No, the answer to your first question is, yes, the time is now come and gone.
And I think the most important thing to understand is that this is a regular phenomenon for us.
And so in sort of thinking about the year before the year had begun, this is really part of our thinking as well.
So ---+ because it's something that we face basically in all the years that we've launched in other particularly Orphan Drugs phase as well.
So yes, we don't provide quarter-by-quarter guidance.
But yes, what we expected to see was not so different than what we actually saw.
I'm going to give you a very brief statement, and then I want to introduce you to the fourth person who is in our room, is <UNK> <UNK>, who runs all of our commercial franchise.
The answer is it comes from both places, both existing physicians, who are prescribing to more patients, as they've seen the medicine work.
And it also be ---+ comes from new doctors prescribing to patients, who were not previously prescribed.
And it's actually a little bit more of the latter than it is the former, but I'll keep ---+ I'll introduce you to <UNK>, and he can provide a little more color.
Yes.
Thanks for the question.
I think that was most of the answer, I think.
The only other piece to add to that is that for the last couple of quarters, we really, on an increasing basis added more new prescribers, and as Joe stated as, doctors ---+ the hardest thing for us as a company commercially is to get physicians to write their first prescription, and when they do and they see the benefit of Korlym, they look for more patients.
So from a dispersion standpoint from the business, we have many unique prescribers, new prescribers that come into the business, we have many multi-prescribers and we're seeing prescriptions from all over the country.
Well, I think, that in terms of efficacy, it would be surprising to get something which was better because Korlym works on pretty much everybody, and that's terrific.
But it really does have this Achilles' heel, that's very, very consequential of the progesterone receptor side effects.
In addition to the medical side effects causing endometrial hypertrophy and irregular vaginal bleeding, it has both political and actual logistical problem that this is the same ingredient which is in the abortion pill and has to have very restricted distribution as a consequence.
I can tell you this, and it's always sort of hard to prove it a negative, although I've really had some anecdotal evidence and this is the case.
There are places in the country where Korlym is not prescribed, and I can tell you with certainty that there are doctors who prescribe to men who like the medicine very much but don't prescribe to women.
So this is not a small thing.
And taking away the progesterone receptor side effect is a major clinical advance for people who want to use this medication.
And again, I'll just repeat, it's in 2 different ways: One, it's a serious medical advance; and two, it allows potentially for far less restricted distribution than is currently necessary.
Well, I think the way to think about this is just as our clinical programs advance, our clinical spending advances with them.
And so they're going to become ---+ yes, they ---+ as they advance across year, there will be more patients taking medicine, more sites opened, more product being purchased.
And I think you just need to figure that into your forecast.
As for the sort of the administration portion of our spending, I think that we really are and it has been true for quite some time, that we generate marginal revenue with very little additional administrative expense.
And that's going to continue to be true.
Well, the Phase III study for ---+ we have no Phase III studies for relacorilant so far.
But is the question, how do we expect to enroll.
How do we expect to deal with the enrollment as we get to Phase III.
Bob.
Yes.
As I said, we really have the opportunity, and that's the great thing about a Phase II study is to really try to test all the dose that we could.
And as I said earlier, the lack of toxicity we saw at lower doses really enabled us to add a higher dose than we had even anticipated at the beginning of the study.
And that's the reason it's there.
And our first and most important thing with the Phase II study is really to learn as much as we could and that's what we're doing.
And it's our expectation that dosed appropriately, which means for each individual patient, the relacorilant will be just as potent as Korlym is, but without the important detriment of progesterone activity.
Yes.
Without really sort of pinning it down to very specific numbers as you know we don't give on a call.
We feel like our penetration is still a fraction of what it might be.
And we feel like the ---+ and I think ---+ I'll elaborate in 2 ways: One, I think that even with Korlym, there are many doctors who we think have patients who would benefit from the medication, who have not yet tried it.
And I just want to echo something that <UNK> said.
Sort of the proof of that to us is the growth in new prescribers every quarter.
And we think of that as really something that we have not seen the end of.
So that's the first part.
Second thing is, I think, the overall market size is probably grown, not that the patients weren't there, but they weren't being screened for previously.
So many times in the past because it was really what was in the literature, we said, we thought there was about 10,000 patients with Cushing's syndrome.
And clearly, there are millions of patients with Cushing's syndrome, but could there be somewhat more than 10,000.
I think the answer to that is yes, because I think there are patients who are now being screened for hypercortisolism, who are just kind of suffering along with all the various symptoms, not in medicines that weren't getting at the core of it.
So I think that in some sense the penetration rate is not what it would be even with a static number, but it's actually lower than you might think it is, because I think there are patients who will be added to the potential patients to be treated.
No.
Our anticipation will be that it will be a 6-month study, same as the SEISMIC study for Korlym.
And I think that's actually another thing just to think about.
I don't want to put too much emphasis, I want to just make sure that people understand the difference.
The results we're seeing with the relacorilant are in essentially what you've seen so far, 3-month study.
And there are certainly good effects with Korlym in 3 months, but the effects continue not just over months 4, 5 and 6, but even beyond that when we saw them in the ---+ in their extension study.
All right.
Look, sorry <UNK>.
Okay, sorry, <UNK>, didn't mean to interrupt you.
No, what I'm saying is that it's ---+ this is a very important biological characteristic of cortisol, which is that it is not released in a static way.
It's highest when we wake up in the morning, and then it's drop through the day, and then it rises through the night, and it's got this very nice sine curve and that's very, very important.
I think for most of people who know me know I'm a psychiatrist by training, and I can tell you that the nadir in ---+ that you need with cortisol is very important for psychiatric effects.
Not the least of which is sleep.
In order to get a good night of sleep, your cortisol access has to really turn off.
On the other hand, you have to really be ready to kind of greet the day with a higher cortisol level.
So that's a very, very ---+ it has evolved over a long-period time, a very, very important biological characteristic of cortisol.
So a medicine that simply gave you an average in the appropriate range, but obliterated the diurnal rhythm of cortisol, would leave you in a condition where you're not feeling well.
That would not be a good thing to do.
And that's in fact something that Korlym does not do.
Korlym, if anything, exacerbates the diurnal rhythm, and it actually makes sure that you have a high peak and a nadir.
And I think that one of the interesting things clinically is that people will notice with Korlym that even in the first week they start to sleep better.
And that's actually very important characteristic of this type of medication.
A good corticoid receptor competitive antagonist that Korlym is, and that we're developing.
What I\
| 2018_CORT |
2015 | OCLR | OCLR
#Yeah.
So our fabs are not a bottleneck in any way.
We've benefited greatly out of ---+ from the merchant chip sales that we have going on out of Japan for 10 gigabit applications, or 40 gigabit applications since they use the 10 gigabit lasers.
So we've been supplying product into that market segment.
Quite successful in terms of revenue and margins.
In terms of 100G, we have zero constraint from a fab capacity point of view, nor do we expect to have any.
And so we're well set up to scale, which is one of the big levers that we have in going, I think, back to <UNK>'s earlier question about, you know, can we continue to grow the gross margins once we get past the March quarter.
The fab leverage is enormous for us, particularly in our UK fab.
As the ACO ramps, that will be a great margin source for us in terms of fab recoveries.
And <UNK>, I would only connect the dot with the CapEx at $30 million to $40 million we have for the year.
That's really for assembly test equipment, just sort of echoing <UNK>'s comment of not a constraint at the fab level.
Sure.
Yeah.
I mean again, <UNK>, we don't really guide beyond the one quarter.
We definitely see the traditional down in the March quarter, and as <UNK> commented, some of the bringing on the additional capacity.
But from an overall momentum standpoint, we continue to have good momentum in 100 gig and, you know, I would call those are sort of the themes that I'd share with you.
Thanks, <UNK>.
Yeah, just for the past quarter there was little impact, if you will, for exchange rates.
And so I don't think it's material given at least the level of volatility that was shown in the September quarter.
I'm sorry, you mean could the demand remain strong in the March quarter.
Is that ---+
Yeah.
No, it most certainly will and I do think it may even carry over into the following quarter.
I think that we have to remember the March quarter is 12 not 13 weeks for China for the reason you stated in the sense that the Golden Week is more or less a week of downtime.
But we do ---+ you know the demand that we're talking about is starting this quarter and will for certain carry into the March quarter.
No, I think that what we hear is exactly what you said, that this is pent up demand but there is more demand as build outs continue.
And the 20,000 ports, as people have talked about, is the China mobile.
I don't have visibility as to the number of ports China telecom is talking about, but my understanding is that some of the recent releases is more than just China mobile.
Or pending awards.
So that would be added into the 20,000 I would think, but I don't have any numbers on that.
Yeah, I would say ---+ I would say that many of our 10 gig products are legacy and basically don't see much in the way of price erosion.
The big sellers are in the tunable side, so tunable lasers and in there, essentially there's three players, us, Lumentum, Finisar.
And you know, it moves around in a fairly normalized way.
No.
Yeah, that's why we haven't been hit.
Yeah, there were two with 16% each.
| 2015_OCLR |
2015 | ORI | ORI
#Thank you and welcome again to this discussion of our Company's latest results.
And as was just indicated, after the remarks we'll open up the session to field any questions that may be left unanswered by either the press release itself or the discussion we're about to have.
We'll handle this visit as we have in the past by covering matters specific to each of our operating segments and we'll do so in the same order as the discussion appears in the news release.
So why don't we start with you, <UNK>, and take up the General Insurance business discussion.
Thanks, <UNK>.
The General Insurance Group experienced 5.6% growth in net premiums earned for the quarter year-over-year and an increase of 6.4% for 2015 year-to-date.
We currently believe that these growth rates should hold at or near those levels through the remainder of the year.
This growth rate obviously varies among the various coverages and product lines.
While rate increases should begin to moderate going forward, we still expect organic growth and stable retention rates to continue on existing accounts.
We also have reasonable opportunities or should have reasonable opportunities for new business such that most of our operations should experience steady growth for the foreseeable future.
Addressing rate trends and with the understanding that we operate in several specific marketplaces with varying product mixes, we are seeing rate levels moderating in increasing, more stable economic, but still very competitive environment.
Some of our operations are achieving low to mid single-digit production growth and other parts of the business have posted less than acceptable performance in the past couple of years or more, and we're having to retrench some in order to reorient the business mix from both geographical and product type standpoints.
As we have noted before; we have different markets, different products, and no one size fits all.
Year-to-date the composite ratio declined from 98.2% in second quarter of 2014 to 97.1% this year.
The loss ratio was down a bit and the expense ratio ticked up, but overall a better composite for the quarter and year-to-date.
Commercial auto performance improved over the first quarter resulting in a year-to-date loss ratio of 77.5%, more in line with our expectations.
The workers' compensation loss ratio was down a couple points year-to-date from 2014 to 81% and we continue our efforts to return that ratio to more historic levels in the 70%s.
General liability is performing much better year-over-year.
With this smaller line, severity and claim development are the usual performance drivers as we have noted before.
Trends are both better thus far.
The line posted a loss ratio of 67.1% versus 81% in 2014 year-to-date.
Remaining product lines have performed well through mid-year as well thus resulting in an improved composite ratio for the Group.
We continue our efforts where appropriate in our several markets to emphasize more loss sensitive product offerings versus guaranteed cost products.
As we've explained before, our results tend to improve as the insured shares in the risk of loss and has a real incentive to observe good loss control practices.
Looking ahead in the near term, we believe our respective markets will maintain their present competitive environments as they have to date for the remainder of the year.
Our focus remains on favorable underwriting results and achieving the objectives outlined in the five year plan we established as 2012 came to an end.
And with that, I'll turn the meeting over to <UNK> <UNK> for the Title Group update.
Thank you, <UNK>.
We're very happy with the latest report we are able to give here on the Old Republic Title Insurance business.
Title Group recorded its best quarterly profit ever.
The previous record dates all the way back to the third quarter of 2003.
Our record performance in the latest quarter is even more remarkable when you consider that 2003's third quarter mortgage origination market totaled nearly $1.2 trillion while 2015 second quarter originations were only about $400 billion, about a third of what had been recorded in 2003.
As we reported this morning, Title segment registered a $47.7 million pre-tax profit.
In comparison to 2014 second quarter profit of $26 million, we're up 83.3%.
Year-to-date pre-tax operating income was up about $33 million compared to 2014 rising from $30.8 million to $63.7 million.
This represents year-to-date growth of about 106%.
As we can see in the release, premiums and fees were up a little more than 19% from $421 million to $503 million.
And so far this year, premiums and fees are up approximately 14.3% from $815 million to $931 million in the latest quarter.
Closed orders from our direct operations increased 22% while independent agency production was up about $58 million or close to 20%.
Commercial operations continue to exceed our expectations.
Revenue from commercial orders was up almost 20% relative to comparable quarters and now accounts for over 16% of our total premium revenue.
Our national market share has exceeded 15% early in the year so far.
Taking a look at the factors that drive profit margins, we note that claims trends continue to improve.
If you look at the table on page 3 of the release, you can see the claims ratio dropped from 6% to 5% for the quarter and 5.3% year-to-date.
The expense ratio has also declined as we obtained significant benefits from operating leverage.
Our results are benefiting from a number of things: low interest rates, an improving economy, and more purchase transactions relative to refinances.
We have little reason to believe that much will change in the near term; interest rates, seasonal fluctuations, regulatory issues seem to be stable.
The Consumer Financial Protection Bureau was to release new rules next month in August, but that's now been delayed till October.
It was supposed to be the hiccup that many predicted would affect the third quarter money market and it probably won't have much impact this year.
Sum total all the factors we cited leads us to be optimistic about our potential for growth and the Title segment's contributions to the Old Republic family of companies.
And with that very good thought, I'll turn the meeting back to <UNK> <UNK>.
Okay.
So let's see; let's a take a look at the pages 3 and 4 of the release if you have it there and looking at those numbers with respect to the RFIG run off, it's obviously clear that we're not yet out of the woods with regard to the litigation matters we've been dealing with since the Great Recession started in 2007 or thereabouts.
Periodically as you might expect and as is expected of us, we do revisit the trends in the mortgage insurance and CCI litigation.
As you know, we have two separate cases even though they are both with the same major banking institution.
But we do look at those case trends in terms of litigation costs as I say; and as a result, we tend to respond as necessary in the light of changing circumstances and more importantly the advancing fees, legal fees that we incur in order to assess the estimable costs of these ongoing cases.
In last year's second quarter for instance, that period reflected a substantial charge for the settlement of a CCI case in an amount that exceeded what we had earlier felt were well founded cost expectations.
On the other hand, in this year's second quarter we once again took pencil to paper so to speak and concluded that we needed to put up some more money in what we refer to in the trade as unallocated loss adjustment expense reserves.
Those are reserves set aside to pay expenses of litigation in this case or even indemnity as it might occur.
We still believe that with respect to these cases that we are reasonably well reserved to address the ongoing litigation and we still have every expectation of resolving these matters in I would suspect the intermediate term, which would imply hopefully that we can get this done within the next 12 months as quickly as we can.
On the other hand, the results of the run-off book ex the litigation aspects of it that I just referred to are coming in pretty much as we've expected quarter in and quarter out for the last several years.
As is generally known, obviously housing values are perking up in many markets throughout the nation and of course the job situation which is always important to most people's ability to make good on their debt obligations, those keep improving fairly consistently.
So, this is having a continuing beneficial effect on both the emergence of new mortgage defaults as well as the ability to cure previously reported and sometimes languishing defaults.
So, these are the major reasons that previously established claim reserves have fairly regularly worked out positively and have produced the types of current claim costs relief and the lowered claim ratios that you can readily see in the statistics that we have in the first paragraph on page 4 of this morning's release.
So, the bottom line for this run-off book is this, as we see it today; and that is, that as quickly as we can rid ourselves of this persisting litigation that we've noted, we should be able to achieve the soft easy landing that we've contemplated for these two run-off books of business in the so-called RFIG run-off segment.
And when we do that, we should be able to move our concentration, our intention to more productive efforts in the interest of all of our stakeholders, whether they be among the RFIG run-off or elsewhere in our enterprise.
So, maybe <UNK>, you can pick up and speak to some financial matters as we've planned.
Very good.
Thank you.
Today's news release reflects very little change of significance in Old Republic's financial condition as of June 30.
The cash and invested asset balance of $11.3 billion remained largely consistent with amounts reported at the end of December and is down slightly from March 31 levels.
As shown on table of page 5 of the release, the cost basis of the investment portfolio increased by approximately $209 million during the first six months of this year.
This growth in the invested asset base was substantially offset by a general decline in the fair value of the portfolio during the second quarter of this year in particular.
The portfolio composition remained steady at June 30 with approximately 82% allocated to fixed maturity and short-term investments and the remaining 18% was equity securities.
Investment income rose by a little more than 9% in this year's second quarter to $93 million and by 9.7% to $184 million for the first half of 2015.
This higher level of investment income is due primarily to the greater invested asset balances accompanied by an increase in the overall portfolio.
The fixed income portfolio's credit quality retained its overall A rating at the end of June and the average life of the fixed income portfolio remains at approximately five years.
Consolidated claim reserves were essentially flat at the end of June compared to both the March and prior year-end balance sheets.
For the first six months of 2015 and 2014, consolidated claim costs have developed slightly favorable.
Comparative reserve development percentages for the General Insurance Group are included in this morning's release.
As we noted, the reserve development was slightly deficient in the second quarter and first six months of both years.
I would say consistent with the past several quarters, we experienced favorable development in the mortgage insurance prior year reserves as <UNK> referred to in his earlier comments.
Finally, the Title reserves developed favorably during the quarter resulting from the recovery of losses paid in prior years.
Absent this, the second quarter loss ratio would have remained largely consistent with the loss ratio reported during the first quarter of this year.
Shareholders' equity as of June 30 was $3.9 billion or $15.16 per share, which was essentially unchanged from December 31 and down $0.32 per share for the second quarter.
As we've shown in the book value per share table that's on page 6 of the release, we continue to add to book value by virtue of the net operating income and realized gains that are in excess of the quarterly cash dividends that we paid to our shareholders.
As the table readily shows, the volatility in reported book value per share is driven largely by changes to the unrealized gains and losses on the investment portfolio.
And finally, the capitalization ratios shown at the bottom of page 6 are relatively unchanged at the end of June by comparison to the prior year.
So, that's the financial highlights that I wanted to cover.
So, let me turn this call back to <UNK> <UNK> for a few closing remarks before we go into the Q&A.
Thanks.
Okay.
So when you wrap up all these comments from the four of us here, we do conclude that we had a very good start on the year.
In General Insurance, as <UNK> <UNK> mentioned before, premium growth should pretty much track the trends that we're seeing in the first half of this year; and underwriting and investment income that should also continue to trend higher.
A great deal of the underwriting improvement for the remainder of this year should most likely be driven by the much stronger claim reserve base that we closed 2014 with and therefore, we should not have the level of adverse development that we contended with in last year's second half and much more accentuated, as some of you who follow us may have noted, in last year's fourth quarter.
So, I think we're going to have an easier time in terms of loss ratio expectations for the rest of this year.
<UNK> <UNK> of course gave a good basis for optimism in the Title business.
And then finally, absent any unexpectedly adverse resolution of the litigation situation in our run-off business, that business also should produce moderately positive though declining results.
Again, that's to be expected in a run-off book.
The premium base continues to decline as the in-force gets lopped off; and as a result particularly in light of the better economy, better housing, and so forth the remaining book should produce some sound positive results.
So when we wrap up all this together, it does make us confident that we are likely to post a good set of operating numbers for all of 2015.
So with these thoughts, why don't we open up the meeting to any questions that you may have.
Why don't anybody with questions direct them to me and I'll bounce them off <UNK> or <UNK> or <UNK> or myself as necessary.
<UNK>, you want to address that.
I think you tried to make a few comments about it before, but go ahead.
In terms of the competitive arena, <UNK>, it varies marketplace to marketplace in the several specialty operations we have.
I think you can say though that no matter what arena you're in, it's always a competitive marketplace.
In terms of the rates we're at right now, obviously we're running about 81% as I indicated on loss costs, we'd like that into the 70%s.
So by and large when you look at the rates line to line, geographically, product line, specialty line, there's a lot of moving parts on all this and nothing is the same.
But in general, we'd like to see rate increases in the operations from the low to mid single-digit increases for the remainder of the year if we could and our retention rates are good so that should play well for us.
Obviously the performing books may be less than that and the books with the higher claim costs would be more, but typically we would see low to mid single-digits.
Does that answer your question, <UNK>.
<UNK>'s looking actually at the development issues on that.
But I would say generally as I indicated, that line is typically driven by severity and because of its size, it doesn't take many severe occurrences to run that up to where it has been over the last two or three years.
Typically that line will run about where it is.
If you look at it historically on the exhibit we provided, to 2012 it runs in the mid-60%s and so we really see this as the normal loss ratio placement that we'd like to see on this as opposed to the results that we posted the last two or three years.
I didn't want to step on anybody in the conversation.
If you look at those ratios, yes, the 10-year average is 70%; but if you look at last two or three years they have been in the upper 70%s and 80%.
Historically that line has run in the mid-60%s for us and that's kind of where the target is that we would like that to be is in the upper 60%s.
Okay.
Thank you.
Well, I guess we must be doing a pretty good job of explaining what's happening to our business since there are no further questions.
So therefore we'll bring the meeting to a conclusion and as always, we appreciate everyone's participation in it and look forward to our next visit sometime in October following the third quarter release of our earnings.
On that note, we'll bid you a good afternoon.
| 2015_ORI |
2016 | FLR | FLR
#Well, I do expect second half cash generation to improve.
As I said, working capital should come down in the second half.
So you should interpret from that.
We expect it to be better relative to income in the second half, so cash from ops to improve on that basis.
I didn't think we'd get all the way back to get working capital normalized by the end of the year.
So I have to step back, too, and say, with some big projects and some big payments, timing always has a big effect.
And that's why we don't give cash guidance, the range just ends up having to be too broad to where it's not all that meaningful.
But I think that a general assumption that we get $100 to $200 million of improvement out of working capital in the second half would be reasonable.
Excuse me.
$100 million to $200 million of improvement in working capital in total.
Take cash out of working capital and almost everything else in there is project-related.
I think we're a much more competitive company, first.
So I think when you look at the integrated approach that we're doing and being able to utilize all of the assets the company has available to it, we've got a better cost model.
We've got a more effective and efficient execution approach.
And in the same vein, we're seeing improvement in terms of margin and backlog.
That's things that we can control.
And I think from the outside looking in, it's a highly competitive market.
And as I said, you really have to look at us a little bit differently because of the diversity, and we're seeing different pressures in different markets based on where they are in those cycles.
Clearly, if you go back to one of my previous comments about infrastructure and what I'm pleased about in terms of those smaller projects, there's a lot more competitors out there that can do that.
But the point I'd absolutely make is that there is absolutely no difference in the way we look at our contractual liabilities, what we're willing to accept, as well as what types of margin we're willing to accept.
And if that causes us to lose some projects, so be it.
We're going to maintain the discipline that I think has proven effective over 104 years of our history.
It's the same sorts of things that they been doing in that space.
If you really look at that particular segment, it's about being able to access customers' operating budgets as opposed to capital budgets.
And those have not changed.
They still have to maintain those facilities and keep those facilities going.
So I think by broadening our offering, by adding Stork, allowing Stork access to the Fluor world, I see that business growing pretty good over the next several years.
But keep in mind, it's still a small percentage of the total.
But the beauty of it is, I hate to use this term, annuity, but it's almost an annuity style business to where, when you think about that and you think about parts of Government, that's going to pay the light bills and we're going to be able to grow on the back of the other types of businesses.
So it raises, if you will, that sure spending, that sure earnings stream over the longer term and grows that, and then we're able to layer on top of that the capital spend in the different markets that we serve.
Oh, within that business.
I would say it's probably 70%.
No, it's all over the place.
It's the US.
When you think about the legacy Fluor side of it, of the business, it's South America, it's Australia.
Obviously, Western Europe, as well as the Middle East.
So it's pretty diverse in terms of its geographic footprint.
Very little.
It's interesting, it's almost like everybody woke up the next day and the world did not end.
But we really haven't seen the spending habits or any of the projects that we're working on change.
I think movement might get interesting as we go through time.
But remember, the eventual end of Brexit won't occur for another two years.
My estimation.
The only other affect is that we were talking about Stork's business.
Stork does have work in the North Sea, so devaluation of currency does have an effect on Stork's revenues and income for the year.
That's one of the headwinds that Stork has been dealing with is overall foreign exchange environment.
It's not a part of your question, but since we're coming close to the end of the call, I'll go back and come back to the margin question that <UNK> was asking about earlier, because I continue to try to think of how better to answer her question.
And I would just say that to the extent that someone questions whether it's all mix, I think it would be more realistic to make the assumption that we're being conservative, rather than to make the assumption there's something in there we're not talking about.
I think we're focused on integrating Stork right now, and doing a good job of that.
I still think our priorities haven't changed.
We're going to look for opportunities like Stork that are niche in size and in nature that fill a void in our service offering.
We're going to look at maintaining the dividend performance that we've practiced over time.
And when there's excess cash, then we'll look at other means of returning that to our shareholders, and that still remains our priority.
That's a great question.
I think it's basically kind of moderated a little bit.
When you look at a lot of the projects that were at least scheduled to go forward that are now delayed, and in some cases cancelled, we haven't seen that big glut that we needed.
So I think labor cost in the Gulf is pretty stable right now.
Thank you.
Well, I think that yes, we expect revenues to go up.
This has been one of the harder things to forecast over the last couple of years.
So I don't want to get too far out in terms of being real specific about what we expect, but I do think it's pretty reasonable to expect revenues to go up.
I think Industrial, Infrastructure and Power looks like it should go up.
I think MMAI, likewise, can go up, as Government.
I think that Energy, Chemicals and Mining, this is one that's a little harder to say exactly, but it is quite possible that it goes up, and that's one of the things that will affect ultimately that margin rate.
Because the margin is a little more predictable sometimes than the revenue line.
And that makes sense.
But that's just been the case, and so that's one of the reasons I went back and I said it could be that we're just a little conservative from a margin rate standpoint.
And I think it's safe to say in the Energy and Chemicals piece, we'll see some increase as we get into next year.
No, I don't.
I think we're looking at a couple of anomalies in terms of that.
I'd go back to what, in <UNK>' prepared remarks, we're at 29% fixed price, which isn't outside of the norm.
And I do believe that the new approach that we've taken, the way we're looking at execution, the way we're looking at supply chain, the use of fabrication, the direct hire construction approach, I have more confidence in being able to deliver those projects today than when we started this journey five years ago.
Absolutely.
The conversations I'm having, it's okay, we've studied this enough, and they're coming up with the same answer they came up with before.
And they're finally saying, let's get on with it.
Because they need those reserves added to their base or they're not growing, in terms of replacement of, whether it's gas or oil.
I think that, as I've said, I think they've gotten comfortable with the new 40, or the new 100, I guess, is at 40.
So in those conversations that I've had, some people are saying, well, I really don't need to spend any capital in the next year or so, but man, I'm going to have to catch up later, which I think concerns me a little bit, because as we saw in that last boom, there was hyper inflation, there was no customer happy and it didn't do anybody in our industry, in the service industry any good.
So I'm kind of hopeful that they stay with a good regimented approach and a good solid march forward in terms of bringing those capital programs to FID, as opposed to a herd mentality and you see a glut again.
Because I don't think that's good for anybody.
I think they're normal decisions as we go over the next couple of years.
As I said, I think when you look at the cracker complex, as an example, I think there's several years of one a year going to FID.
I wouldn't say it's any particular quarter, but I think it's pretty positive momentum, if you will, that supports at least a little bit of enthusiasm.
I'd probably moderate your description of my enthusiasm a little bit.
But I think there's good things out there and I think we're in a good place to be competitive.
Thank you, Operator.
And I really appreciate everyone participating tonight.
As I said in my opening remarks and throughout the Q&A, commodity prices remain volatile.
And I think this, along with some uncertainty that's created by some geopolitical issues, is causing some of our customers to maybe extend that decision.
But at the end of the day, those final investment decisions will be made.
I'm pleased to see the progress in our ability to diversify the backlog, as I mentioned, beyond just a commodity focused segment.
But I also believe our capital structure and our discipline around cost and the flexibility that we have in operations allows us to make some strategic investments for the long term.
I believe our integrated solutions approach is continuing to produce positive achievements, and the performance improvement in engineering, supply chain, construction, I think the overall schedule delivery that we're seeing has been well received by our customers.
With that, I really appreciate your interest in our Company and the confidence that you place in us, and I look forward to speaking with all of you soon.
I wish you all the best.
Thank you.
| 2016_FLR |
2016 | ATVI | ATVI
#So, you're right.
We don't typically provide sales guidance.
But what I can say is, we are extremely excited about Overwatch.
It's an important step for us into a new genre that we think has a ton of potential.
We have seen a very positive response from players.
Over 8 million players have signed up for the beta test.
Since beta, we have been very happy with the viewership interest on Twitch.
Overwatch is every bit a Blizzard game in terms of, I think it exemplifies the design values that we have, it's a ton of fun, it's excellent game play, art style, interface.
And so I think we're bringing a Blizzard take to an already very fun genre.
We're looking forward to launching on PC and consoles, a simultaneous launch this spring.
Like other Blizzard franchises, we have long-term plans to support Overwatch through ongoing content, world-building efforts outside of the game to build the franchise, the IP, and a robust eSports program.
So we have a lot of reasons to be very optimistic that Overwatch will be an important long-term addition to our collection of franchises.
Right.
And then to the second ---+ I guess maybe the first part of your question about China, and how China revenues have moved.
A lot of the growth came over the course of the year by having relatively more games in-market than we've had in the past.
But it was really broad-based performance across the portfolio.
Diablo obviously had a very strong year, HearthStone as well caught online, and the rest of the portfolio.
So it was really the breadth of the portfolio, but it was broad-based performance across the portfolio.
Thanks, <UNK>.
The game has been growing revenues month over month for the last six months in a row.
And we believe that the updates we have planned for 2016 will further improve the game play and the performance.
The updates to come this year are going to include enhancements to the user interface, to onboarding.
The addition of supply drops inspired by the success we've seen with that in our Western products.
eSports features, and social systems that will make our community engagement even stronger, and additional modes and maps and characters as well.
We also continue to work closely with Tencent to bring people into the game, which is critical.
So we remain optimistic about the game's opportunities.
And as we said when we launched the game into beta, it will take time to build the ramp.
And relative to the second part of your question, what's in the guidance, we have a very prudent, I'd say, ramp forward, even though we have great aspirations for the opportunities that we have inside the game.
Thanks.
I'll take the first one, <UNK>.
So as we said, there isn't a significant investment in the eSports individual operating unit initiative or in the other broader media areas.
What we step back and look at is ESPN.
And when you look at ESPN, with 80 million subscribers, and you see the flight of some of those subscribers, and the opportunities that we see there is roughly $5 billion of operating profit there, $4 billion of League payments for the broadcast rights.
And we have 80 million of our own players.
And over a long period of time, we think that watching a video game competition is going to be a tremendous opportunity.
It doesn't require a very big investment today.
It just requires us to have ---+ and in fact, most of the efforts we have are funded by things like organized competition ticket fees.
When you look at what the opportunity is for the future to enhance engagement, to build and strengthen our franchises, to celebrate our players, to provide rewards and recognition for our players, these initiatives are really important for the building of engagement and enhancing the value of our franchises.
I guess to build on that from the investment side, all of our investments start with great people.
We now have great leaders in those businesses to prudently invest behind.
But as we always are, we're being very choiceful in how we invest, and disciplined about the gated investments in those areas.
This year, it's really less than a couple pennies of investment that will go into our new divisions, from an overall company EPS perspective.
And most of that is against the media networks, which is our eSports division that <UNK> was referencing there.
We do have additional eSports investments in some of our business and franchise-level details, like <UNK> and <UNK> alluded to.
But we think those are more around demand generation than anything, and help support the franchises that they cover.
On your other question, <UNK>, around macro environment and competitive aspects, yes, you hit on the obviously Skylanders and Guitar Hero points, where, in the casual segment, on console, there was more competition.
That feels more category-specific.
When we look more across the broad base of our business, we haven't really felt many of the macro trends that are ---+ and volatility we've seen in the overall market really affecting our business.
In fact, many of the digital trends, when you look at our biggest franchises, are stronger than ever.
And in fact, in many regions, even regions that are experiencing some turmoil, like China, we've had a great growth in the past year.
So for us, it's more about delivering great content on cadence, that will be the most important thing for us.
Thanks, <UNK>.
Okay.
Regarding cadence, we definitely have plans for some great new content this year, but we're not quite ready to discuss the timing.
I can confirm that our next expansion will be out in the spring.
As for growth drivers, we've consistently seen strong engagement, pretty much universally globally.
And we plan to continue supporting that with new content for the foreseeable future.
Bringing HearthStone to mobile last year drove a lot of growth, as did releasing a good amount of new content.
We also plan to support the community around social events for the game, such as fireside gatherings and high-profile eSports experiences.
This also drives engagement.
In addition, we'll be looking at geographical expansion opportunities, like we did last year with Japan.
In general, spending does increase around new content.
So we're focusing on providing great experiences with new content, and making careful design decisions to make sure we protect the long-term health of the game.
<UNK>, thanks.
Obviously the digital transition's been a very nice tailwind for us over the past several years.
And really, front-line console games are the final part of that transition.
But it's only really part of the equation.
As we mentioned in the call, in <UNK>'s remarks and my remarks, the add-on content and services, which is purchases effectively after the initial sale, are really increasingly more important ---+ or as important, and are growing incredibly fast.
And is one of the fastest parts of our digital portfolio.
To your question, though, on front-line titles, it really varies by title.
So for games like Destiny, had in the high-20s in terms of digital downloads, in terms of overall volume.
For Call of Duty, just based on the size of the player base, full-game downloads were a lower share than that, although on an absolute basis, full-game downloads were up over 80% year over year.
So very nice progress over there.
We know, when we look at the Blizzard side of our portfolio on the PC, the vast majority of those front-line games are delivered digitally.
Obviously that brings margin benefits for us, as each new game gets delivered through digital channels brings us gross margin benefits.
And you'll see that in our overall corporate margin.
We were at 32% this year, and with currency effects, or excluding the currency effects, it would have been north of 34%.
So overall, we think that trend is going to continue on the console side, particularly on the front side.
And it will be a nice tailwind for us for 2016 and beyond.
It is, <UNK>.
The vast majority of what we create are zeros and ones.
And when you look out over 500 million people in the network, you're going to see, for the first time, we really have the opportunity to sell our products in virtually every country in the world, on every type of device, whether it's a mobile device or desktop device or a console.
So the most important thing for us is engagements across our communities.
And then the opportunities for delivering player investment follow from there.
All right, thank you.
Well, we appreciate the time today, and we look forward to talking to you on our Q1 conference call in the spring.
| 2016_ATVI |
2016 | CIEN | CIEN
#In terms of the ---+ <UNK>, in terms of the growth rate for DCI and metro, it's about what we thought.
As we look at the overall market, we think it's in the mid-single digit if you blend all of those.
Some are obviously much higher than others and that's what we're seeing in the mix.
So really our view of the market as we look at for the rest of 2016 really hasn't changed as we look at the blended the balance of growth.
Yes, we said that we believe that we are growing and taking market share in every region except for EMEA and we still believe that to be the case.
On the Cyan question, I assume, <UNK>, that you're talking about the hardware side of Cyan, the Z-Series.
On the Z-Series, it's been doing very well.
We had a total of about $25 million in revenue from Cyan this year, both products and services.
This quarter.
This quarter.
Excuse me.
Thank you, <UNK>.
So it's pretty much performing as to expectation.
And then on the Software side, great traction.
Again, not a lot of revenue this year, but we've proven to ourselves that there is a market and that we have a really, really good product because we're winning.
Thanks <UNK>.
Yes, <UNK>, I think the dynamics that we see playing out for the rest of the year ---+ listen, I think APAC is going to continue to be strong.
I would highlight India specifically as being a standout geography, and also CALA.
But I do think ---+ which I think is to the point of your question that we will see North American growth strengthen in the second half and we think that we can probably see double digits organically growing.
If you take out AT&T from the North American picture, we can see double-digit growth in North America in the second half.
And I think to your point that that's a blend of cable, web-scale environment, utilities, some of even the large enterprise data center pieces as well.
So on the order flow that we saw in Q2 was I think was reflective of that and that gives us visibility and some confidence around that North America market in the second half as well.
I would say, the relationship certainly has had a good contribution to it.
I would think given the size of the numbers that we're seeing there it really is us taking share.
And I think ---+ you look at somewhere like India, we been invested in the India market now for almost 10 years and we're really beginning to see the benefits of that.
We also are pleased to announce that we've just been awarded the defense project in India, which will start to roll out during 2017.
It's the largest network of its type and that's really based on carrier Ethernet transport delivery to all of the various armed forces in India and we've just been selected for that project.
So I think that's an example of the direct activity that has taken a long time to come to fruition but we're really beginning to see those markets move now.
(inaudible)
Thank you.
Okay, <UNK>, on the OpEx question, remember when we started the year, we said that we were going to do $225 million a quarter and that's what we thought.
We actually did quite a bit lower than that in Q1 and slightly lower than that in Q2.
Some of that was because of just management of OpEx and making sure we weren't spending any more money than we had to.
But some of it, particularly in areas like real estate and IT and to some extent in R&D, we are project-based and our spending is not necessarily going to occur in the period that we project and some of it's going to move out in the year.
So we're trying to give ourselves just a little bit of room.
When we said the $225 million with some potential variability due to spending that did not occur earlier in the year in case we run a little hotter than $225 million in Q3.
In terms of the growth for the year, I would say that we expected good order flows in Q2, and now that we've got that and we've secured some of those deals that we thought we were going to get, I think that gives us greater confidence and visibility as we look into that guidance.
Obviously, it's always a risk-adjusted, balanced perspective on it.
I mean, generally speaking, we're reasonably accurate on where we think we're going to come out.
There is a lot of moving parts to it but I think we've got greater confidence and visibility which is why we reaffirmed that number.
Thanks, <UNK>.
Okay, let me take the project base.
We have pretty good visibility into the projects and they tend to be more large project-based with longer cycles to them.
Sometimes takes longer for revenue but it does give us visibility into it.
I think you look at some of the buildouts that are going out on some of these key markets now, I think they are one to two years to three years; they are pretty large build outs.
You're seeing that in India as well publicized around the 4G buildouts that are going on there and also in CALA.
So we have pretty good visibility to them.
Regards to EMEA, I think that market has been challenged from a CapEx point of view for ---+ it's well documented for a little while.
Also, the competitive dynamics there, frankly, in the closing period of Alcatel's existence and also with Huawei have been very, very competitive in Europe.
And also I think as we've said, we think we can do better to be aligned around some of the opportunities for us in EMEA than we have been.
As <UNK> said, I'm encouraged by the profile that we're seeing in Europe; it's early days.
I continue to think that we can expand in Europe and grow that business and I think we're on a reasonable trajectory over the next 18 months or so to do that, but we've got a lot more work to do.
Well, as I said, we gave $225 million per quarter at the beginning of the year and we've done better than that.
We think we're in that range now.
So we're not going to be trending down OpEx as we move through the rest of this year.
Yes, on FX, remember we had a long exposition about the effects of FX early on and although some of the currencies have strengthened against the dollar slightly, we don't see a lot of change in FX as we sit here today from the description that we gave at the end of the first quarter.
The Canadian dollar has strengthened a little bit; that is affecting our OpEx.
But not a new story, significantly new story with respect to FX for the year.
On tax, as we've said, our tax line is really just driven by profitability in non-US countries.
We do expect it to be slightly higher in the second half than it's been in the first half, but it still going to be a relatively small number.
Okay, <UNK>, why don't I take the AT&T first.
I think we're delighted with the progress that we're seeing in AT&T.
We're continuing to diversify our role as a strategic supplier and I think their approach to the architecture is giving us a real opportunity to add a lot more value across a much broader range of engagements with them.
We expect the profile of the account to evolve to reflect this as they go towards next-generation architecture and more software orientation.
So I think we expect from a revenue point of view that it is going to be ---+ that we don't think it will grow this year.
I think we've talked about that so you know very clearly.
But I think we continue to expand our market share within the account and manifest our relationship in different ways, primarily with next gen and software.
So as a percentage of our overall revenue, I think ---+ the rest of the business grows, it will decrease and I think that's a positive element around the diversification of our business.
Just to clarify the question, you said linearity of revenue from AT&T in the US.
Were you talking about through the year or inside of a quarter.
What were you asking there, Stan.
Inside the quarter.
Okay.
Well, as we've said, our business generally is back-end loaded.
We do have a fair amount of activity in the latter part of the quarter.
For larger customers, it is probably a little more linear.
We tend to have a little more steady quarters from larger customers, but still we're just going to always have a third month of the quarter, which is going to be heavier than either of the first two.
That's just the way our business works.
We'd love it to be very linear; it's just not going to be.
Thanks, Stan.
Yes.
I would say, <UNK>, at this stage I think it's too early to tell.
This thing takes a while for it to filter through into the front-end engagements, but we're not particularly seeing much change frankly.
Hi, <UNK>; it's <UNK>.
So on the metro, I think your question initially was specifically about Verizon.
I think as we said, it's going to ramp in the second half of the year.
We don't expect a lot of revenues this year, but we will take some revenues.
In terms of the delta between the time we install the systems and the time we take revenue, that shouldn't be ---+ there shouldn't be a long lag or a long time difference there.
It will be pretty straightforward in this case.
Remember, we're also doing deployments in other Tier 1s in the metro in the US with AT&T and [Centrelink] and that's already on the way and that's the time between install and revenue there is also pretty straightforward.
Yes, we think that around $30 million per quarter is the right kind of range for now.
It was a little lower in Q2.
It was around $25 million in total, products and services, and so it's on plan.
What I would say is that over time, some of those customers are going to transition to 6500 and so the delineation between Cyan revenue and 6500 revenue is going to get increasingly blurred.
But overall, we're very, very happy with both sides of that deal, both hardware and software.
Yes, so a couple of ---+ let me start with your first question around current quarter.
Yes, we did see an uptick on Software and Software-Related Services quarter-on-quarter and year-on-year and the contributions come from three areas.
One is, yes, we are starting to see some contribution from Blue Planet in the revenue line there.
But we're also seeing increasing contribution from our Software Subscription services, which as you know is a more predictable stream of revenues on Software, and generally our network management systems are doing well.
As <UNK> mentioned earlier, the consumption models are evolving and that's allowing us to sell more of this [off box] software.
So there's really three contributions giving us this uptick on Software.
I don't think at this stage we are ready to comment on Blue Planet for next year.
That being said, we are seeing traction with Blue Planet across the board.
I would say the pipeline has significantly increased from the time of the acquisition of Cyan.
We're seeing a number of applications for Blue Planet orchestrating resources in the data center and we're also seeing applications for solving key pain points in wide area networks for carriers operating multivendor networks.
And really this ability that we bring to the table to manage resources both in the data center and in the wide area network is pretty unique in the market and that's why we're seeing the traction that we're seeing across the board.
Very good.
So on Packet Networking, so first of all, yes, it is growing faster than the transport segment.
It has grown so far in the first half of the year faster than the transport segment, and we expect it to be to have even a stronger half ---+ stronger second half on Packets than we did in the first half.
So overall for the year, we do expect it to grow and to grow faster.
It's growing higher than double-digit from the numbers, as you will see.
If you look at the trends and the reasons for that, there are a couple of important ones.
One, and <UNK> touched on it in his remarks.
Overall, the Ethernet services market for carriers delivering services to the enterprise is one of the fastest-growing segments of the enterprise market for services and we are very well positioned with the relationship we have with carriers really helping them sell these new services.
And our carriers and our technology and increasingly the help that Blue Planet brings to evolving these services is an accelerating factor on the Ethernet business.
The other factor that you'll see is both carriers and utilities moving to Ethernet as a ubiquitous layer of connectivity to the edge of the network, and we're seeing that in migrations from part of the world in emerging markets ---+ we talked about that ---+ are still migrating from 2G to 3G or going straight from 2G to 4G so we're seeing significant opportunities in the mobile backhaul space and that's part of what's helping our diversification and our growth in our international business.
And then we're also seeing utilities migrate from legacy systems to Ethernet-based connectivity and that's an accelerating factor as well.
So overall, our Packet Networking business is growing rapidly and we expect that to continue for the foreseeable future.
We would expect it to be fairly balanced in terms of the growth rate.
But as you know, the Packet Networking business originally was ---+ had a high concentration in North America and what you are seeing now flow through in the numbers is higher contribution from international customers.
So, <UNK>, we're making a lot of progress.
We have over 30 customers now that are deploying 200 gig systems from us and we're really quite unique in this capability still in the marketplace in terms of the competitive environment.
That number is growing rapidly, as we have roughly about 200 customers now that deploy 100 gig and a lot of these customers are starting to adopt 200 gig and 16QAM technology.
We're seeing that ---+ initial applications for that are in the metro, but that's starting to move to more metro regional applications.
And as it migrates to metro regional, then we're seeing more customers adopt that.
All of that, <UNK>, is driven by ---+ we see a lot of need for increasing capacity effectively across the globe and a lot of our customers don't have a lot of fiber and so spectral efficiency is very important for them and our 16QAM technology is really leading the market with spectral efficiency.
Can you expand a bit, <UNK>, on the question.
What part of the financial model.
Gross margins.
He's asking gross margins which we don't see a huge difference in gross margin.
It is kind of a unique product right now, so we might get a bit of a premium in some markets.
But it's not right now moving the needle in terms of our gross margin picture.
On the FX side, the biggest effect from FX has been in ---+ from Brazil.
We've had an effect in Argentina, although that has tended to be in our other income line.
The Brazilian effect is the biggest effect in terms of revenue.
And as far as use cases, you're talking about product use cases or applications use cases, <UNK>.
Hey, <UNK>; it's <UNK> here.
Yes, so the use case are actually buried in CALA.
We do indeed have subsea opportunities.
They are both on private cable and on Consortia cables.
We're seeing more traffic from the US to CALA and back driven by the web-scale players.
So that's a growing application for us.
We're also seeing growing application in the Packet Networking space in CALA, which we are fulfilling both with our 8700 platform and our (inaudible) products and that's really driven by continued migration in the mobile backhaul space to 3G and to 4G.
And the other thing we're seeing in CALA is bespoke built.
In part driven by web-scale players asking local carriers to build in country capacity for them and that's all 100 gig or in some cases 200 gig.
All right, well with that, we appreciate everybody's taking the time.
We're approaching the bottom of the hour.
Thanks for listening.
We look forward to catching up with everyone over the next following weeks.
Thanks.
| 2016_CIEN |
2015 | MTH | MTH
#Not necessarily.
We're trying to stay away from the real large land development opportunities where we have multiple product lines.
Those definitely can carry more risk.
Certainly we do have a few but we're focused in California on more infill opportunities.
We're spending more money on building our team that can do more infill attached communities closer to the water, closer to the bay, or closer to Orange County.
We have some strong opportunities we're pursuing certainly in Colorado, in many of the Texas markets outside of Houston and mostly in the south.
So land is fully priced in most places.
There's no bargains out there.
But we have some real sharp people in our land acquisition teams throughout the country and we're still finding opportunities to fuel our growth.
Sure.
What's happened, that number bounced up a little bit and it's being caused by us completing several projects that were under development so we have a lower percentage of underdevelopment land now sitting as finished lots versus a quarter or two ago.
So that number is going to remain a little more elevated.
I thought it would actually go down and stay lower and maybe approach zero.
Right now I don't think that, that's going to happen because of that percentage of underdevelopment versus development land.
So that's a good story in that we have finished communities that can start selling, but it's causing us to expense directly a little more interest than we had thought and a little bit less is being capitalized.
So I see that number staying up in that range that we had this quarter.
Probably will go down a little bit through the year but it's not going to go to zero.
Yes, it does.
As <UNK> mentioned in his comments, Northern Cal is very strong we had a couple new communities open in the South Bay, Morgan Hill, Gilroy area, we had strong traffic, strong demand, strong pricing power.
Our communities, we have one community out in the Central Valley.
We have communities along the corridor between the <UNK> Bay and Sacramento and then we have communities throughout Sacramento, all have had strong traffic and strong demand.
Probably our best market in the entire company right now.
You know, we're really excited about our business opportunity up there and we're going to have a great 2015 in Northern California.
Well, what's opening the next couple of quarters will be land that we bought already and it's been in our pipeline now for probably over a year.
Today's current land prices don't really affect what's going to happen this year.
But certainly land prices are higher and we will have to get higher housing prices to offset that.
It varies by market and some markets it's attainable.
We have a green light on.
We're buying land.
Other markets we're certainly being more cautious.
The land market is certainly tighter than it was a year or two ago.
<UNK>.
Yes, go ahead, <UNK>.
If I could jump in here.
A couple of things are causing that improvement.
The most notable is leveraging construction overhead which is buried in cost of sales and therefore affects margins.
So that leverage is helping us improve as we grow volumes through the year.
The other thing is we have talked about particularly in the <UNK> about improving some of our operational metrics and direct construction costs.
So the other piece is some improvement particularly in the <UNK> on construction costs and then again generally speaking, we're talking about the market being stronger than last year and we are having improved pricing power so we are going to be able to increase and we have increased pricing in many of our markets this quarter.
And we're projecting that to be able to continue that improved pricing metric.
I'm not more overly concerned, you know, more so than any quarter before.
Competition is strong but we have great locations and we have great people and great product so I'm not worried about that.
I would like to clarify, though, I think I may have given the wrong perception about pricing.
We don't put any appreciation in our proformas.
We don't believe we have to get price increases to hit these margin targets that we have.
Certainly again we're looking at our backlog today and we're looking at the prices that we're at today and going forward, you know, that gives us comfort that we can hit these margin targets.
I don't want to misconstrue to anybody that we are going to have to have house prices rise to make land deals work.
That's really not what I'm implying.
Thank you good thank you.
Good morning.
<UNK>, what do you think.
I don't think we have.
Yes, I agree.
I don't think we have seen that.
Well, land prices haven't come down, but there hasn't been as much land acquisition activity and we certainly haven't bought any land in Arizona for well over a year now.
And I think for some land deals to get moving, you know, housing prices will have to rise or builders that are willing to accept lower margins will buy the land.
But I'm pretty comfortable with what we have in Arizona.
We don't need any land.
We're still making a good gross margin on the land that we own for the most part.
In California we're really more focused on infill opportunities where you have less competition from builders and we're able to get stronger pricing power.
So, you know, land is ---+ there's still quite a bit of land that makes sense in a lot of other markets throughout the country.
Thank you.
Is this our last call operator.
Thank you very much for your interest and participation.
We look forward to talking to you again next quarter.
Have a great day.
| 2015_MTH |
2016 | CRVL | CRVL
#Thank you for joining us to review CorVel's June quarter.
Earnings per share for the quarter ended June 30, 2016 were $0.38, an increase of 12.5% from the prior year.
Revenues for the June quarter were $128 million compared to $126.9 million for the June 2015 quarter.
Most of the Network Solutions and workers compensation and in the CERiS group health businesses had improving results in the quarter.
Our Enterprise comp TPA offered continuing growth.
G&A in the quarter was down sequentially and year over year.
The market for medical review and for our enterprise comp TPA service has been active.
We've been experiencing improved output from our R&D efforts, which should help us in the coming year.
During the quarter, we continued our efforts to improve internal operating efficiencies.
This has been an area where we've underperformed recently.
The market environment for managed care remains active, as it does for claims management.
As I've discussed previously, CorVel's newer TPA services continue to gain brand recognition with brokers and employers.
When we first launched our TPA services without brokerage coverage, we sold largely into the public sector.
Those accounts were entering the contractual renewal period over the last couple of years.
The active nature of the public sector allows for easier entry for new vendors such as CorVel, and yet this same characteristics causes some churn in the more mature book of these same accounts.
In contrast, private sector accounts are more difficult to land, as a new entrant, and require brokerage support and carrier approvals but gradually build as a percentage of the book of the new vendor, as these accounts tend to turn over much less often.
The oldest TPAs in our market benefit from a foundation of older, private accounts, which also tend to have better margins.
As the private sector segment has grown in CorVel's book, account retention has and will continue to improve.
The regular health market in which CERiS competes, continues to adjust to the ripple effects of the APA legislation.
Both the public and private sectors of that market appear to be seeing improving activity, although we are being careful to not underestimate the degree to which the health carriers have been buffeted by the regulation and the developing losses in the healthcare exchanges.
These forces have slowed CERiS's growth over the last couple of years, but we hope to see an improving healthcare climate moving forward.
The Department of Justice has moved to block both of the major mergers among the large health carriers.
This further disrupts planning in that market.
In the workers compensation markets, private equity continues to be the driving force behind consolidation.
The bidding for new workers compensation accounts has tended to be price competitive.
However, our ongoing systems developments have helped us introduce new concepts and better effectiveness.
The TPA market has traditionally been one in which the larger accounts have used their size to demand a fair amount of custom work.
While accommodating, such demands can use business.
It also commits those TPAs to operations that more closely resemble a job shop where individuals have too many instructions to be able to function effectively.
If a branch, for instance, had 20 larger customers, each with five custom features and a single office could have as many as 100 different nuances in their workflow.
Service quality in the industry has reflected this.
Our goal as we entered the industry was to invest heavily and continuously in systems to create a very different service model where quality management and improved outcomes could be a focus.
To achieve such a business model, we've had to market to accounts whose needs fit our intended model.
Passing on the accounts who wanted an unbundled model has, in the short-term, hurt our sales.
It takes a few years to build and implement the new service model we have envisioned.
But focusing our resources is allowing us to build a superior approach.
At this point, we are documenting case studies which demonstrate the value in creating a true service continuum.
It has been difficult for our sales organization to be asked to pass on opportunities which could have improved our short-term success, and last year we lost a large customer that wanted to specify custom components.
However, being able to focus our resources has permitted us to concentrate on our intended model, and as our model produces the intended result, to gradually gain momentum in the marketplace.
In the interim, we have maintained a high return on equity.
We appreciate the investor following we've enjoyed and the trust placed in us.
As our investments begin to come to fruition, our ability to afford such investments is improving.
The early phase of a strategy to introduce the new model in an industry is difficult.
We had to seek out the early adopters.
As we are able to demonstrate case studies as proof statements, our story has become of more and more interest.
In the wholesale market for managed care, that is the sale to mid-sized workers compensation carriers, we have placed increased emphasis on the middle-market sized carriers.
This segment of the market is more inclined to outsource the services we provide.
We have had some good success in this segment in the last year and continue to build services for this segment.
We are also expanding our involvement in the liability management segment of the TPA market.
This service complements our workers compensation programs as it is sold to the same buyer.
There are additional segments of the industry into which we will enter, as our workers compensation offering matures.
These expansions will be undertaken only after we have better established our service model in the base business.
Now I would like to discuss our product line results.
The patient management segment includes third-party administration, that is TPA services, and traditional case management.
Revenue for the quarter was $71.3 million, flat year over year.
Gross profit decreased 2.9% from the June quarter of 2015.
EPA services continue to perform in the market, but as we've discussed in previous quarters, our case management business has underperformed.
Our TPA business is now among the larger vendors in the marketplace and is steadily gaining market share.
Our integrated solution, together with better management of the early stages of claims, is producing superior outcomes for our customers.
The pipeline of further systems improvement to service it is quite full.
[Both] case management revenues were flat, but wholesale volumes, that is sales to carriers, were down.
We have been disappointed in our internal operations in this service area and have a number of operations improvements on which we are working.
Network Solutions revenues sold in the wholesale market for the quarter was $57 million, up 2.6% from the same quarter of the prior year.
Gross profit in the wholesale business was down 2.1% year over year.
We've been rewriting this software over a period of years to introduce new technologies.
The use of a rules engine has been a key to our success for many years.
Additionally, the application routes work to Centers of Excellence in a number of components of the service.
These features have enabled the software to produce results superior to those in the general marketplace.
We are currently adding additional technology we expect to implement by the end of the current quarter.
The CERiS segment of this service line has some perspective client additions, which should improve results in the back half of this year.
CorVel's pharmacy benefit management services have become an increasingly component of our Network Solutions suite.
As with the approach taken to the TPA business, in the PBM market we choose to offer value-added components to the service.
The review of specialty drugs and an expanded pre-authorization program addressed the need to monitor and manage the use of drugs.
Now turning to our product development in the quarter, we've continued the projects I've been discussing in previous calls.
Those broad areas include: one, the evolution of our hubbed activities and smart technology; two, building additional workflow processes; three, being prepared for the next generation of medical review; and four, ongoing improvements to our claims intake, medical review, PPO and return to work processes.
In the quarter, we continued adding functionality to bring clients into our claims environment.
We see a growing integration of our work with that of our employer customers.
Each of the steps towards seamless integration of the task involved in absence management opens more opportunity for us to handle technical issues and to work more closely with employers to best address the healthcare needs of their employees.
We continue the development of our document management system.
It is one thing to image documents but quite another to have the information in such documents be understood by process automation software.
Both insurance and healthcare require nimble processing of images and the meaning of their content.
We're working on the integration of telehealth services with our intake processes.
This is another aspect of healthcare where we can break down delays in the employee's episode of care and in their return to work.
We have added more features to our My Care mobile app.
Making mobile apps effective in a low frequency environment such as personal healthcare, requires unique approaches.
Although this is a challenging area, in our integrated ecosystem, we believe in the opportunity to find value-added new approaches.
We continue for plans for future expansions of our web services capability.
The more we work interactively with our wholesale clients, that is the carriers, the easier it is for them to receive good value when outsourcing tasks to us.
Now I would like to cover a couple of additional statistics.
The quarter-ending cash balance was $36 million.
Our DSO, that is days sales outstanding and receivables, was 43 days.
38,000 shares were repurchased in the quarter for $1.6 million.
We have returned $393 million to shareholders in the last 19 years, repurchasing 33.924 million shares in that period.
Shares outstanding at the end of the quarter were 19.597 million.
The diluted EPS shares were for the quarter 19.754 million shares.
Shares outstanding were reduced 2.9% during the last 12 months.
Now I would like to turn the webcast back over to our operator.
Thank you.
| 2016_CRVL |
2016 | ANSS | ANSS
#The bottom line ---+ the first and foremost is the macro.
But second of all, I think the assumption of the buying preferences that we talked about, again, good long term and over the short term.
So, bottom line is, the good relationship ---+ or the good thing is we've got a really strong relationship with our customers.
And if you recall, we actually were pretty good at, in the anticipation ---+ in the downturn a few years ago, in the 2009, 2010 time frame.
And that came because of some relationship with the customer.
But even on the ride in today, picking up some of the latest forecasts from CitiGroup.
And that was echoing ---+ that was just putting frosting on the cake of some of the things that we're already seeing.
But then you see that, and then how does that ripple through.
First of all, customers are ---+ they're going through purchases a lot more carefully and judiciously.
Second of all, when they buy things, they might be tending to buy maybe even the same amount of licenses, but now it's being spread over.
So, we get the multiple impact of what we saw, for instance, with the ---+ just that one illustrative order I talked about, with the $6 million one, which has core to be ---+ you can do the math on that one.
And what does $6 million in a quarter mean, versus spreading it over 22, 24 different pay periods.
So, it's really taking into account all of those factors, and trying to give a real accurate picture of everything we're seeing.
In terms of the long-term prospects, no, there's nothing changing there.
There are the things that we have to navigate, but everybody's going to have to navigate those type of things.
I'll tell you, first of all, it's playing out very well.
And second of all, I'll tell you we're learning.
Because ---+ and just trying to be totally open with you on this is that, first of all, I think we mentioned the very first one, at the tail end of Q4 of 2014, which, by the way, was part of the reason for that really tough comparable we were talking about.
We projected a handful, mid-single digits, of those going on in 2015, and that absolutely occurred.
Now we're seeing a significant increase, going into double digits, numbers of those going on.
But as I mentioned, we're learning on these things, too.
So, as you get to that broader base of customers, that's where we're finding out the things about, for deals of these size, in this changing environment, what does that mean in terms of duration of contracts, multi-year contracts, augmentation with our cloud type of capabilities, broadening of the product line, all of those things.
And keep in mind, this is happening at the same time as ---+ all the economic reports are coming out and saying ---+ hey, there's some increased volatility here.
So, customers are making bigger, new relationship decisions with us.
At the same time, the environmental factors are causing a little bit more caution.
So, that's what I meant by the learning process.
And what that means in terms of how we structure these.
Because each time you open up to a broader range of customers with these type of deals that really were unheard of before, over the past time, it gets into much broader range of contracting, delivery, additional things added on, and additional ways that we deliver that.
So, we're continuing to moderate that, as we go forward.
And as we also mentioned, we wanted to come out the gates expecting this.
So, now we're getting to the point where we're now being able to take this into a slightly broader range of our sales and go-to-market market.
Like I said, we weren't just opening this up to everybody, all at once, and having chaos while we were learning.
But we have some of those best practices already coming in place.
So, this is something that we see as going to be a continuing trend.
And it's super good for the long term, and building solid relationships with customers.
But it's one of those things that, most things that are really good, they don't happen with a snap of a finger.
They build over time, and we want to make sure that they build in the right manner.
Yes, so, we had provided guidance, and a portion of that deal we had in our forecast.
It ended up coming in much bigger than we had forecasted, but that was in the upside.
I would say, as we went into Q4, our expectations were ---+ for Asia, were much stronger than where we finished.
And unfortunately for us, Asia still ---+ as <UNK> highlighted on the call, Asia still has, particularly in the larger economies, preference for paid-ups.
So, when things don't cross the finish line in December, it disproportionately impacts that top line.
Yes, and, <UNK>, as I mentioned before, we could have gone in and tried to take all that extra business that came in, which was significant, and say ---+ oh, my gosh, we have ---+ and it really wouldn't have meant anything long term to the customer, other than some frustration.
And we'd still have the same good base of business going forward.
So, again, keeping with <UNK>'s earlier comment, we just want to make sure that right now we create as few obstacles to the customers' financial procurement of the capabilities as possible.
And knowing that, at the end of the day, the real name for us is getting more people using more software.
That really flattens it out over time, because as they start to use it, they usually don't start to un-use it or stop using it.
So, it almost is always a platform that builds on, which, again, you've seen over the years, in the building deferred and recurring base that we have going forward.
So, that's a conscious decision.
And also, we didn't want to get into a situation of having to give up things for ---+ if you will, for just creating some smoke and mirrors.
But keep in mind, through our entire history, there have been ---+ those things always tended to happen at a lower level, and there were some gives and there were some takes.
There were some pluses and minuses.
So, we just focused on this one illustrative one because it is very significant.
There were others that were in there, but I'm sure there were also others that might have gone the other direction.
But the net trend overall was ---+ it's pretty undeniable, when you look at the relative growth in the lease space, and along those lines.
And then, all I can add is, anecdotally, I know of at least two or three other customers, as we go forward, that traditionally were that.
And they're looking more at going into the time base, as they go through whatever financial decisions are on their plate.
Hang on a minute.
I'd say it's close, but not handy.
$2.2 million.
(multiple speakers) A little over $2 million, yes.
$2.2 million, <UNK>.
Yes.
Oh, yes.
So, <UNK>, I would say it's ---+ based on what we know today, two important things.
One is the strength of the pipeline.
Two is ---+ we are still convinced that the investments that we made in 2015, in ramping up the sales capacity, are in a maturation phase, and that they are going to yield increased productivity in 2016.
And the strong bookings growth that we just saw in Q4 ---+ are three things that give us a lot of confidence.
And as <UNK> has been mentioning, these conversations that we're having with some of our long-standing customers about expanding our presence and our footprint across their enterprise give us a lot of conviction about the long-term opportunities that we have with those customers to migrate well beyond the current installed base that we have in those customers.
And the only thing I'd add ---+ again, the ---+ I absolutely agree with those points.
But the general pipelines are increasing.
But also the targeted number of ---+ as we move into that ramping up, which we're trying to manage the growth of, the ELA increase, those tend to be major ones.
And of course, then we have to factor in the timing and the closing of those things.
So, you've got some very strong rifle shot anecdote information from the ELAs.
You've got the general broad based from the amalgamation of the pipelines.
And then you've got the intuitive aspect of that sales team that we were building up, through the course of 2015, that we admittedly said it takes 1 to 2 years to get to a full ---+ not a full, but a really strong maturation of that thing.
And then you counter all of that against the macro backdrop, which also is factored into the pipeline and forecasts, and that's what it nets out.
But if you look at the growth of that, and the general path of bookings outpacing revenue for the quarter and the year, and doing it significantly in the latter part of the year, those are all the factors, basically, that went into our calculations.
Sure.
The first part is, yes, I am ---+ I guess I am conflating terms.
So, I use time-based license because traditionally we use lease to be like a 12 ---+ a typical kind of annual license or a 12-month lease.
To me, a time-based license is a period-based thing, whether it's 12 months or it's part of those 24 to 36 months.
Maybe I should have defined that more clearly in the beginning.
That's some of the internal stuff that we're using.
Now, on the ELA thing, it tends to have some general characteristics that then can get perturbed by individual.
ELAs can consist of perpetual, time-based licenses.
They can also even have some service associated with them, like, if you will, with embedded support and the like, or certain services.
On top of it, with those, no matter whether it is perpetual or lease, you can run into VSOE issues.
So ---+ and these ---+ my finance colleagues here are a lot more okay with these.
It's very interesting, when you get in, you've got something, if you combine ---+ it only takes a small percentage of products added into an ELA, which are inherently broad-based in product, to create a VSOE issue, whereupon everything in that order has to be ratable.
Even if traditionally this one chunk was ---+ had no VSOE, and it was all time based, and it was like a few percent of the order, and then the bulk of it is the same traditional perpetual.
Everything has to be ---+ and correct me if I'm missing some nuances here ---+ but it all gets applied over those things.
So, the bottom line is, those tend to be ---+ so even ---+ I'd say it's a mix.
It's a matter of preference, when customers decide if they want their ELA to consist of perpetual or lease.
And right now, at small levels, they can provide ---+ they can have lots of choices, they can mix things in there.
But once those things are put together, then you can still have something apply that still makes ---+ forces them to be ratable.
<UNK>, you want to add anything.
I think that's enough, and then we can see if <UNK> has anything he wants to ask specifically for clarification.
Bottom line is, we're at the very early stages of this transition.
So, yes, I could say with pretty good certainty, it's going up.
Now, how much.
Those are things that we're really trying to ---+ as we proliferate this through the broader customer base.
So, in other words, we don't have ---+ right now, we've got maybe 5, 10, 15 of these.
And they're big, and they can perturb the model by a couple percentage points.
Necessarily saying that this automatically ripples to a user base of tens of thousands of customers, and to what degree and how quickly ---+ we're not at that predictive point, in terms of being able to go.
However, we are ---+ as we'd mentioned before, we are starting to construct some of these models, as the ELA concept becomes a little bit more mature with that ---+ as the cloud offering itself gets a little bit more mature, and as some of these buying preferences change.
But there are a lot of moving pieces, and we've tried to consolidate all of those into what I think shows a pretty good, stable, long-term picture.
But it does provide a little bit more variability over that cross-over period.
So, <UNK>, if I can add to that, if this will help you in building your model.
Our 2016 model, for ourselves, trying to factor in all of these pieces, some of which we don't have certainty or precision around, because these deals are ---+ each one is customer dependent.
We're looking at 58% in the software license line, and 42% of revenue in the maintenance and service line.
And I will also add one thing.
I tried to make this in my comments, but our cloud initiation is still in its very early stages.
So, there is not material revenue, in either 2015 or 2016, that is specific to cloud.
Good morning.
So, if you look at it, no, that's a sheer thing of numbers.
And I think you can see that when you roll that out, and project that over an entire year, and see that North America was still in that 10%, 11% range.
So, what you had is ---+ there were a number of factors, but if you look at three major ones.
First of all, in the comparable, the huge North American-centric deal with Cummins that was mentioned in part of the comparable.
Now, Q3, you've got ---+ we talked about another one.
That was actually something that shifted forward, and so originally was thought of in the Q4 thing, and that wound up in Q3.
And then in Q4, we had the one deal where a large chunk of perpetual revenue drifted out.
All of those things were factors in that 5% for North America.
But again, projecting it over an entire year is probably the best way to look at it, as an overall trend rate.
And by the way, we saw the same picture, albeit in the other major markets, which were like, if you will, that first wave of our go-to-market with Japan and Germany.
It's just that we didn't have those big perturbations, based on the huge orders.
I'm sorry.
Can you repeat it, <UNK>.
No, I think most of it is, <UNK>, related to variable compensation.
The bottom line is, yes, we've been doing it.
As we typically do, we do these things in waves.
So, the very first one was actually, first of all, simplifying each product set, if you will.
So, the mechanical, the fluids, the electronics ---+ bringing those into overall simplistic.
Because we had ---+ over the years, we had had multiple tiers of that.
Secondarily is, we then looked to rationalize some of the add-on technologies, if you will, the tech tuck-in acquisitions that we've been doing, as opposed to having a number of those.
So, those tend to get incorporated into each of their parent orbitals, if you will.
Then the second part of that is ---+ okay, now, combining those into ---+ we've always had a multi-physics package.
But combining those into packages, but we've even gone one step further for markets, when they prove to have a certain amount of centroid of effort.
So, I will talk of one in specific, where you take the overall drive in everything from electronics, semiconductor, to Internet of Things, and the whole concept of chip package system type of simulation.
Where traditionally there were individual tools applied, like different groups, those kind of things, but bringing those together.
And then also combining not only the pure electronic side of those, but all of the, if you will, the structural, the thermal, the cooling and flow, all of those type of capabilities.
Because one thing that's really a hot thing right now is that, as people start to instrument things for the Internet of Things, it's not just one thing to have electronics that work, and send the signals, and do the readings and everything.
It's important that the electronics survive the same kind of harsh and hostile environments that the products that they're mounted on are able to do.
So, those are probably about four very significant things.
But just suffice it to say, the simple answer is, yes, that is a general trending.
Because, if anything, we probably have a potentially broader issue, given the fact that we've got by far the broadest product offering, and trying to simplify that overall is really a key aspect for us.
Yes, and, <UNK>, what I'll also say is, as a result of some of these things, we're not planning to do a significant shift between the relationship between the perpetual and lease pricing.
But we're trying to harmonize it across the broad portfolio, so there's more consistency across that portfolio, and across some of these new offerings.
Yes, we're absolutely getting that.
We're seeing that even heading into 2016.
There are ---+ and not surprisingly, it's happening in some of the major geographies, most notably Japan and North America.
But we are seeing those things.
Now, one thing I would say is that ---+ I'd say, in general, in aggregate, the trends are toward longer term.
But parsing down what part of that is by individual customer versus what's being influenced by the increasing number of ELAs that are inherently multi-year, I don't have a precise answer on that.
And for the companies that are basically going from perpetual to lease, no matter what time frame they elect for on that, it's not like we're comparing somebody that used to do a 12-month lease, now going to a 24- or 36- month lease.
Or someone who used to do perpetual, going to any kind of lease, which in and of itself is a fairly significant kind of question.
But I'd say, in general, if you look at it right now, the sweet spot is typically about 2 to 3 years.
I'd say ---+ and in general, sometimes people will even try to look at multi-year things, even though the financial commitment won't stretch out into years four and five, albeit ---+ and when that happens, we don't count that, because that's really not a contractual order, at that point in time.
Did I cover every ---+ did we cover each point of your ---+ .
Yes, I was actually ---+ I've been to the UK twice the last three months, as a matter of fact, and actually France only once.
But those ---+ obviously, mathematically, you can see that those are a little bit tougher areas.
You look at ---+ I'd say that in particular, part of our UK business is seeing some of the stuff, even though our North American business was strong, because it's a broad base of things.
We mentioned before the Texas area, and the impact of oil and energy had an impact there.
Not an inconsequential part of our UK business, of course, is North Sea, and that type of thing.
So, there's an element of that.
So, that was felt along those lines.
France had some difficulty.
Oddly enough, they're smaller parts of the Business, but yet some of our ---+ a couple of our Mediterranean areas actually did pretty nice performance.
So, it's a little bit of a mixed bag, but holistically it's been a little bit more sedate.
It's just that when you get ---+ basically, what it gets down to more is not necessarily country by country, but where you've got the major multi-national companies that are competing on the global stage ---+ they're competing globally.
They're not competing just in Europe.
And there just tends to be a higher clump of those in the markets like Germany.
That's really more of what we're seeing, as opposed to, what's the GNP of any individual country.
Okay.
I think the main thing ---+ I think the key thing is ---+ and first of all, I'll just say that every release that we've had, for the last 10 years, has been sequentially significantly better than the previous one.
And I'd be really disappointed if, when 2018 comes out, that we're not saying exactly the same thing.
But really to highlight ---+ we've talked about a couple of things.
Really, it looks, in terms of, how can you actually compress the cycles, that people can meaningfully go through a range of these different evaluations.
Because we really want people, early on, being able ---+ the earlier simulation is applied, the earlier you can avoid downstream problems, the more robust you can make things, the more alternatives you can look at, to really drive innovation.
That's really the key of it.
But what was the problem.
Two main things ---+ first of all, the performance and throughput; and second of all, ease of use.
Now, it's not like you attack ease of use, and you throw the switch one day, and automatically it's there.
Just look at what happened with the home PC, from 1985 all the way to even the current time, with tablets.
There was ease-of-use progression through each stage of that, but ---+ and each one created additional business.
But it took a number of applications of that to make that go.
So, we've actually done that.
If you look at, really, the ---+ some of the main messages are, if you will, reducing by significant amounts the amount of time it takes to actually get a model.
Really, at the end of the day, we would love to have somebody just not even worrying ---+ they're just really trying to simulate their product, and seeing what's there, and not get caught up in all the nuances of all the modeling aspect, or have to spend a lot of time doing that.
And that's one area where we've done quite a bit.
Secondarily is, we look in terms of, how long does it take.
It used to take sometimes ---+ sometimes these things would crank for days, in terms of getting results.
But with high-performance computing, and actually some really, really significant things we've done in terms of high-performance computing and performance overall, being able to take things that might have cranked for a day, and now allow somebody to get things in a matter of minutes.
If you do that, it's not like I do a run, I go home at night, let it crank, come back the next morning, and each cycle takes a day.
If you're taking like 10 minutes, or something like that, you can actually go through a number of progressive things.
Likewise, I'd say that, on one of the earlier questions we talked about what we were doing in terms of actually continuing to drive multi-physics.
I mentioned the chip package system.
It used to be that a lot of these things were done sequentially, by different groups, using different mathematics.
It had to be massaged, and go together.
And sometimes the work flow is just making to the point where you don't have the equivalent of 30 adapter cables, when you're hooking up some kind of an electronics system, and being able to go through all of those things.
So, if you look at it, that's really been some of the major portion of that, going forward.
So, again, performance, ease of use, and actually getting these work flows compressed.
But even once you do that, as soon as you say ---+ well, I've got multiple groups working together.
Now you have to also contend with the fact of ---+ hey, there's organizational resistance to change, and there's also some things that companies have to do to get repeatable processes, in and of their own capabilities.
And that's one reason why I say the final thing has been related to ---+ we talked about the ---+ basically, the customization tool kits that we had invoked in there.
And we've been able to proliferate those across a lot broader range of products, which allow individual companies to take pretty strong generic software, and now tailor it to something that they can create as repeatable processes.
Those are probably the major things that I think are particularly significant.
But on top of it, there's ---+ in every one of our individual products, there's been a number of individual things.
We'll get into a little bit at Investor Day coming up, and there's some pretty good information on the website, along with some ---+ actually, some customer testimonials.
Because when they actually come through and see ---+ say, they saw these measurement things, it probably makes a lot more than what our technologists or me or anybody inside ANSYS is talking about.
That's really where the proof points are.
Okay.
Thanks, everybody, for the questions.
And to recap, basically, I'd say first, continued good diversified financial performance of most of the major parameters of the Business, even in light of the current environment and [hazy] visibility.
Secondly, sustained customer interest ---+ that it's marked by activity on a broad front.
And I think that's evidenced ---+ we talked about it on some of the questions here, with industries, geographies.
And I'd also mention the commitment levels and renewal rates, even while customers are going through a lot of additional discretion in terms of what they're doing.
Obviously, the last question, we talked about the rapidly expanding product portfolio that we continue to augment, with a range of partnerships and relationships, not only on the technology side, but also in distribution and customers.
And I'd say, maybe most importantly is, over the long term, we've demonstrated an ability to grow the revenue in line with our range of guidance.
And we still maintain the solid margins and delivered earnings growth in a range of economic situations ---+ so, a testament to the business model.
So, basically, the long-term outlook stays bullish.
And basically, to map this out, it means, first, the long-term premise and opportunity are still there, and we still have the best technology and the team to meet those.
Secondly, even at the floor of our assumptions, we continue to have a solid business, with good returning revenues, marquee customer relationships, and all of these combine for good earnings and cash flow.
So, we'll be focusing on maintaining strong operating margins, in the upper 40%s, while continuing to build our annuity base of recurring revenues, and expanding at the maximum rate allowed by the macro market conditions.
And then lastly, we ---+ as <UNK> mentioned, we have a very strong balance sheet.
It affords us a maximum flexibility, should opportunities present themselves, or should the macro economy even deteriorate further than some people are projecting.
So, we've seen, over the years, that the continued revenue performance creates upside margins, but that the revenue performance, again, is only sustainable with continued product and business investment.
So, we remain committed to that.
So, in close, the emphasis is going to be a continued focus on execution, continued technological leadership, and basically supported by our 45 plus years of history.
The customer acceptance of the existing vision is ---+ and unique value proposition, the expansion of our product portfolio, and through ANSYS 17 it really only bolsters our long-term enthusiasm.
So, I'd like to say thanks to our customers.
I'd like to say thanks to my ANSYS colleagues, and our long-standing partners.
And thanks to all of you for joining us today, and we'll be talking to you again in a few months.
| 2016_ANSS |
2016 | HCI | HCI
#Thank you, and good afternoon.
Welcome to HCI Group's First Quarter 2016 Earnings Call.
With me today are <UNK> <UNK>, our Chairman and Chief Executive Officer; and <UNK> <UNK>, our Chief Financial Officer.
Following <UNK>'s opening remarks, <UNK> will review our financial performance for the first quarter of 2016, and then turn the call back to <UNK> for an operational update and business outlook.
Finally, we will answer questions.
To access today's webcast, please visit the Investor Relations section of our corporate website at hcigroup.com.
Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995.
Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements.
Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties.
Some of these risks and uncertainties are identified in the Company's filings with the Securities and Exchange Commission.
Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company's business, financial conditions and results of operations.
HCI Group, Inc.
disclaims all obligations to update any forward-looking statements.
With that said, I would like to now turn the call over to <UNK> <UNK>, our Chairman and CEO.
<UNK>.
Thank you, <UNK> and welcome everyone.
As most of you know, HCI Group is a holding company with subsidiaries engaged in diverse yet complementary business activities.
Our principal operating subsidiary is Homeowners Choice Property & Casualty Insurance Company, which provides homeowners and flood insurance in Florida.
The newest addition to our company which we introduced during our last call is TypTap Insurance Company.
TypTap focuses on flood insurance to Florida homeowners.
We expect to add other lines of business in the future.
We encourage our listeners to visit TypTap website at typtap.com to experience our new platform.
It provide a quote in seconds and a policy in minutes.
Buying insurance has never been easier.
We believe this is the way all insurances will purchased in the future.
Additionally, we have a Bermuda-based reinsurance subsidiary called Claddaugh Casual Insurance Company which participates in our reinsurance programs.
We also have an information technology operation called Exzeo which develops innovative products and services for insurance subsidiaries, including the underlying technology powering typtap.com.
We expect to further leverage the Exzeo technologies in the future.
Finally, we have Greenleaf Capital which owns and manages our diverse and growing portfolio of real estate investments.
And as we've done throughout the Company's history, we continue to investigate strategic opportunities to further enhance and diversify our operations.
Turning to the quarter results, as <UNK> will expand on shortly, we reported profitable results despite a challenging environment during the first quarter.
This marked our 34th consecutive quarter of profitability.
Here are a few important highlights from the quarter.
One, our principal operating subsidiary, Homeowners Choice Property & Casualty Insurance Company with approval from the Florida Insurance Regulators paid a dividend to the parent in the amount of $19 million.
This second such dividend demonstrates our insurance subsidiaries continues to be self-sufficient and profitable.
It does not require additional cash investment.
In fact, it generates cash.
Secondly, we paid up $0.30 per share in dividends, marking our 22nd consecutive quarter of paying a dividend.
Our cumulative dividends paid since inception now total $5.25 per common share.
In addition to the dividend, we repurchased a total of 186,858 shares of common stock at an average price of $32.11 for a total cost of $6 million.
This leaves a further $14 million remaining on the $20 million repurchase plan we announced at the end of last year.
Thirdly, we repurchased $13 million in principal of our 3.875% convertible senior notes at a significant discount.
This resulted in a small gain.
Finally, we initiated the soft launch of typtap.com and we are very pleased with the results to date.
With that, I'll turn the call over to <UNK>.
<UNK>.
Thank you, <UNK> and good afternoon everyone.
For the first quarter of 2016, income available to common stockholders totaled $6.1 million or $0.60 diluted earnings per share.
This compares to the same quarter of 2015 of $25.4 million or $2.21 diluted earnings per share.
Gross premiums earned were $98.8 million for the current quarter, a decrease from $109.6 million for the prior year quarter.
This decrease is attributable to normal policy attrition and the slight impact of the 5% rate reduction effective on new and renewal policies beginning January 1, 2016.
Ceded premiums earned were $40.4 million in the first quarter of 2016, which increased from $27.8 million in the first quarter of 2015.
For the first quarter of 2016, reinsurance costs were 40.9% of gross premiums earned as compared to 25.4% in the same quarter a year ago.
This increase is primarily the result of the increased reinsurance cost for the treaty year effective June 1, 2015.
Through March 31 of 2016 and for reinsurance treaty years beginning June of 2013 and 2014, with our placement of the multi-year reinsurance treaties as discussed in prior earnings calls, benefits of $4.7 million and approximately $40.4 million were recognized, respectively.
Net premiums earned for the first quarter of 2016 were $58.4 million compared to $81.7 million in the first quarter of 2015.
Loss and loss adjustment expenses increased by approximately $8 million in the quarter compared with the first quarter of 2015.
Approximately $5 million of this increase was due to the adverse weather activity and $3 million is related to normal loss activity.
Our loss ratio applicable to first quarter of 2016, which we define as losses and loss adjustment expenses related to gross premiums earned was 27.4% compared with 17.4% in the first quarter of 2015.
This percentage increase is as we've just discussed.
The expense ratio applicable to the first quarter of 2016, which we define as underwriting expenses, interest and other operating expenses related to gross premiums earned, totaled 24.3% compared with 20.2% in the first quarter of 2015.
Expressed as a total of all expenses related to net premiums earned, the combined loss and expense ratio for the first quarter of 2016 was 87.3% compared with 50.4% in the same quarter of 2015.
These fluctuations in the ratios reflect the variances in gross premiums earned, reinsurance cost and the unusual weather activity in the quarter.
We are constantly monitoring claim activities for development of trends in frequency, severity and causes of loss for the potential impact on incurred losses and loss adjustment expenses.
Investment income and related investment items increased by approximately $1.2 million primarily resulting from a reduction in the other than temporary impairment charges recognized in the first quarter of 2016 as compared with the same quarter in 2015.
With the current market volatility and the size of our investment portfolio, impairments may develop.
Investments total $239.6 million at March 31, 2016, an increase of $6.6 million from December 31.
Net book value per share has increased to $23.87 at the end of March from $23.10 at December 31 of 2015.
We are pleased with our first quarter operating results, which were led by strong fundamentals throughout our organization.
We remain committed to increasing shareholder value in future periods.
Now I'd like to turn the call back over to <UNK>.
<UNK>.
Thank you, <UNK>.
In light of the adverse weather events, we are very pleased with our profitable results for the first quarter of 2016.
Clearly, it was a difficult quarter but adverse weather will not happen every quarter.
Looking ahead, there are important positive developments.
We had expected the soft market conditions would lead to a decrease in retention.
We are currently not seeing that decrease.
Retention levels remain near 90%, similar to 2015.
This could indicate a tightening in the homeowners insurance, market.
Two, we have not fully completed our reinsurance program for the 2016, 2017 hurricane season, but we expect to be well reinsured with the first event coverage of approximately $1 billion.
We did get off to an early start on our placement this year and we have preliminary numbers while not yet final that we expect to recognize less than $120 million of reinsurance expense over the treaty year.
Finally, we have a strong balance sheet, including a sizable cash balance.
We are prepared for the opportunities and challenges ahead.
With that, we are ready to open the call for questions.
Operator, please provide the appropriate instructions.
Absolutely, <UNK>.
It's been incredible to watch it grow and blossom.
We are seeing people do quotes in TypTap at a quite an astonishing rate.
I think people are just trying it out, so to speak.
But the activity that's going on is quite fascinating to watch and as the word is getting out, we're seeing more and more activity.
So we are very pleased with how TypTap is developing.
Clearly, we planned this firm to be a marathon and not a sprint.
So it's not just about the last two months, but the progress so far has been beyond our expectations.
Yes, but I think generally speaking there seems to be a turn.
When we had got the rate cut late last year, the general prevailing environment was of softening rates.
With the change of events that seems to have occurred over the last few months, everybody seems to be applying towards rate increases.
Now having said that, what kind of rate increase you want or what kind of rate increase you can get really depends on where you ---+ what position you started from and also how losses are developing in your portfolio.
So it's almost one of the strange situations that the higher the rate increase you may be looking for, it may be more an indication of what the future looks like for you.
From where we sit currently, we are not actually planning any rate increases at the moment.
We are rather trying to manage our stable book of business in a manner that we can absorb the impacts of some of these things that are occurring because we like our policyholders who have been with us for a very long period of time and we (technical difficulty) just pass the rate increase on because we can or things of that nature.
Gross written for the quarter was $75.5 million.
Net written was $35.2 million.
That's correct, yes.
We expect it to be under that number and this is what we are going to amortize as a group just so I'm clear to what we're talking about here.
Yes, <UNK>ny.
You're talking about the policy acquisition and the other underwriting expenses, that line item.
I think instead of thinking of it as a percentage, we sort of thought of it more in terms of strict dollars terms.
It's gone up a little bit year-over-year, primarily due to the fact that last year we had assumed a large book of business, had them sort of renewed onto our paper.
As it renews onto our paper, we get some increase in expenses because of that, direct written versus assumed, so to speak.
So that's what's made it go up a little bit, plus you do get some normal expense increases, pay raises, those kinds of things, but I wouldn't expect it to go much higher from here.
I think it's sort of found to be baked in here, and based on a dollar term per basis here.
Yes, I think if you measure this over the course of time, over the courses of a few years because that's ---+ the change is quarter-to-quarter, [although not much] but when you look year-over-year, it starts making ---+ you start seeing it.
A few years ago, we used to be ---+ gross premiums to surplus used to be close to four to one and now this year, it will be closer to two to one.
Little over two to one.
Little over two to one, and that's despite the dividend that was paid out.
What we've done is that the book has matured and we have come off ---+ taken our foot off the gas in terms of growth.
Our leverage has decreased significantly, but we still continue to have income and earnings and everything else.
So, all of these things basically means that as a company, if you just talk about the insurance subsidiary, which [used to be equal to] the leverage at four to one, it's now on a leverage at two to one with practically double the size or the amount of premium we write without actually needing any more capital in that subsidiary.
That's what I meant by not only does it not need cash is actually generating cash at this point.
Does that help.
Sure, <UNK>.
Look, basically, at any given point that we look at it, and we want to go buy something, we look at the bonds, the stock and the converts as independent items.
The stock, we already had a buyback in place.
So that was working as it was.
So let's take that off the table for a second.
So now you have the decision between the baby bonds and the converts.
The baby bonds are trading at par.
The converts were trading at $0.87 on the dollar.
And it seemed like you can buy a dollars' worth of debt back for $0.87.
Doesn't really require a lot of science.
That's a good purchase and as it was available, that's why we went and bought that back, because we manage the balance sheet at all times and the converts are due in three years' time, I believe.
So we are doing balance sheet management as we go along.
The other thing that helped us move in that direction was if you get into the queue, you will see that we refinanced our corporate headquarters and borrowed $9.2 million early in January.
So we're shifting the debt from being in the convert and at the holding company down to Greenleaf and being backed by the assets of the real estate which up to now have no debt on it and of course, at the same time, you're borrowing this money on a much longer time basis, like 15 years, as opposed to three years.
So it's all part of optimizing the balance sheet.
My expectation is probably before the end of the year.
Thank you.
I think we had a little bit of development and would go back over 2013, 2014 and 2015 but that's normal this time of the year, for at least 2015, it would be normal because as you close out the year, you sort of get a little bit of that to lead over into the first year.
Some of this is going on because of, as you know, the ongoing AOB items.
We had a loss with the other day from a claim that was paid in 2011, has been closed for four years.
AOB is creating a cottage industry as we've said many a time before.
It will be identified in the queue (technical difficulty).
<UNK>, as much as you look it up on the queue, because it then lays out across all the years as opposed to reading from a kind of read over the phone.
I got it right here for you.
I knew you were going to ask.
Weighted average shares that went into the earnings per share count were [$9.641 million].
<UNK>, I think our year-over-year reinsurance, right, has a lot of things moving parts.
It makes it difficult to sort of say it's just to do with one thing or the other.
Some of it is, yes, there is a slight softening of the reinsurance market, but also, as we've come off our multi-year contract as you're talking about, which would have had prices from 2014 baked into them, you get a much bigger delta as you move out of 2016.
So you get some of that.
You also get some benefits as we've re-optimized our reinsurance tower to fully integrate in the wind-only policies from a couple of years ago.
So you'll get all of those things that are benefiting us.
Against that, I would tell you that we have in certain areas, especially in the placement of the Cat Fund actually paid a premium to the Cat Fund because we wanted better coverage, going forward.
So it's slightly more expensive, but it's a better coverage.
So that's what we did.
We identified $5 million for the weather events and we had $3 million of reserve strengthening [or roughly] $4 million of reserve strengthening, and we didn't really specify anything for the AOBs.
<UNK>, look, we tend not to think of it that way and break it out, because at some point, what that suddenly starts becoming is that, well, if it wasn't for this, if it wasn't for that, the losses would have been a certain other number.
We had $27 million losses for the quarter and we generally sort of talk in terms of what the actual numbers were as opposed to, if only this and this hadn't happened, the number would have been something different.
So reality, that's why we don't break out the AOB to, how much of it is AOB or how much of it is just due to increased claims severity or a mixture of claims being different or any of those kinds of things.
Well, let's go through that in the slightly different fashion.
We reserve the way we reserve and we reserve the claims to what we think the value of the claim is.
Obviously, when you get litigation, you have to change reserves just for the lawyers' fees involved, so that in itself causes some changes, but generally speaking, what I'm talking about, about the past, et cetera, is that, litigation usually starts in some cases quite a long time after the claim has been filed and/or the claim has been filed and closed and so consequently, you would not have reserves against that claim till the data lawsuit comes in or the additional reserves against that claim till the data lawsuit comes in.
So that's what's creating some of the adverse development I think for a number of carriers at the moment, us included.
It's on a slight upward trend now.
Actually, I'm going to digress here and talk about some of the things that we're doing using our technology division.
We've actually been mapping every claim that's had a litigation attached to it.
Every property has a litigation attached to it for the last 2.5 years and as you look at those trends, et cetera, we note that while we are seeing a slight upward trend for the homeowners choice book of business, our rate of increase is materially less than the rate of increase we're seeing in a number of other carriers.
And equally well, just to be balance about, there are a couple of carriers that we see, we're not seeing any increase in litigation trends.
So, on a blended average basis, I think we're seeing a slight increase, but we seem to be well below the what seems to be the market average.
Yes, it's the right way to think of it.
One of the items I would just clarify, <UNK> was asking about policy accounts but you're asking about premium.
There is a slight difference in what the average premiums are for the two books.
So the two things don't cross over at the same time.
It's too early to quantify yet.
I just know that there will be a difference because it's different lines of business.
It's difficult to answer, <UNK>, because while there is an item of flood, there is also a question of the mixture of policies that are rolling of the books, right.
So, for example, a flood policy is considerably higher than a renters policy but it may not be higher than a wind-only policy.
So depending on what mixture of policies you're looking at on the homeowners choice side, it could have a different effect.
On behalf of the entire management team, I would like to express our appreciation for the continued good support we receive from our shareholders, employees, agents and most importantly, our policyholders.
We look forward to continued success.
| 2016_HCI |
2017 | UNT | UNT
#Thank you, Jeanette.
Good morning, everyone.
We want to thank you for joining us this morning.
With me today are <UNK> <UNK>, <UNK> <UNK>, <UNK> <UNK> and Bob <UNK>.
Each of these gentlemen will be providing you with updates concerning their segments in a few moments.
After their comments are concluded, we will take questions.
Before I turn the call over for the business segment discussions, I'd like to offer just a few remarks.
While we continue to maintain an optimistic outlook for commodity prices, we also very aware that prices can fluctuate and will fluctuate significantly.
Therefore, we must be prepared to respond accordingly.
At the outset of each year, we endeavor to establish a capital expenditure budget that is in line with our anticipated cash flow for the year, excluding acquisitions.
Our 2017 capital expenditures plan, which was adjusted modestly upward at midyear, has positioned the company to execute our plan for remaining within cash flow.
This is not a new focus but rather one that has enabled our company to maintain a strong physical position during this and prior adverse cycles.
We're now in the preliminary stages of planning our 2018 capital expenditure budget, which we will release during the fourth quarter earnings call.
Our oil and natural gas segments experienced sequential quarterly production growth, despite the effect of Hurricane Harvey as noted in our press release.
We continue to see some very encouraging well reserves ---+ well results in our core plays and believe that we are positioned with an ample opportunity in economic well prospects to provide growth for many years to come.
Our contract drilling segment has performed in line with the industry as we saw utilization grow rapidly through the first two quarters and back off slightly late in the third quarter.
As frustrating as it may be to give up any ground no matter how temporary, we continue to have discussions with operators interested in adding rigs at the beginning of 2018.
For our midstream segment, although we continue to operate largely in ethane rejection mode, we have seen processing volumes increase at our Cashion and Hemphill facilities, which has allowed us to grow both processed volumes and liquids sold volumes.
Further improvement in natural gas liquids process can have a very positive effect on this segment of our business.
As you are all aware, <UNK> <UNK> was recently promoted to Chief Operating Officer in Unit Corporation.
In the interim, he has retained his CFO role until a replacement can be made.
The process is currently underway.
<UNK> has been a tremendous asset to Unit for 13 years and we look forward this contribution in his new role.
I now would like to turn the call over to <UNK>.
Good morning.
Today I'll review the operational update on our Wilcox, Granite Wash and Hoxbar plays as well as provide more guidance about what we hope to expect in 2018 from our STACK play.
During the quarter, Unit grew production by over 5%, despite operations being negatively impacted by Hurricane Harvey.
Total production for the quarter was 4.1 million BOE, compared to production of 3.9 million BOE during the second quarter of 2017.
Liquids production represented 46% of our total equivalent production for the third quarter.
Production is expected to have another sequential increase in the fourth quarter resulting in total production for 2017 of approximately 16 million BOE.
During the quarter, plant outages and delays attributable to Hurricane Harvey reduced production by approximately 100,000 barrels of oil equivalent.
The effects of Harvey were principally due to NGL bottlenecks from fractionation plant partial shutdowns, and operational delays on new wells and re-completions.
After the end of the quarter, the third-party processing plant for the majority of Unit's natural gas production in the Gulf Coast area went down due to equipment failure.
The plant was down 7 days before operations could be resumed.
Cumulatively, Hurricane Harvey, the Texas Panhandle eye storm in the first quarter and third-party plant downtimes will reduce production for the year by approximately 460 million ---+ 460,000 barrels of oil equivalent.
Without these disruptions, production for 2017 would have been at the high end of our previous guidance of 16 million to 16.5 million BOE.
In the Wilcox area in South Texas, we continued our strategy of developing high reward, low-risk re-completions and infill drilling in the Gilly field area and pursuing our twin growth initiatives of building our horizontal growing inventory and drilling exploration wells to test new Wilcox prospects.
Today, during 2017, Unit has spent approximately $7.8 million, executing 29 re-completions and workovers, which has increased production 3000 BOE per day or 350%.
In addition, 2 higher rate of return infill wells have been drilled and completed in the Gilly field area and a third Village Mills horizontal well has been drilled and recently fracture stimulated.
At our Cherry Creek exploration prospect, we are close to having pipeline and surface facility installed for the Trinity #1 to begin first production, which we expect in late November or early December.
We plan to drill a second well late this year or early next year to help further delineate the Cherry Creek prospect.
We recently started a well ---+ we also recently started a well, excuse me ---+ the second well in the Cherry Creek prospect should provide more data about the potential size of the field.
In addition to the Cherry Creek prospect, we recently started a well in our Brant exploration prospect.
As a result of these operations, production from this area continues to increase with year-over-year third quarter production growing 2%, despite the negative impact of Hurricane Harvey and the exit rate at year end 2017 anticipated to be 15% to 20% higher compared to the exit rate at year end 2016.
In the Granite Wash play, we continue to extend the lateral drilling program in our Buffalo Wallow field.
We plan to continue this drilling program throughout 2017 and for the foreseeable future.
During the quarter, 2 wells had first production, both in the C-1 interval, and we have been pleased with the results.
Two additional wells were drilled during the quarter and were recently fracture stimulated using the zipper frac technique, 1 in the A-2 interval and 1 in the B-interval, which is our first extended lateral B-interval test.
Also, during the third quarter, we spud our first 2 wells anticipated to have 9,500-foot laterals in the Buffalo Wallow field.
The first of these wells has been successfully drilled and is awaiting completion, while we finish drilling the second.
Production rates from the extended lateral well program to date are meeting expectations and at a projected well cost ---+ excuse me ---+ of $6.4 million have a higher rate of return, especially when including the Gas gathering and processing margins realized by Superior in its midstream company that gathers and processes all the gas produced from Buffalo Wallow field.
In the Southern Oklahoma Hoxbar Oil Trend area or SOHOT, we continued our drilling program in response to the Oklahoma state legislature bill passed and signed in law in June 2017, which allowed extended lateral drilling across the state beginning in late August '17.
We have been reworking our rigs schedule to incorporate longer lateral horizontal wells.
We believe longer horizontals will lead to further improve well economics in both Marchand and Medrano sands.
We plan to spud our first extended lateral and sand wells in November ---+ this month.
In the STACK play, we are focused on blocking up our acreage position in preparing for a 2018 drilling program.
We have participated in 27 non-operated STACK wells to date and the well test information continues to provide encouraging results near our operated acreage positions.
We anticipate our drilling program will be comprised mostly of wells with either 7,500-foot laterals or 10,000-foot laterals depending on which lateral length accommodates our acreage position the best.
On the land side, our plans are to add 4,000 to 5,000 net acres over the next year to block up and add to our current 15,000-acre position.
As more well test information becomes available, and we add acreage and get more clarity around our development plan, we will periodically update our anticipated operated and non-operated well count.
Currently we see 100 to 200 operated wells in our inventory with the major uncertainty being well density.
We anticipate Unit's working interest in the majority of STACK operated wells to fall within 30% to 60% range.
On the non-operated side, we see a 400- and 900 well-inventory with the major uncertainty again being well density.
We anticipate Unit's working interest in the majority of STACK non-operated wells to be less than 15%.
In addition to well density uncertainty, there is still some uncertainty around what commodity prices will be necessary for each location of the economic.
In summary, I'm pleased with the quarter-over-quarter growth we're seeing from our core plays while keeping our capital spending near cash flow.
Our ability to move the longer laterals in the Granite Wash, SOHOT and STACK will improve the efficiency with which we convert capital into production and production into cash flow for reinvestment.
With the STACK play added in the mix, our low-risk development drilling inventory is large enough to provide production and reserve growth for several years to come.
In addition, our exploration prospects, especially in the Gulf coast area, have home-run type reserve potential as illustrated by our Gilly field discovery.
Unit Petroleum's strategy of being a low-cost operator and being disciplined in terms of focusing in play areas where we can keep our land acquisition cost low relative to industry is sustainable and one that can deliver profitable growth over the long term.
At this time, I will now turn the call over to <UNK> for the drilling company update.
Thank you, <UNK>, and good morning, everyone.
The third quarter was very positive for the contract drilling segment.
Even though our rig utilization fluctuated slightly during the quarter, our daily operating cost continue to decrease and cash flow margins have steadily improved.
The average day rate for the third quarter was $16,454, an increase of $492 per day over the second quarter.
The average total daily revenue before intercompany eliminations was $16,834, an increase of $240 over the second quarter.
The day rate increase was a result of incremental rate increases on several rigs, primarily due to wage increase initiated in the third quarter in the mid-con region.
Our total daily operating costs before intercompany eliminations decreased by $534 for the third quarter as compared to the second while absorbing the labor increase on many of the operating rigs.
The decrease was due primarily to fewer stack rigs being put into service and the cost directly related to reactivating stacked rigs and the operating rigs performing more efficiently.
We did, however, experience additional costs of reactivating 3 rigs during the quarter, plus the cost of moving one rig from one basin to another.
The average per day operating margin for the third quarter before elimination of intercompany profits was $5,495, which is a $774 per day increase over the second quarter.
Our non-GAAP reconciliation can be found in today's press release.
We began the quarter with 33 operating rigs and increased to 36 during the quarter and then dropped back to 33 by quarter's end.
Presently, we have 33 operating rigs.
Our activity level has remained relatively consistent with the industry activity level.
Currently, all 10 of our BOSS rigs are operating with 6 of them under term contracts.
During the last year, we have put into service 2 new BOSS rigs, 20 1,500-horsepower SCR rigs, and 1 1,000-horsepower SCR rig.
Twelve of these 21 rigs did not require any upgrades or additional equipment.
The other 9 rigs were upgraded to varying degrees with walking systems, 7,500 PSI mud systems, [dirt] pumps and/or hydraulic catwalks.
3 of these rigs were put into service during the third quarter.
However, we were able to reduce our daily costs substantially and increase our daily cash flow margin.
The land rig utilization rate has been declining during the past month for the industry and for Unit also.
However, we are optimistic that the current demand for rigs will be sustainable for the near term.
The inquiries for rigs for the beginning of 2018 has increased and it appears that the recent reduction in rig count is due to budget constraints for 2017, leading us to believe that rig count will rebound during the first quarter of 2018.
At this time, I'll turn the call over to Bob for the Superior Pipeline update.
Thank you, <UNK>.
The midstream segment completed a successful third quarter producing consistent financial results and favorable outcomes at many of our key facilities.
Our segment operating profit before depreciation for the first 9 months of 2017 increased to $38.6 million, which represents a 15% increase over the first 9 months of 2016.
This result is primarily achieved due to monitoring and controlling operating expenses as well as receiving better prices for oil, gas and liquids.
For the third quarter, total throughput volume remained constant, consistent at approximately 384 million cubic feet per day as compared to the second quarter 2017 while gas processed volume increase 140 million cubic feet per day, which represents 4% increase from the second quarter 2017.
This increased mainly due to higher volumes at our hands-on cash facility.
If commodity prices continue to improve, we should see higher gross margins at our profit facilities.
We invested approximately $4.8 million in capital projects in the third quarter of 2017 for a year-to-date total of $10.1 million.
For 2017, our estimated capital expenditures are approximately $18.9 million dollars.
I'll now focus on several key midstream assets.
Starting with our Hemphill facility located in the Granite Wash area in the Texas Panhandle, in the third quarter our average total throughput volume increased to approximately $60.8 million cubic feet per day and production of natural gas liquids increased to approximately 164,000 gallons per day.
Most process volumes and NGL volume increased this quarter due to additional volume received in the Buffalo Wallow area.
During the third quarter, we connected 2 new well from the Buffalo Wallow area, which brings our total well connects to 4 for the year.
We expect drilling activities to continue in this area and we're in the process of connecting 2 additional wells by the end of the year.
Moving to our Pittsburgh Mills gathering facility located in Pennsylvania, this system continues to achieve solid financial results.
Our total throughput volume for the third quarter averaged approximately at 128.5 million cubic feet per day after connecting Allen well pad in May 2017, which included 5 new wells, we now have a total of 12 well pads connected for our Pittsburgh Mills gathering system with a total of 55 producing wells.
Our next well pad scheduled to be connected is the Miller pad, which we located on the south end of our system.
We are continuing preliminary construction activities with [pledge] connecting this pad and expect to start pipeline construction after the first of the year.
The Miller pad will include 7 new wells and we expect first flow in the third quarter 2018.
Additionally, we received notice that 7 new infill wells will be drilled on existing well pads.
We expect these wells to be connected and flowing in the second half of 2018.
At our Cashion processing facility, located in central Oklahoma, our average throughput volume increased to approximately 38.4 million cubic feet per day.
We connected 4 new wells in the third quarter and are in the process of expanding the Cashion gathering system to connect production from a new producer.
We've connected the first 3 wells from the producer and we are in the process of constructing the pipeline extensions to connect additional wells.
Additionally, our 5-year contract with another third-party producer, which was effective on January 1, 2017, will allow us to gather and process 10 million cubic per day at our Cashion facility.
This is a fee-based contract that includes a shortfall provision that applies if the gas is not delivered and any shortfall amount will be sold annually.
In summary, total throughput volumes have remained relatively stable for our process volumes, electric volumes, sold volumes had modest increases over last quarter.
We continue to connect new wells at our Hemphill and Cashion processing facility while our fee-based Appalachian systems continue to deliver solid financial results.
We have seen some benefits this quarter from improved prices at our processing facility.
And we are positioned to take advantage of any future price improvements.
As producer activity levels continue to increase, and with our available processing and gathering capacity, we anticipate complete 2017 with strong financial results and we feel the midstream segment is well positioned going into 2018.
At this time, I'll turn the call back over to <UNK>.
Thank you, Bob.
Before we move on to the Q&A, I'd like to just point out a few things.
We're very pleased to complete another quarter with some very positive improvements in each of our 3 segments, all while continue to maintain our focus on keeping capital expenditures in line with expected cash flow.
This has enabled us to maintain a strong business position while we continue our growth process.
In our expression and production segment, we're very pleased to have increased quarter production despite operations being impacted by impacted by Hurricane Harvey.
We're pleased with the long-term growth outlook for the segment, the large low-risk development inventory from our STACK position combined with the production outlook from our other 3 core areas should give us very favorable results going forward.
Our contract drilling segment continues to perform very well in today's market.
Our activity level remains relatively consistent with industry activity levels.
Our focus for this segment is to anticipate and meet our customer needs, which we have done a very remarkable job of achieving.
All 10 BOSS rigs are currently operating and we have 23 SCR rigs in operation.
And I'm proud of what our drilling team has been able to accomplish during these very challenging times.
Our midstream segment is positioned well to take advantage of opportunities that may arise.
We continue to seek new opportunities to grow this business segment.
Any increase from liquids processing will only further improve our processing in liquid sold volumes such as we've seen this quarter.
All in all, it was a good quarter for us and we will continue to maintain our physically conservative approach.
I would like to now turn the call over to questions.
<UNK>, it did.
It did slow down a couple of weeks ago but in the last ---+ probably about 4 weeks ago.
But during the last 2 weeks, it's increased a lot.
Not for jobs to happen next week or this month but for mid-December, and most especially the first quarter of 2018.
So ---+ and not only have the inquiries increased but we have several pending contracts for rigs that will work in the first quarter of '18.
Now these are not additional rigs to what we have or have been operating.
But that would be just a continuation of jobs that we have going plus those 2 to 3 that went down in the latter part of this quarter.
Yes, we think so.
And the reason that those costs went down so much in the third quarter, we had ---+ one, we had more rigs days, so all the I/Os that are affected by rig days, indirect cost, yards and auto expense, G&A, those things come down on a per day basis because we have more rig days to divide by.
But we also had less expansion in this quarter for reactivating stacked rigs, even though we've brought 3 more out during this quarter.
So it's just an overall progression that it just takes time when you start ramping up the beginning of the year at the speed that the industry did.
And that's included and now things are more stable and so I think the results are relatively to be expected going forward.
No.
We've seen good sequential quarter-over-quarter growth this year.
And I think in the script, I said we would expect another sequential growth in the fourth quarter.
We haven't done our 2018 budget yet.
Our anticipation is that we would see ---+ we will see growth in '18 and during our budget process, we'll see if we're going to be able to achieve sequential quarter-over-quarter growth.
But we'll see annual growth for sure.
Whether we can grow production every single quarter, it just remains to be seen till I get a chance to really dig into the budget details.
I didn't have anything else.
The capital spending is going to be spread between our areas, rig counts will be spread between our areas.
Now some areas have a higher working interest than others, so you'll see some variations in net capital between areas.
But we ---+ what we would foresee is continuing our rig in the Granite Wash, continuing the SOHOT rig, continuing the Wilcox rig and then adding a STACK rig.
That's where we're headed for 2018 in terms of putting our budget recommendation together.
Yes, I think you're correct in that, <UNK>.
And I think it will continue.
And the reason that I think that, that situation that exists right now, a lot of the STACK AC rigs, they are AC but they're no more equipped than our SCR rigs.
So I don't think it's as much a question of AC versus DC if they're equipped properly.
It's a question of whether ---+ what kind of pumps ---+ not what kind but what size pumps, the pressure rating of the mud system, all the other things, the drilling programs that you can run with those kind of rigs.
So I think we can remain very competitive with the SCR rigs.
And as you know, our goal is still to continue our BOSS rig program and add to that as the opportunity arises, so we're just trying to put both of those parts together to make it work.
In some cases.
There are exceptions to both side of that statement.
All depending on when the contracts were began has a big play in it, but overall, yes, that's true.
No, not really, because if we still think that as we go with the AC rig, the BOSS rig would be our preference and we think we can do other upgrades on SCR rigs that will attain the same results.
We had a ---+ we experienced that pressure and in the 1st of August, we increased the wages for all the crews in the Mid-Continent region.
So yes, that pressure is there, but we have not had any significant problems in manning our rigs as we've added additional rigs.
But it's ---+ always will be a pressure with continued growth.
But the lessening of the rig count by 30, 34 rigs in the last month has alleviated part of that issue.
So the Cherry Creek prospect is 6 miles from Gilly field.
If you'll recall, Gilly field is a 500 Bcfe discovery and the Cherry Creek prospect was drilled to test and find similar zones that are in the Gilly fields discovery.
Cherry Creek, the first well we drilled the Trinity.
I didn't mention it this quarter, but last quarter I think I mentioned that the we tested that well at rates ---+ at rates that were very encouraging and we think that when that well comes on, it's going to come on high rates and high pressures and we'll just have to watch it for a couple of months to kind of see how the pressure declines, how the rates hold up and in the meantime, our 3D seismic indicates the size of that field is significant and we will be drilling a delineation well to the go further up on structure and to prove up more of the size of the field and that delineation well, the Trinity #2, will be drilled sometime in December or the first part of the first quarter of '18.
In addition, we have spud and are nearing the completion prospect that we call Brant prospect, that well that the exploration over there is called the Ingle.
And the Ingle is nearing total depth and we're excited about that prospect.
It's an area where there has been some offset production not far from our exploration well and should we find what we hope to find our exploration well, it could prove to be a very nice horizontal drilling area for us.
And then beyond those 2 prospects, we have another large prospect that we plan on drilling and testing in the third quarter or fourth quarter of 2018.
That is very near Gilly field.
So that's about as much color as I can give at this point, <UNK>.
Most of our acreage is in the overpressured window, which is fortunate because the overpressured window continues to produce the best well results in that play.
We are very excited about the well results that we continue to see near our acreage position and wells that we're participating in.
We haven't seen anything that would be discouraging to us in terms of being able to have a very successful drilling program there.
In '18, we would like to drill wells and all of our wells that we will drill in '18 will be in the overpressured window.
And some of the drilling will likely be in the Western STACK extension and some will be more into the main part of STACK.
Thank you, Jeanette.
We'd like to just thank everybody again for joining us this morning and look forward to seeing many of you as we can over the next couple of months in our trip around visitings, so.
Again, thank you again and that concludes our call.
| 2017_UNT |
2017 | HAS | HAS
#Really we talked about the biggest impact on the gross margin line for the quarter was the level of closeout sales.
So closeout sales typically carry a lower gross margin as they come through.
And they also carry lower advertising and all other costs, so there's not a lot of promotion around them and things like that.
So while you see it in the gross margin line, that's why you see our operating profit did increase from up percentage standpoint.
Because it impacted that, but not [the way down].
So that, size-wise, was the biggest impact.
The next biggest impact was less favorable hedges that we had on inventory we purchased in the second quarter this year versus a year ago.
And we said at Toy Fair that that was going to impact our full-year gross margin, and that overall we expect our full-year gross margin to be down a bit from the full-year 2016.
So those are really the two big items, and they offset the positive product mix that you mentioned earlier.
Yes, Disney Princess ---+ yes, I looked at it.
Disney Princess together would be up, year to date.
And I'm not going to size it, but it's up in both the quarter and year to date for us.
And, look, there's a lot of great entertainment that's been supporting that brand: in Moana, in the electronic sellthrough and DVD windows, Beauty and the Beast.
So yes, it's been up.
And we would expect, with the kind of entertainment we have coming in the second half, and Olaf's Frozen Adventure to contribute to our both Princess and Frozen business for the full year.
Well, we really set our hedges so we can put predictability in our pricing.
So, based on the hedges we have, we've been able to set pricing for the year and give our retailers confidence in maintaining that pricing, as well as understanding what our gross margin is.
So, if I think about the rest of the year, last year for full-year we were about 74% of our total cost was hedged.
This year, I think we're about 73%.
We're right around that range.
So to the extent we haven't hedged, we should get some benefits from it.
But on a full-year basis we ---+ again, we really hedge to protect the pricing that we offer to our retailers.
Well, I think we'd expect a nominal shift in revenues between third and fourth quarter.
We're not suggesting that it's seismic, but just a nominal shift as a result of all these entertainment initiatives that are happening toward the back half of the year, and particularly in the fourth quarter as Star Wars comes out in December.
On online, what I had said was that our cost of business was very similar.
The difference is, as we develop our expertise in online, we have some initial costs over the first couple years as we set ourselves up for future growth, and that we would expect those costs over time to begin to diminish.
That has to do with the kind of packaging we use and the way we create master cartons and the way that we go to market, the kinds of content we're creating.
But we're ---+ over time, we will amortize those startup or learning curve costs; and that we would expect that to continue to be, over time, accretive to our business.
But today, comparable cost of business to omni-channel or brick-and-mortar.
Really, Germany was really around the quarter, and we don't expect that to continue for the full year.
It's really the UK and Brazil that we're seeing most of the economic issues in.
Yes, overall, the games category was up 20% in the quarter.
And then if you look at Hasbro gaming was up 6%.
But I think it's important to note that in the second quarter, globally, our games POS was up 27%.
So we're seeing a tremendous sellthrough of our games business.
Similarly in US, our games POS was up quite considerably.
So what we're seeing is really a matter of games selling very well; shipments a little bit behind the sellthrough; a lot of new games introductions coming later in this quarter for the second half.
Dungeons & Dragons is performing at a very high level.
I think Dungeons & Dragons is back, and the team has done some very expansive marketing around that.
It's involved in e-sports, and Twitch; new gaming launches coming throughout the year.
And then, of course, you also see our digital gaming business growing considerably, with Transformers: Earth Wars performing quite well, DragonVale performing well.
So Backflip Studios is really contributing as well in the quarter.
So it's both digital gaming as well as face-to-face gaming performing well in the quarter.
So that's both in the gaming segment and then overall performing quite well.
Magic on a full-year basis, it really ---+ the business continues to resonate.
We're making a lot of progress in Magic Online and our Digital Next ---+ looking forward to showing you more in the Digital Next development at our Investor Day.
But Magic Online is performing very well, holding up quite well.
And you're seeing more concurrent launches, like Amonkhet was a concurrent launch between our card set as well as our online.
And we continue to connect with players.
We're seeing great new player engagement as well as conversion; continue to see the kinds of tournament play and e-sports play and viewership that really gives us good signals for that brand long-term.
I'm sorry, go ahead.
So if you look at Princess, we had said from the beginning that the investments would begin before the revenues; then the investments continued in early days as we've launched that brand.
We continue to invest in the brand, and we do continue to see profit improvement over time.
And we had said then, and continue to reiterate that we would see profit improve over a two- to three-year period, and begin to approach Company average operating profit margins for our partner brands over that period.
And that's still the case.
And as far as capital allocation, as we say, we want to return excess cash to shareholders.
And indeed, most of it was through dividends this quarter.
And we repurchase shares subject to market conditions and available US cash.
We also put 10b5-1s in place in our close windows.
And our stock price had quite a bit of movement in this past quarter.
So we still have about $300 million left in our share repurchase authorization, and still plan right now to purchase $150 million on a full-year basis; it will just be more back-half-weighted at this point.
The overall industry, it grew just under ---+ about 4%.
Obviously, our growth is outstripping that growth.
In the US, the team has done a fantastic job with double-digit growth.
We continue to see the opportunity to grow that business, continue to engage in it with a number of retailers, continue to expand and stretch our channel management.
And through that channel management strategy, we're getting to new and differentiated retailers with different types of products and offerings.
The online business continues to be a disintermediary for us.
For example, if you look at our online sales in the quarter, particularly focused on the US, you see very strong double-digit gains for all of our franchise brands.
And that's quite heartening to see that My Little Pony and Littlest Pet Shop performing well as we start to introduce new product where the audience can find those brands online at their liking.
So I'd say, overall, we continue to expect that the US business, the North American business, can grow.
We've certainly seen that growth, and expect that the retail calendar with entertainment continues to stretch to be more a full-year calendar.
And we have a number of initiatives for the second half of the year that set us up quite well for a full year.
And also into 2018 we're seeing a number of entertainment initiatives, including our own, that set us up for 2018 to be a very good year as well.
So that's what I think about the US business.
I think if you look at it, our developed economies business in the first quarter grew 12% while emerging markets grew 7%.
And for the first half, our developed countries business grew over 5% while emerging markets grew double digits.
And so I would say that we're continuing to see very good growth both in developed economies and emerging markets.
In the quarter we've seen very good performance from Monopoly.
We've seen good performance from Transformers.
We've seen good performance in Magic.
I think Pony was off just a bit in the quarter.
And as we set up and tee up the second half around the movie, again on the full-year basis, we think My Little Pony will perform quite strongly.
And remember what <UNK> said earlier, that the consumer products royalty income comes in the quarter after the sales occur.
So I think that a lot of what has gone on in consumer products is just related to timing.
It was just some ---+ well, first of all, we've seen great growth in [a certain] number of markets where we have longer dating.
In Latin America, for example, Mexico has seen great growth.
And the dating there is a bit longer.
Yes.
In India, we just started opening our own business in India, so it's really just a function of timing for us.
And we also talked about closeouts.
Some of those sales, as I mentioned, they are at a lower rate, but they don't carry any allowances or things like that that may reduce receivables further.
So, it really is about timing for us this quarter.
Inherently, our receivables are in great shape.
Our collections are good.
And through last week, we collected almost 20% of our receivables.
I think I'd looked at it Wednesday, and we were already at that point.
So we're in good shape on receivables.
It's really just about timing.
Our global POS in the second quarter was up 13%, and year-to-date is up about 14%.
And then our ---+ I said games POS globally was up 27%, and the US was even more stronger, 33%.
And you've seen double-digit growth across a number of categories.
Where we have a breakdown, franchise brands were up double-digit.
Partner brands was up strong single-digit.
And gaming, as I mentioned, was up.
Online sales I talked about being up more than 20%.
And then of course I also earlier ---+ in Europe, we saw the double-digit POS gains, and very strong gains in a number of markets.
And as I mentioned, the UK was the only place where the POS was flat.
And we're holding our own in an industry category that's down a bit.
That's our measurement at wholesale.
That's what we have as POS.
Yes, we don't ---+ the retail data, we don't get that retail data by all those markets.
We get wholesale data by all those markets (multiple speakers)
Thank you, Rob, and thank you, everyone, for joining the call today.
The replay will be available on our website in approximately 2 hours.
Management's prepared remarks will be posted on our website following this call.
As <UNK> mentioned, we look forward to seeing you at our Investor Day on Thursday, August 3, at our West Coast offices in Burbank, California.
And finally, Hasbro's third-quarter earnings release is tentatively scheduled for Monday, October 23.
Thank you.
| 2017_HAS |
2016 | NBHC | NBHC
#Thanks, <UNK>, and good morning and thank you for joining National Bank Holdings' third quarter earnings call.
I have with me, of course, our Chief Financial Officer, <UNK> <UNK> and <UNK> <UNK>, our Chief Risk Officer.
I'm pleased to report that during the third quarter we delivered another quarter of record earnings driven by solid revenue growth, expense control and excellent credit quality outside of the energy portfolio.
With loan originations of $282 million, we achieved a key milestone of $1 billion of new loan originations over the last 12 months and more important, we continued to gain momentum in our markets.
Our focus on strong expense management resulted in a year-over-year third quarter reduction of 14% and with actions taken in the quarter, we believe our energy portfolio, which now represents only 3% of our total loan exposure is well covered.
More important, the credit quality of our remaining originated loan portfolio remains nothing less than excellent.
I will now turn the call over to <UNK> <UNK> to cover our credit metrics in more detail.
Thank you, <UNK> and good morning, everyone.
As you saw in yesterday's release, we delivered a strong $0.30 earnings per share with return on tangible assets of 80 basis points.
In addition to solid organic trends with loans, non-energy credit quality and expense control, that I will cover shortly, we realized approximately $6.5 million in gains primarily related to collection efforts on the acquired problem loans and OREO portfolio.
We're very proud of our talented workout team as they continue to create value from the problem assets that we acquired several years ago.
These gains more than offset the $3.9 million additional provision for loan losses that we recorded against the energy sector loans, and we took a substantial step in cleaning up the energy sector problem loans through charge-offs.
Adjusting for these items we see the run rate in the low $0.20 range.
I will add that we will continue to realize gains on acquired problem loans in OREO over time, just that the timing is less predictable.
As <UNK> and <UNK> mentioned, it is exciting to deliver on our goal of $1 billion loan originations over the last 12 months.
Especially as we stay disciplined with our credit policy regarding industry concentrations and credit exposure size among others.
The quarter's originations of $282 million drove a 12.2% annualized increase in total loans and an 18% annualized increase in just the originated loan outstandings.
The new originations coupon rate was 3.6% with over 50% variable rate.
Higher than forecasted loan payoffs and paydowns plus the charge-offs, lowered the growth rate this quarter by approximately $60 million or about 9 percentage points to the annual growth rates that I just mentioned.
The new business pipelines remain strong as we look to complete 2016 with over $1 billion in originations.
Through the first nine months, we have grown the total loan portfolio a non-annualized 9.1%.
The growth rate has been impacted by the reductions in the energy portfolio of $61 million this year and the third quarter's higher than forecasted payoffs and paydowns.
As a result we're adjusting the full-year growth guidance to 12% to 15%.
Turning to deposits, we covered the highlights in yesterday's release.
I would add that over the past 12 months we have consolidated 12 banking centers or 12% of our franchise, and continue to be very pleased with our client retention, especially in comparison to the expense savings.
In terms of earning assets, we continue to fund the loan growth with cash flow from the investment portfolio and acquire problem loan paydowns in addition to deposit growth.
As a result we're forecasting earning assets to end the year in the range of $4.2 billion to $4.4 billion.
Fully taxable equivalent net interest income totaled $38.1 million and increased $2.3 million from the last quarter.
In addition to the growth driven by new loan originations, we did realize $1.8 million in accelerated accretion of the 310-30 portfolio.
The net interest margin of 3.59% benefited approximately 20 basis points from the accelerated 310-30 income and some large prepayment fees.
Looking forward, we are forecasting quarterly fully taxable equivalent net interest income in the range of $35 million to $37 million as we replace the very high yielding 310-30 loans and lower yielding investment portfolio with new loan fundings.
The resulting net interest margin is expected to be in the range of 3.35% to 3.45% for the fourth quarter.
As further guidance details we're forecasting 310-30 accretion income of approximately $6 million to $6.3 million in the fourth quarter, with resulting yield of approximately 16%.
As usual, these estimates can be higher for accelerated accretion income and lower for changes in the estimated future cash flows and timing thereof, resulting from a quarterly remeasurement process.
<UNK> did an excellent job addressing credit quality, and please refer to his comments for our 2016 guidance.
Noninterest income totaled $11.6 million and included good linked quarter net growth of 9% annualized when combined in the categories of [server] charges, bank card fees and gains of a sale of mortgages.
We also benefited from the collection of $0.9 million on FDIC-acquired loans that were charged off prior to acquisition and is shown in the other non-interest income category of our income statement.
Additionally, we collected $1.6 million in a guarantor settlement on one large OREO property.
Looking to the fourth quarter after adjusting for expected seasonality, and absent any one-time pickups, we are forecasting total non-interest income in the range of $8.5 million to $9 million.
Noninterest expenses totaled an excellent $33.4 million in the quarter came in better than our quarterly guidance.
Higher than forecasted OREO gains drove a net credit from OREO in problem loan expense of $0.9 million.
For the fourth quarter we reiterate our expense guidance of $34 million to $35 million, which doesn't include any OREO gains in excess of the problem loan expense.
This would bring the full-year expenses to $136 million to $137 million and would represent a strong decrease from 2015 of approximately $22 million or 14%.
Regarding the fully taxable equivalent tax rate, we are expecting the fourth-quarter and full-year to come in close to 31%.
Capital ratios remain strong with $65 million in excess capital using the 9% leverage ratio.
Also the remaining buyback authorization was $18.8 million at September 30.
<UNK>, that concludes my comments.
Thank you, <UNK>.
You did a great job covering a lot of ground.
Before moving to Q&A, I am pleased to share that our Board of Directors declared a 40% increase in our dividend moving from $0.05 per share to $0.07 per share.
It also be noted that we remained active during the quarter, repurchasing 2.6 million shares.
Since early 2013 through September 30, 2016 we have now repurchased 50.4% of our shares outstanding at a weighted average price of $20.
And <UNK>, on that note I will ask you to open up the lines for questions.
Yes, we did.
It was primarily in our commercial, our C&I lending; it was a bump over we've had the first couple of quarters.
We've been running in that $140 million to $150 million, and we had $190 million month in all payoffs and paydowns, so it did jump in that particular category.
I would add that we are now viewing our special assets teams somewhat as a profit center over the next 18 months, expecting them to realize gains from the remaining acquired OREO, as well as opportunities to pick up recoveries from previously charged-off loans that were acquired.
So while, <UNK>, your question is a great one and we're not ready to forecast specific returns or gains in those categories, I think you're going down the right path in terms of thinking about the opportunity there.
<UNK>, let me just add just for clarity from the accounting side.
There's really four places that you're seeing.
In this particular quarter, the third quarter, you saw all of them.
So it's coming through in accelerated accretions and that's on loans.
It's coming through on previously charged-off loans and that's in our other non-interest income line of our income statement.
You see OREO separately up in the non-interest income, that's a third category.
And then all the gains, accounting says we have to book it against is the contrary expense down there.
And that's really the point of your question was the OREO gains is down as a contract expense, and I wanted to make sure you thought about the other three categories.
We've given the answer to that anticipated question a lot of attention, and I'm simply going to say that we're going to be opportunistic.
<UNK>, good morning.
No.
Let me add to that.
It's been running around that 0.36% for several quarters now.
We would certainly like that to be higher.
I think as one of the things that shocked us a little bit coming out of last year, is when the Fed raised it 25 basis points.
We saw the competitive marketplace where we do business really just give that away.
Of course everybody came out and said they weren't going to raise the deposit side, but then they kept the loan spreads 25 basis points narrower.
So we're looking, we're seeing little bit of tension in the marketplace on that so we're looking hopefully to see those rates move a little bit as we go forward.
That's the story behind that.
If you look at banking generally, I've always seen the third-quarter being the strongest for all banks.
And seasonality does play into the fourth quarter a little bit with the number of days.
And so you do see, interesting enough, you see overdraft occurrences come down.
You see bank card fees go up, typically not offsetting that and mortgages do come down a little bit.
So, yes.
I definitely mentioned it in the middle of last year.
It is fair to say, <UNK>, that the handful of relationships that <UNK> was talking about last year is the handful of relationships we've been working to resolve this year, and we really feel like for the most part, that work is now behind us.
And absent some catastrophic change in the industry, we really are pretty optimistic about where we're at in that space on a go-forward basis.
Keeping in mind that it represent around 3% of our total exposure.
<UNK>, I might add to that.
<UNK>, the performing portion of the portfolio, as I mentioned in my comments, was stable to improving and we feel very good about the status of that other $73 million.
There really is that $13 million that we continue to work carefully on.
You know we've been focused on expenses, and as soon as somebody says expenses I do think about the $212 million we spent just a handful of years ago and to be at the mid $130 millions now is great progress.
We're right in the middle of our planning process, <UNK>.
We will be concluding that and giving you some detailed guidance here in January, but I think we'll just wait until then to give you our thoughts for 2017.
<UNK>, thank you so much.
Good question, <UNK>.
And as we've said a couple of times, I have answered that in a few venues.
15% investment portfolio as a percentage of earning assets we think is the long-term target.
So we'll continue to work investment portfolio and loans to deposit ratio in concert with that goal.
Thank you, <UNK>.
Sure, <UNK>.
Look, there's a lot of substance that go around that, but as we model that, it would be $1 million to $2 million depending on what the industry does with deposit rates.
Certainly to the higher end of that if deposit rates don't move very much.
And assuming that the market prices it into the loan spread.
Not that there's a 25 basis points increase in the loan spread, just that it doesn't narrow the loan spread.
So we definitely ---+ we're asset sensitive.
If you look at 100 basis points shock, which is a common industry practice, it would be $6.5 million to NII as you think about longer term.
These moves on a quarterly basis really depends a lot on the competitive environment.
Well, if the Fed decides to raise it ---+ I think that's certainly the first if, <UNK>.
We've been through this discussion as an industry for years.
We're positioned to be asset sensitive and will benefit on the ups.
And then it's really a competitive question after that.
And yes, we did see the marketplace grab the 25 basis point into the spreads on the loans, or hold I should say.
I will say first, we began the fourth quarter with this strongest first two weeks of a quarter in the history of the Company.
And we continue to benefit from operating in markets that are performing above the national average in almost every economic metric, so we fully expect primarily the Front Range of Colorado and the Kansas City metropolitan market to continue to deliver for us.
Our focus as it has been from the beginning is to build relationships with both businesses and individuals and it's really pretty simple blocking and tackling.
So I would tell you we remain focused on our core markets.
Thank you, <UNK>.
<UNK>, I should pause.
Are there any other questions in the queue.
Thank you, <UNK>.
I will say that there have been a number of questions offline about the dividend increase and how we should all be thinking about that.
And I think the best way to frame it up would be a target of moving toward that 30% payout range.
So we all expect more positive action on that front.
I just wanted to ensure that we were covering that publicly and sharing our thoughts around future dividend increases.
So with that covered, I will thank everyone for your time this morning.
Thank those of you that asked questions and wish you a good day and a good weekend.
| 2016_NBHC |
2017 | TPR | TPR
#Good morning
And welcome everyone
As noted in our press release, we are pleased with and proud of our performance this holiday season, particularly in light of the challenging and volatile global retail environment
Our team delivered top line growth in each of our segments, highlighted by positive comparable store sales in North America with solid demand across channels and overall gross margin expansion
We continued to grow our business internationally with notable strength in Europe and mainland China which represents significant opportunities for our brands
Importantly we opened our first Coach House global flagship locations on Fifth Avenue in New York City and Regent Street in London which represent the fullest expression of our modern luxury vision to date and celebrate our heritage and seventy-five year history of craftsmanship
And despite our deliberate pullback in the North America wholesale channel and unanticipated currency fluctuations, we delivered double digit earnings growth in the quarter
We were also thrilled with Stuart Weitzman’s results this quarter as we continued to implement our strategic priorities for the brand
We advanced our leadership position in fashion boots and booties during the winter selling season while driving global awareness and brand relevance through impactful marketing and the launch of key global flagships
This quarter strength which reflected strong growth in directly operated channels as well as the anticipated shift in wholesale shipments from the first quarter took brand sales growth to double digit for the first half and we continue to expect Stuart Weitzman sales to increase at a double digit pace this fiscal year
More generally, we continued to execute the Coach brand transformation across the consumer touch points of product, stores and marketing
Our gifting assortment resonated with our customers globally across all price points and in all channels
We continue to transition more of the fleet into our modern luxury concept while enhancing our customer experience
Finally, our holiday marketing was bold, innovative and fun, driving a dramatic increase in impressions globally
Also, during the holiday period we continued to elevate our brand through global celebrations of our seventy-fifth anniversary, including our first dual-gender runway show in early December here in New York City
We also announced Coach’s partnership with the actress and singer Selena Gomez
Her work with Coach will be wide ranging and begin with her appearing in Coach’s fall 2017 fashion campaign
It will also include a special product collaboration for launch in the fall across our global network and with major wholesale partners
Organizationally, we've announced two new leaders
First, Kevin Wills will join our team as chief financial officer in the coming weeks
Kevin is a proven leader who brings nearly thirty years of broad based and relevant retail and finance experience to Coach
His expertise and strong operational track record make him a valuable addition to the leadership team
We're also delighted about the recruitment of Carlos Becil, coming in a newly created role of chief marketing officer for the Coach brand
Carlos is joining us from Equinox where he held the role of chief marketing officer for the last four years
In his new role, Carlos will partner with Stuart Vevers and our global marketing teams to continue to innovate and bring our brand messages to broader audiences around the globe
I would like to take a moment to recognize and thank <UNK>a who has held the position of interim CFO over the last several months
She and our proven finance team ensured we continue to execute our strategies flawlessly
And I know you are all pleased to learn that <UNK>a will continue in her leadership role as global head of investor relations and corporate communications
Now, as has been our practice since we implemented our transformation strategy more than two years ago, I'd like to share some of the actions we've taken to drive performance across the three Coach brand pillars of product, stores and marketing
Starting with product, where Coach has emerged as a house of modern fashion design
In retail in the holiday quarter we successfully launched Heritage Gifts, a powerful year round dual gender gifting strategy grounded in glove tanned leather featuring pops of color and a balance of emotionally novel giftables
Retail also continued to focus on elevation and fashion in Q2 with the expansion of Coach 1941 handbags and the launch of our first ever all-door pre- spring collection
Building upon product innovation, 1941 continues to be Coach's vehicle to deliver playful iconic Americana inspired themes
In outlet, as we touched on during our last call, we kicked off the quarter with a very successful outlet only Pac-Man collaboration
Metallics, florals and patents and dressy silhouettes were also well received
In addition, the exclusive playful holiday prints anchored by our animated Coach bears collection drove consumer engagement via strong messaging to our outlet customers, including Windows, mailers, emails and in-store experience
Men’s continued to be a major focus for outlet and is on plan to be over 20% of the channel by the end of the fiscal year
On stores, we're continuing to establish our modern luxury concept globally, renovating and opening 46 locations during the quarter, including four in our directly operated North America business, taking us to about 540 modern luxury locations globally across all channels
This is very much in line with our target to end the year with over 700 doors in the new format, representing the vast majority of our traffic
Consistent with the plan, these renovations have been driving significant inflections from previous trends and comps which exceed the balance of the fleet in the vast majority of stores around the world
Of course, as we've said before, the in-store customer experience is a key component of our brand elevation strategy, which is based upon, first, differentiating the Coach experience through leather and craftsmanship; and secondly, developing personalized clientele and customer events
I am delighted that our mystery shopper scores, our key metric that demonstrates how well we deliver our unique modern luxury experience, were up again in the second quarter at over 85% as compared to about 75% in last year's holiday quarter
In addition, it's great to see how clients are responding to our new leather services such as monogramming and leather conditioning, with new services such as unique MOG stamps being introduced throughout the year
Across the global fleet, there were 26 craftsmanship bars installed as of the end of the second quarter and we expect to add twelve more in the second half of the fiscal year
We remain very excited about our global flagship focus
We view these stores as important retail and marketing investments for the Coach brand
These flagships include our Coach Houses on Fifth Avenue in New York City and Regent Street in London, both successfully opened during the second quarter in time for the important holiday season
Earlier this month we opened the Kuala Lumpur Pavilion flagship in Malaysia and will soon open our first flagship in Milan, Italy during February Fashion Week
In North American department stores where we're repositioning the brand, we did four renovations last quarter and continued to see positive results from our shop manager program without performance versus the balance of doors in major accounts
As noted, when we entered the fiscal year, one of our key strategic initiatives is elevating the Coach brand into North America wholesale channel
Through 1941, we've added some new locations in top tier specialty stores in North America and globally
We are now also in the process of rationalizing our North American department store distribution, taking our door count down by about 25% or by over 250 locations over the fiscal year, as well as reducing promotional events in the channel
In fall, we closed the first group of these locations, about 120, while the number of days on sale in department stores were reduced by about 40%
And we remain on track to close the balance of targeted doors this spring season
On the marketing front, we held events across the globe celebrating the culmination of our anniversary year
Our global influencer driven campaign was our most significant one yet with over 2.6 billion global impressions, up 160% from last year's holiday season
Color was important in creating visual impact, highlighted by our Heritage Gifting program
Large scale experiential marketing, including events in Europe and in Japan, such as our Covent Garden pop-up installation also drove engagement
Similarly, multiple brand moments around celebrity births, Coach House opening events and #Coach75 extended the life of our anniversary campaign
And to cap our anniversary year, as mentioned, we held our first dual-gender runway show in December in New York City generating excitement and brand buzz globally
More generally, during the quarter we remained focus on creating desire for our brand highlighting our fashion positioning and our 75 year legacy of design innovation, craftsmanship and quality
Our goal is to enhance brand perception and make the category exciting for consumers with a singular message that cuts through: Coach’s unique modern luxury proposition focusing on leather craft and Stuart’s vision of Coach New York cool, familiar American culture interpreted [ph] with a twist from New York's original house of leather design
Of course, signing Selena Gomez as the new face of Coach will amplify the coach message given her very substantial global following, especially on social media
As a result of these efforts across customer touch points, we are seeing continued progress in consumer perception
Importantly in our U.S
brand tracking survey fielded in December, Coach’s repurchase intent with category drivers increased versus a year ago, while our brand affinities were strong with consumers overall
In addition, fewer consumers viewed the brand as promotional versus a year ago which we believe reflects our deliberate pullback in events over the last two years
We are delighted with our progress and proud of all that our team has accomplished to drive Coach’s transformation
The Coach brand is very much on its way to evolving from a specialty leather and accessories brand to a true House of fashion design
We are excited to see our creative vision and direction gain traction and as has been our custom, we'll continue to update you on these initiatives as we move forward
Turning now to a discussion of category trends
As we look ahead to the balance of FY’17, we believe the challenges that exist today affecting the category in specific and consumer spending in general will persist
This volatility was evidenced throughout FY’16 and the first half of FY’17 impacted by the U.S
election this fall and the significant strengthening of the dollar over the last few months
Overall, with limited data points given the delayed year end reporting for several brands, we estimate that the North American premium men's and women's bag and accessories market was flat to up low single digits in the December quarter which we believe has continued to be impacted by negative trends seen in the U.S
department store space
While <UNK>a will provide additional details on sales and distribution by geography, we wanted to touch on some current trends and strategies by market
So I'll turn it over to <UNK> for a discussion of North America
Thanks, <UNK>
Moving on to Coach brand’s International performance
As noted in our release, in the second quarter International Coach brand sales rose 3% on a reported basis and 1% on a constant currency basis
By geography, Greater China sales were essentially even with prior year in dollars in the quarter
On a constant currency basis, sales rose 6% with positive comparable store sales overall
We continued to drive strong results on the mainland while Hong Kong and Macau experienced significant improvement in the quarter
In Japan, sales rose 9% on a reported basis while constant currency sales decreased 2%, impacted by a decline in Chinese tourist spend as we lapped last year's dramatic increase
In Europe, our sales grew at a double digit pace in the quarter driven by new distribution and positive double digit comps
We've continued to experience very strong results in the UK benefiting from the currency weakness and increased traction with the local consumer
We were particularly pleased to open our Coach House location on Regent Street in London during the quarter where results to date have been strong and above expectations
In Paris, our business for the quarter continued to be impacted by weak tourist traffic, though we did see relative improvement in December as we anniversaried the negative impact resulting from last year's tragic terrorist attacks
In our other directly operated Asian markets outside of China and Japan, namely South Korea, Taiwan, Singapore and Malaysia, sales decreased low single digits in dollars and in constant currency
Our results were impacted by softness in Korea where macro-economic headwinds have pressured spending from domestic consumers
Excluding Korea, our business in our other directly operated Asian markets in aggregate rose mid-single digits in dollars and in constant currency
Finally, I would point out that we're continuing to see disparate results in our international wholesale businesses which while small are important to growing brand awareness
For the quarter, our overall sales at POS increased slightly, driven by strong domestic performance offset in part by relatively weaker tourist location results
On a net sales basis, revenue also increased over prior year
Now I'll turn it over to <UNK>a for details on our financial results and guidance for the balance of the year
Sure, I'll take the North America comp question and then <UNK>a will jump in with the guidance question
<UNK>, we're obviously very pleased with our performance in the second quarter in North America where we saw demand grow across all of our direct channels with an expansion in our gross margin
As you know in the first quarter we have a total comp of 2%
We saw that grow to 3% with our bricks and mortars comp being 4% for the holiday quarter, really benefiting from all of the actions that we have been taking over the last couple of years to drive our transformation across both channels
In retail, we're seeing our elevation take hold with the broader distribution of Coach 1941 and the continued rollout of our modern luxury concept
And I couldn't be prouder of the engagements of our teams with our consumers across both channels as well
And in outlets, we are seeing a level of innovation from our design teams at a level that we haven't seen in the past and that's really beginning to resonate
Of course that includes as we suggested during our prepared remarks some of those wonderful collaborations that we have seen
Yeah, well, obviously we're really great in our core category and that will remain a core competency going forward, <UNK>
We don't see ourselves becoming an apparel play, if you will
Obviously we've also talked about layering on other categories and we've made a very important acquisition in Stuart Weitzman, that has made us a very significant player both here in the U.S
and increasingly internationally in footwear
We're going to be leveraging that know-how of course for the Coach brand as well, especially as we take back our license later this calendar year and begin both the development design and production of shoes in house to have footwear become an increasingly important part of the Coach brand go forward
As well, we do see outerwear as an area of growth for us
If you look at what we're doing with all of our runway shows and anything that you see within our stores you will see that outerwear plays a very important part of our apparel play, if you will, of what we're doing in terms of giving context to the Coach woman and the Coach man much more so than I would say a standard tops and bottoms T shirt and jeans type of business
We're not interested in getting into a basics business
So those three categories combined represent an $80 billion global opportunity and today at $4.5 billion, we obviously have a very small stake in that and so within both the Stuart Weitzman brand where you will see us add with our new creative director, handbag business and then within the Coach brand as we add footwear and outerwear you will see us take an increasingly large share of those three pieces of the pie
<UNK>a will answer the gross margin question in a minute
In terms of how we think of Coach and go forward, I believe that before the Stuart Weitzman acquisition we've been clear that we see Coach Inc
being larger than just the Coach brand
Obviously we've made our very first and significant acquisition with Stuart Weitzman, we're really pleased with the results there
The team has done an amazing job, we’re continuing to drive that business and obviously we have continued to invest both in managements and into design talents and I'm very excited about the opportunity for Stuart Weitzman and I would say before thinking about the larger vision beyond those two brands that our team is very focused on executing in our core business and organic business and doing a terrific job and driving both the transformation of the Coach brand as well as in driving the Stuart Weitzman brand which we see moving beyond footwear into handbags and accessories player as well in the years ahead
So as we think about acquisitions beyond Stuart Weitzman, <UNK>, we've been very very consistent for years now in terms of our capital allocation strategy
Obviously we've been very excited about thinking of the three categories as I touched upon earlier that we believe are the closest to us and the most branded in the fashion space, handbags and accessories, footwear and outerwear especially and that would be obviously part of our consideration set, we're not interested in turnaround plays, we're very interested in brands that are great brands and that growth potential where we can leverage both our skill set, our structure, our systems, our infrastructure, supply chain and know how that we have in helping great brands develop global
In terms of the flash sales ---+ our EOS impact as we call it internally are e-outlet store which is as you call the flash sales model, the impact in the second quarter was really a slight bump versus previous performance of around Black Friday, gifting in general
Overall as we have stated in the past we are not actively recruiting new consumers into the database, we’re only mailing those who shop within our outlet channel
And so I would again expect the database to continue to shrink and its performance to consume shrink as well
Yes, there may be some confusion because you mentioned return to growth, we've been growing very strongly in China since we took that business back in 2008, I believe it was, and have grown it from what was approximately a $30 million business to over $600 million today
Team has done an amazing job in driving our distribution there
Today we're at approximately across Greater China which would include Hong Kong, Macau and mainland China, 191 doors, we have 172 doors in China, still very much opportunity for growth in second and third tier cities
As you may know, China has approximately 200 or more cities with a population of a million or more and given more accessible price points we believe we're going to be seeing continued opportunity for us to develop distribution beyond what the traditional luxury brands have and have tremendous opportunity of course to continue to grow within same stores there as the middle class continues to evolve in that markets and as we continue to see of course the population urbanizing
So the long term story within mainland China is very very exciting indeed
In terms of Hong Kong and Macau we've seen a much better performance over the last quarter
And that is very a significant for us, it's a very important market of course especially for PRC tourists and it's been 18 to 24 months since we saw the first protests from Occupy Central and I think all of us in retail and luxury retail especially are very happy to see that market’s stabilized and hopefully in the future become a source of growth
Thank you, <UNK>
As is our custom I just want to close by, first and foremost congratulating all of our teams across the world both in the Coach and the Stuart Weitzman brands for all of their hard work and dedication
Against what is a continuing volatile and unpredictable global market, I couldn't be prouder of all of them, their commitment to driving innovation, the strong engagement that they have with consumers across the globe
And it's truly their hard work that is reflected in our results
And I thank their commitments and their can-do spirits and thanks to them that we remain very optimistic about the long term opportunities for our brands
| 2017_TPR |
2015 | LAD | LAD
#You bet, Steve.
<UNK> again.
There's no question that we believe that ---+ in other sizable acquisition.
Now, only there's only about nine other ones that are larger than DCH in the country.
So those may be a little hard to come by.
But ones that are about half that size, or maybe a quarter that size are out there.
We believe that the integration of DCH has went very smoothly.
I think we proved to ourselves and the combination of the two teams that we're open-minded.
We challenge each other with best practices, that the idea of bringing in a management team that has slightly different cultures and blending them together is something that management teams can handle, and can challenge and be inspired by.
So we really believe that those are definitely on the radar.
We're not solely looking at a $500 million or a $1 billion acquisition.
We're still looking at our typical strategies where we buy a $50 million to $70 million store size.
And there is a pretty active market in that arena, both in our exclusive markets and now in the metropolitan markets.
I think I mentioned we really increased our availability of candidates from about 1200 to about 2600 when we went into those metropolitan markets.
Now, we still focus on a dominant manufacturer in what we would call a dominant area of influence, even in the metropolitan areas.
Yes, you bet.
This is <UNK>.
As <UNK> mentioned in our prepared remarks our revenues were up 66%, or almost $700 million in the quarter.
So obviously we have lots of opportunities to work on.
And based on the beat that we saw in the first quarter, we are optimistic about what the future holds.
However, consistent with the way that we've laid out our guidance historically, as we look at our current store performance and we look at current trends, and we make sure that we are executing before we actually promise the results for the year.
So we have three quarters left as far as the runway for 2015.
And we feel that incrementally improving the guidance and as items come to fruition on the execution, is going to be our strategy.
And we hope to continue to rise throughout the year.
Hi, this is <UNK> again.
When we decided to combine with DCH we really saw that there was opportunities.
And I think as we outlined over the last few quarters, we expected that a lot of those synergies and the ability to tweak their operating model when they were already producing great revenues and fairly solid growth, but the ability of them to be able to bring it to the bottom line has taken effect a little quicker than expected.
Their West Coast stores have been very expedient on being able to make changes that quickly reflect on the bottom line.
The East Coast stores over the last few months are starting to take hold as well.
So we're pretty pleased with where that's at.
It's probably a little ahead of where we planned.
And in addition I would say this, that George, TY and their teams, our divisional leaders of DCH, when it comes to those ideas of corporate synergies that we were really looking at, and I think I mentioned really briefly about it last call, we expected those synergies to happen over the first two years or so.
We actually believe that we're about 75%, 80% of the way through those corporate synergies.
And the idea of the Company really working together as one, while still sharing best practices that are maybe volume focused with DCH, where they're net focused with Lithia, are blending quite nicely.
So I think the overall result is being reflected a little sooner than expected in our bottom line profits.
Thanks.
That's a good question, <UNK>.
This is <UNK>.
I think when we look at our opportunities in the coming few years, we break it down into three key factors that are going to be able to drive the performance upward.
Used cars, obviously you hit on, is probably the largest part of that.
And at 57 units per store, we still strongly believe that the 75 is within our sights, excluding having DCH come in, in another three quarters which will raise it a little bit because their stores are a little bit bigger.
When we look at that one factor, the supply of vehicles is getting better.
And in those three- to seven-year-old vehicles which we call core product, which if you recall is also the driver of value auto product, is starting to loosen.
So there's becoming a greater supply because the SAAR rates that are starting to push through now are starting to become higher.
And we really see that continuing for some number of years, three to five years.
We really believe that that's a pretty easily accomplished task.
The other two key drivers are really that flow-through business in service and parts, which we still believe there's tons of opportunity to become that all-in-one type of shopping experience for our consumers.
And then lastly, we would say that the opportunities within our existing stores in terms of productivity, cost management, as well as new vehicle market share in our underperforming stores, which is a sizable amount still, we believe that that is the third driver that can help take us to the $7 and beyond marks.
You bet you, <UNK>.
You know I've got some extra color.
I think it's fair to say if we look at the ability of the Lithia stores, they've become pretty balanced on how they stock and drive the three segments of value, core and certified.
However, we still probably have a third of the stores that don't play very heavily in the value auto products.
Our Texas stores are starting to do that a little more, which is good.
And I think with a slight moderation of vehicle sales ---+ they're at 9% up ---+ they're starting to look for more opportunities, so that's good.
If we look at the DCH side, value autos in many of their stores hasn't really been part of their formula.
So as we look at the year going forward and we look at the supplies that are there, I think it really comes down to a belief that they can start to find these vehicles and buy those core products that take in those value vehicles.
And I know their general manager and service management teams are working closely to be able to recondition those cars and then market those cars to consumers that may not have looked towards the DCH stores in the past for that type of vehicle.
So it is a slow process, and it was with Lithia.
But no matter what, they have lots of opportunity.
And their top-of-funnel trade-ins is probably the easiest way to get to those value auto cars.
So we're really excited to see the early stages of some of the stores to start to take hold in that value auto segment.
Thanks, <UNK>.
Diego.
Hi <UNK>t.
<UNK>t, this is <UNK>.
I would say that the current state continues to become more accelerated in terms of candidates that are out there.
I think it's accurate that the pricing on those deals has also grown some.
There's some hot air there.
I really believe that, because we're still not seeing a lot of those acquisitions break loose at those numbers.
However, I do believe that there's a lot of people out there with a lot of cash in their pockets that are looking for deals.
And I think it really boils back down to the ability to operate those stores and have people that are on the benches ready to run those.
And then your operating, what I would call your forecasting and your ROEs will fall into line a little easier.
And I think with the talent that we have sitting on the bench we can be competitive and continue to grow at a pretty good clip on acquisitions at whatever pricing may or may not be out there.
That's okay.
Yes, I think that's a fair statement.
I mean, we obviously have fairly high hurdle rates on what we expect out of acquisitions.
We're typically looking at average performing stores, if you recall, because for us to hit our hurdle rate we need to be able to double or triple the profit potential of where they currently exist to be able to pay a goodwill multiple that's usually accepted by a seller.
So it's a little bit different candidate than we're looking for than maybe even some of the ---+ some of our peer group.
And I think because of that ability to be able to bring value to those acquisitions and be able to operate them at a higher level of profitability, it makes it a little easier for us to still stay in the game on buying stores.
Thanks <UNK>t.
<UNK>, this is <UNK>.
I think nationally ---+ it had nothing to do with our acquisition of DCH or the mix of our type of stores.
I mean, on a same-store basis, if you recall, our unit sales were up 7% in domestic as compared to the nation at 4%, which is a delta of 3%.
The imports were up 10% and the nation was up 6%, which is a delta of 4%.
And luxury was up 12% with the nation at 11%, which is a 1% delta.
So our stores kind of performed a little bit above national in all three categories.
This is <UNK> again.
So we're about a quarter Honda, a little less than a quarter Toyota and about 17%, 18% Chrysler products, followed by a Ford and Chevrolet and Subaru, with some luxuries and BMW.
But when we look at acquisitions, we like the balance of our current portfolio.
So I think when we look towards targets we're looking for that balanced approach as well, whereas I would say pre-DCH acquisition it may have been a little bit more import and luxury focused.
But being that they were almost 95% import luxury, that helped balance us out pretty quickly where we aren't having to stretch on one type of brand or another.
So we're pretty balanced in that arena now.
Yes, <UNK> this is <UNK>.
We've said that our optimized leverage would be somewhere between 2.5 and 3 times, and at 2.2 times we're definitely below that.
I think that our primary use of capital is going to continue to be deploying it on acquisitions.
And we feel pretty optimistic that midterm we're going to continue to bring leverage down until those acquisitions come to fruition.
As an example, pre-DCH our leverage ratio was somewhere near 1.3 times and post acquisition it popped up to, I think, 2.7 times.
Optically I think that we're going to continue to see leverage fall for a few quarters.
But with our acquisition team and the acquisitions that are out there in the market, there's plenty of headroom ahead of us and we're going to continue to deploy capital in that arena.
However, we did buy back some shares in the quarter.
I think we bought back about 77,000 shares.
We also raised our dividend in the quarter.
And we invested $25 million in our existing stores.
So we're going to continue to stay balanced, but focused on the acquisition front.
Hi <UNK>.
<UNK>, this is <UNK>.
I think the idea when you look at a used-to-new ratio on DCH it might be a little bit different.
However, I do believe that there's huge growth opportunity within DCH.
But remember, many of their stores are high volume.
In fact, it was neat to hear when I was driving in this morning on Sirius radio ---+ I listen to K100 New York so I can hear about traffic reports now that we're spending time out with a lot of the investment community.
And I heard a DCH ad and they talked about the four New York Honda stores, which was pretty cool.
Anyway, so when you start to look at that, you go, you know what.
We can spin that into used cars and we can continue to grow those things.
But the idea of a 0.9 to 1, I think it's fair to say that we still strive for Lithia to get to a 1.5 to 1 on our used-to-new ratio.
And I think if DCH was pushing in the 0.8, 0.9 to 1 that'd be a pretty solid job considering that Brian Lam's store, Paramus Honda, sold 466, I believe, new Hondas last month.
That's a pretty hard number to achieve, a 1 to 1 at 466, when I think the best Honda store in the country probably sells 250 to 300 used cars.
It's currently at 0.5 to 1.
You bet, <UNK>.
<UNK>, hold on one second.
We're trying to get that.
Yes, absolutely.
I think we spoke to it a little bit last time.
That the DCH's ability to lease cars, it continues to grow.
They're in the mid-30 percentile range on their new vehicle leasing.
I think in terms of Lithia outlook, it's starting to take hold within Lithia.
It could have had something to do with a little bit better new vehicle quarter.
I don't believe that we hit double digits yet.
I think it's high single digits in the 8% to 9% range.
So we still have lots of opportunity to be able to expand our market share by providing leasing opportunities to our consumer base.
Yes, this is <UNK> again.
That's really a function again of some turnover in management in two stores in Texas, which are two large body shops.
I think it's a short-term blip.
We since have new leaders within those two stores, and hopefully see that trend there reverse itself.
Yes, <UNK>, and to answer your first question.
Then so Alaska was up 25%, California was up 22% in the quarter.
Oregon was up 24% and Washington was up 16%.
So overall with sales up 11%, those markets definitely performed a little better than our other markets.
Showing that there were still opportunities.
Great, <UNK>.
Thank you for joining us today.
We look forward to talking to you again in July.
| 2015_LAD |
2016 | DAKT | DAKT
#Thank you operator.
Good morning everyone.
Thank you for participating in this first-quarter earnings conference call.
I would like to review our disclosure cautioning investors and participants that, in addition to statements of historical fact, we will be discussing forward-looking statements reflecting our expectations and plans about future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties which may be out of our control and may cause actual results to vary and differ materially.
Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margins, the introduction of new products and technologies, and other important factors as noted and detailed in our 10-K and 10-Q SEC filings.
At this time, I'd like to introduce <UNK> <UNK>, our Chairman, President and CEO, for a few comments.
Thank you <UNK>.
Good morning everyone.
We had a nice start to our fiscal 2017.
Orders, sales and net income all increased from fiscal 2016's first-quarter results.
Going into the quarter and into this fiscal 2017, we see and continue to see some macroeconomic trends influencing our customers' appetite for ordering, but we are pleased with the order activity that we are seeing.
For example, we were successful winning orders for a number of multimillion dollar projects outside the US, including Hurst Stadium and Qudos Arena in Australia, Queen Elizabeth Park in the United Kingdom, and Real Madrid in Spain.
We also won a few nice orders in our international spectacular niche throughout Europe and the Middle East.
Some of these we have been working with our customers for a number of quarters to finally move forward with the order.
Domestically, we also see order activity increase for projects in our spectacular niche of the commercial business unit.
Our High School Park and Recreation unit started the year with record orders in sports applications, traditionally a high quarter for this segment as schools prepare for fall and winter sports seasons.
Our other business units are also doing well as we start out the year.
We continue to serve our customers impacted by the warranty issue we discussed last year.
We are monitoring the health of our displays and working to maximize our customers' experience with our systems.
For the quarter, we did not experience any large change in cost expectations for this station.
We are focused on adding velocity to our design and development groups this fiscal year.
We were successful in a number of new product or enhancements this quarter, and we expect our spend ---+ and even though our spend rate has not yet increased, as we plan and execute our developments, we believe this will be reflected as an increase in our product development expenses.
For our more details on the financial results, I will turn it back to <UNK>.
Thank you <UNK>.
Sales for the quarter increased approximately 4.6% from $150 million last year first quarter to $157 million this quarter.
We had anticipated a slight decline going into the quarter but were able to secure a number of orders, as <UNK> mentioned, and start delivery.
For the quarter, the increase in sales in Live Events was due to the work on a number of NFL projects this period as compared to last year's first quarter.
We also had a great start to our High School Park and Recreation business unit for the increased activity in the sport systems and related deliveries.
Sales volumes decreased in our Spectacular segment of the commercial business unit and in the international business unit as compared to last year's first quarter due to the volatility in this large project-based segment.
The acquired ADFLOW at the end of last fiscal year, so had a full quarter of revenues this first quarter, and their sales approximated $2 million and contributed to the sales increase.
This primarily impacted our commercial business unit segment.
Sales in the commercial billboard niche and in the transportation business units increased slightly over last year same quarter.
With the order volume and sales levels, we grew backlog to $198 million.
We expect the majority of this backlog to be earned into sales over the next 12 months or so.
Gross profit improved to 24.8% for the quarter as compared to 23.6% for the first quarter of fiscal 2016.
Gross margin levels were favorably impacted by volume and mix of business and lower warranty costs as a percentage of sales in all businesses except for international.
International's gross profit declined for the quarter due to lower sales volumes across the primarily fixed cost infrastructure.
Total warranty as a percent of sales was 2.8% for the quarter compared to 3.7% for last year's first quarter.
During this first quarter, as <UNK> mentioned, we evaluated our reserves for the specific warrant issue we discussed last year.
To date, we are maintaining our estimates for this work and during the quarter, we worked to continue to serve our customers on the issue with preventative maintenance and repair work.
At the end of the quarter, we had $4.6 million of reserves remaining for that specific warranty.
Operating expenses increased $1.7 million, or 5.7%, to $31.1 million for the quarter.
Increases relate to our personnel costs and professional fees in our general and administrative area and the addition of ADFLOW's entity for the full quarter.
In addition, personnel costs increased in the selling department as well.
As we have previously discussed, fiscal 2017, we will work to constrain cost growth in the coming year as to manage our expenses to the order fixture.
We plan to allocate additional resources to our design and development areas to complete developments, enhance our design and our display and control systems.
Our overall effective rate was 31.2% for the quarter for taxes and we forecasted forward-looking effect of annual rate to be around 32%.
But because of the R&D credit restatement in the United States last year, that has impacted our tax rate.
However, our overall tax rate can fluctuate depending on changes in tax legislation and the geographic mix of taxable income.
Our cash and marketable securities position was at $50.2 million at the end of the quarter.
We reported a positive free cash flow of $4.5 million for the quarter compared to a negative free cash flow last year at $17.2 million for the same period.
The cash flow generation is primarily due to improved profits for the quarter, related improvement in the timing of working capital for net inflows from projects, cash receipts and payments for inventory, and reducing capital spending during the quarter.
To date, for the year, we've spent $2.2 million on capital expenditures compared to last year's $7.2 million.
We expect our capital usage to be less than $19 million for fiscal 2017.
Use of capital expenses is for manufacturing equipment, for new or enhanced product production, demonstration equipment for new products and continued information infrastructure investments.
As disclosed earlier, in our first quarter, our board approved a stock repurchase program to allow for opportunistic repurchases of stock for potential future use.
For the quarter, we utilized $1.8 million in cash on share repurchases.
We won't disclose specific guidance on share repurchase cash use as we weigh the purchasers against a number of criteria, stock price, cash use for acquisitions or other business investments, capital additions, operations, etc.
And looking into the second quarter, we expect to show slight improvement of sales and gross margins with some increases in operating expenses for the velocity (technical difficulty) design and development as compared to last year's second quarter.
With that, I will turn it back to <UNK> for additional comments on our outlook.
Thanks <UNK>.
As we look forward into fiscal 2017, our outlook remains similar to our comments in previous calls.
We continue to see the digital marketplace expanding.
For the year, our goal is to grow sales and improve operating margin.
We expect Live Events to continue to grow slightly based on anticipated activity with this customer base.
High School Park and Recreation started the year great and it seems they could grow at a nice pace.
Transportation has room to grow nicely with the demand picture and stability in federal funding.
While it's more difficult to predict the Commercial and Spectacular segment, there are many opportunities in our pipeline that position us for increase year-over-year.
For commercial billboard niches, we expect similar volumes based on the overall activity we see in the national and third-party advertisers.
In our commercial on-premise activity, we will be actively promoting our indoor network solutions and new product lines.
Internationally, we see opportunities to grow, but it can be challenging to predict how the year will shape up as our customers wrestle with different macroeconomic factors.
To achieve sales growth over the long-term, we plan to accelerate activities in our design groups to complete a variety of developments.
While these efforts will increase development expenses, we believe it is necessary to drive forward our ability to competitively compete and to continue to capture global market share as we meet the requests of our customers.
Rollouts of products or new control solutions are expected throughout the year.
As the order picture can be cloudy and influenced by many external factors, we continue to monitor and limit the amount of costs added for personnel, our largest non-inventory cost.
We also carefully evaluate capital expenditures and managing our other expenses for this year.
We have challenged our managers to be frugal throughout the Company as we position our organization for success in this fiscal year and beyond, supporting our development teams to bring solutions to the market with higher velocity as part of this overall plan.
We continue to see many opportunities to be successful in this business and believe that, while the path will not always be smooth, we are positioned to generate long-term profitable growth.
With that, I would ask the operator to open up the line for any questions.
We had a nice quarter for gross margins, and it's hard to predict what's the timing of our revenues, but we will be similar to maybe slightly down potentially is what we are looking at for Q2.
Good question.
Certainly, there is a competitive environment in the large sports business, but it is also impacted by the investment that those organizations will make on a season-by-season basis.
And there's really, as far as large, major construction of projects, there's only a few in the works, and we seem to be doing well in those areas.
So much of the work is in renovations, and those are a much more flexible schedule depending on what the customer may choose to do and how they might choose to invest their money.
But we believe our share of the marketplace is roughly the same this year as last.
Does that help.
I understand.
The work right now is on cleaning up any final orders for, as you described, the indoor business, the arenas, as football has already been through, and then setting up the pipeline for next year, baseball, any midyear work that people are doing and then football for the following year.
The activity seems to be strong, a lot of conversations with customers, and it appears the projects are real.
Stadium, yes.
Yes, from what we see today, we are expecting a bit better in gross margins as compared to last year's second quarter, but maybe not quite as good as our first quarter.
Time will tell, but that's where we are seeing it today.
Last year, during the second quarter, we started to see some impacts to that warranty issue on the quarter, so there's some of that and mix of business and volumes.
On the order front, <UNK>, we were light on orders in the last two quarters of 2016, and that set us up with a low backlog in international for their Q1.
We were fortunate; we had a good booking of orders, and some of those we actually booked and delivered within the quarter, but we were also positioned with a better backlog as we move into Q2.
So we are optimistic or at least on the right track with our international business as we start FY2017.
Thanks everyone.
I appreciate you joining us and hope you have a nice summer.
As a reminder, we have our annual shareholder meeting coming up here in a week or so on September 1.
If you're in the area of eastern South Dakota, you're welcome to stop by.
| 2016_DAKT |
2016 | TDG | TDG
#We think the model is fine.
We will keep watching.
I don't quite know that we are as bought into the structural changes, but our ---+ and how much of it is just a normal cycle, but we keep watching them.
We don't see any reason that our fundamental model doesn't continue to work, at least in the foreseeable future.
I can't tell what 20 years from now does, but in the foreseeable future, I don't see anything that structurally changes the fundamentals here.
Anything ---+ ultimately, as I like to say, if TransDigm went bankrupt and died and all the plants caught on fire, obviously the airline industry would find a way to survive.
So it's not that there's no other way to get around it.
It is ---+ there is a significant entry barrier.
There are significant costs.
There is significant qualification.
There's also the issue that we own the IP so you've got to find a way around that.
It's a substantive barrier that we, frankly, have not seen any material change in.
Now, is it impossible.
If you don't care about cost, you can always find a way around most anything.
I don't see any fundamental change in the switching cost characteristics here.
It's not good through the whole year, but it's good ---+ it's getting good through more of the year obviously each month.
And we've had ---+ the bookings have been strong.
So we feel reasonably good about our guidance.
Though I would say we feel quite good about our guidance in total.
I don't ---+ we could be off 1 point here and there in the segment, and we think we've given you our best judgment.
First, let me peck at the word "fragile".
The vast majority of our aftermarket is sole-source proprietary stuff, so it\
It certainly doesn't change the way we do acquisitions.
We are looking for proprietary aerospace businesses with significant aftermarket content.
And I would say we don't find a quarter or a couple of quarters ---+ that would be nothing that would change our fundamental strategy, nor has it.
| 2016_TDG |
2016 | WBA | WBA
#Rite Aid, yes, I agree with you that it is taking more than we expected.
But, I have to tell you that as you have seen from our presentation and from the fact that we have included some part of Rite Aid potential profit now in our guidance, from this you can really understand that we are confident, as confident as we were before about this deal.
Nothing has changed, we just have a delay in the execution of the deal.
This is our perception, we have always been optimistic because we have never seen an attitude from the FTC, which was an absolute negative, of course they were inquiring.
They were detailed.
They were asking a lot of questions.
Sometimes they were taking time to respond, but at the end of the day, I believe we have a good collaboration ---+ we're having a good collaboration.
We try to respond to all of their needs.
This takes time.
But at the end, we are still confident.
Of course, I know that we read on the papers are different news, no idea about the sources of this news, but for sure if we could talk, and of course you know that we cannot (laughter) our news would be different.
For what we see today, we see just a long administrative process, but we don't see substantial differences from what we were expecting.
Yes, probably more stores, a little more stores here and there, but at the end of the day ---+ as far as I can see today, as far as we can see today, we are absolutely confident that we can create, that we can do the deal and we can create the value.
Just this value will be a little postponed on time.
Because, even when we would do the deal, of course for the first month, we will not be able to extract immediately the synergies.
It will take some time.
We were hoping to do the deal at the beginning of this fiscal year for us.
In this case, we would have had time to level up some of the synergies.
Of course, if we close the deal relatively late in our fiscal year, the synergies will be smaller.
But we will find all of them next year.
Could you repeat, sorry.
Yes, so the TRICARE contract, as you know is the one, we have declared and that starts December 1.
We'll clear that in 2017, yes.
<UNK>, as you know, we agree what we disclose with our partners very carefully.
I haven't disclosed anything outside of TRICARE, so we can't disclose anything else this morning.
Thanks <UNK>.
On the program overall, as I have said, we are very much on track overall.
The big change really, from where we were a year ago has really been that we were able to deliver this for $300 million less than we previously anticipated, of which quite a portion of that will be true cash savings.
So, we're very pleased that we have been able to do this.
We're very much on track to complete the program next year.
It is very much a defined program with a start and a finish.
But, of course there are always ways to drive efficiencies.
It is just a way of life for us, we're looking out at every day across all aspects of our business.
We will continue to drive to do that.
Clearly, some of the investment that you are seeing in capital in some of the areas like IT, it will take us a little bit of time to get some of the new systems in place.
That will further enable us to both drive efficiencies and to drive ---+ and to manage the business in an increasingly more tighter way.
Next year, of course, we will have the big task of extracting value from Rite Aid.
This will be another huge opportunity for saving costs.
Just to remind ourselves, as I said in the presentation here, SG&A in the USA as a percent of sales fell 0.9 percentage points.
I think that's the best evidence really of what we are delivering.
Just add on to the question on capital, I haven't obviously given any specific guidance on capital for FY17, but in terms of thinking, I would expect it to be a little bit higher than we have seen in FY16, which is really reflecting some of the initiatives that we have got to develop in the offer that we talked about as well as the investment in the new IT that we are working on.
This is our view of it, which is why we have included on our accretion, it is built on our economics, which is the way we have built of the model up.
Really to emphasize a little bit of what <UNK> just said, and that <UNK> was saying, the synergies will take some time to come through.
As ever, when we approach a merger like this, our focus is always on the customer first to make sure that we deliver for the customer through this period.
We have got a very detailed plan to deliver the synergies but as we have said, this will take three to four years.
The important thing is to go in a straight line.
But it does very much reflect our view on the timing and the time it will take to start to deliver the synergies.
If I can give you an indication ---+ this is <UNK>.
Normally, I do not speak about the specific case, but normally when we have done a big merger, we have started to deliver the synergies after five, six months or something, because the first months of course you can do something.
But the first months are really needed to prepare the plan.
We cannot accelerate the plan.
We cannot do the plan now.
We are working on integration but we cannot do the plan for the synergies now because we do not know the numbers of Rite Aid.
As you know, we are not allowed to see their numbers.
So, in reality we cannot put together the plan.
As soon as we will know their numbers, we will have done the deal.
We will start to put in place a plan, which will take a few months and after, we will execute the plan.
This is why it's so skewed.
At the end of the first year ---+ the first year of the merger, of any merger, not just this one.
Absolutely, it is in our guidance.
David [Mullett] made the announcement just a few hours ago, just orally.
But it was very consistent with what we have been anticipating, so no surprises there.
I think the overall goal obviously, as we have said, is to focus on our operating income and cash flow.
In terms of thinking, as we have tried to sort of shape, you should think as we develop the new partnerships, that we are able to build our pharmacy volume and as we have said and we expect that to be ---+ the growth to be faster in the second half of the year.
You can think then about taking that beyond, as we have said, a lot of the new partnerships come in around the end of this calendar, beginning of the next calendar.
There is obviously then the function of your views on inflation and then on mix and of course with very different profile in somewhere like our central specialty versus our core pharmacy.
There's an element of mix that comes through there and that will obviously change over time.
But we will continue to see the reimbursement pressures, but just very much aware of life.
In terms of retail, a lot of our focus has been on developing the offer, as <UNK> has said, both in terms of the actual offer in store, our own brand's leading US brands, the work we're doing on omni-channel.
So a lot of our focus has been on working our way through getting ready for that.
You should start to see the benefits of that coming through over time, focus being on the offer over time then we believe we will be able to grow.
But we're looking to grow in the right categories, which is very important.
So, mix is very important.
We know mix is an important way of managing the margin ---+ the gross margin in the retail products part of the US business.
So, we would expect to see the benefits of that coming through over time.
Then on costs, as we say as we drive efficiency then we are certainly very focused on continuing to improve our cost ratios, our SG&A as a percentage of sales is in a key area of focus.
Again, we would be seeking to see that progressing.
So, these really are the core drivers of what should drive the profit.
I am particularly talking obviously retail pharmacy USA here.
As we have said in our presentation, in constant currency, in the last two years, we have delivered a compound growth of more than 15% in earnings on a comparable basis.
So, this is independent on the acquisition of AB because we have restated performa.
This is an independent on the number of shares.
Tactically, we have not had any acquisition in the meantime, excluding AB (inaudible) acquisition we have contributed much in the last two years.
We've also divested something.
So the real growth, the underlying growth of our Company in the last two years has been 13% if we consider the effect of the devaluation of the pound Sterling, more than 15% in constant currency.
We have always said that we can deliver underlying double-digit growth ---+ low double-digit growth.
This is what we are doing.
This is what we are focused on.
Okay, I will take the tax one first.
Then I will let <UNK> take the second one.
In terms of tax, we have obviously not given specific guidance for FY17 on tax, but in terms of thinking about it, if you strip out the discrete items as I talked about last year, then our real underlying tax, pre-Rite Aid, last year was ---+ our underlying tax last year was 26.3% on an adjusted basis.
That is obviously excluding the ABC income, because of course that gets reported on a post-tax basis.
So it's quite ---+ in terms of modeling, we always model and think about it, the way I've just described, excluding ABC.
If you think of that 26.3% then, excluding Rite Aid, that is a fairly good proxy for what it should be going forward, because pre-Rite Aid, the mix will be broadly the same.
In terms of Rite Aid, you are absolutely right.
With Rite Aid as the proportion of profit increases from the Rite Aid deal once we are able to complete it, then we will see a higher portion of profit here in the USA and of course, here the tax rates are higher than in most parts of Europe, where the rest of the business operates.
But of course, this year, given the accretion that we have indicated, that will be a relatively modest impact.
<UNK> here.
We're not able to give the details.
First of all, I'll repeat again, we don't know in detail all the data of Rite Aid.
It is an early time for us to take these decisions, after, of course, even if we knew them, (laughter) we could not disclose them.
So, it is too early.
In a few months, probably we will be able to discuss about this.
Thank you very much.
| 2016_WBA |
2015 | SPPI | SPPI
#Thanks.
Good afternoon, and thank you for joining us today for Spectrum's Second Quarter 2015 Financial Results Conference Call.
I'm <UNK> <UNK>, Vice President of Strategic Planning and Investor Relations for Spectrum Pharmaceuticals.
With me today are Dr.
Raj <UNK>, Chairman and CEO; <UNK> <UNK>, President and Chief Operating officer; <UNK> <UNK>, Chief Financial Officer; Dr.
<UNK> <UNK>, Chief Medical Officer; <UNK> <UNK>, Chief Commercial Officer; and other senior members of Spectrum's management team.
Here is an outline of today's call.
First, Dr.
<UNK> will provide you with the highlights of the second quarter and discuss our overall direction and strategy.
<UNK> will then provide a summary of our second quarter financial performance.
Following this, <UNK> will review the Company's operations, and Dr.
<UNK> will review the pipeline.
We will then open up the call to questions.
Before I pass the call to Dr.
<UNK>, I would like to remind everyone that during this call, we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the product sales, profits and losses, the safety, efficacy, development, timeline, and clinical results of our drug products and drug candidates, that involve risks and uncertainties that could cause actual results to differ materially.
These risks are described in further detail in our reports filed with the Securities and Exchange Commission.
These forward-looking statements represent the Company's judgment as of the day of this conference call, August 6, 2015, and the Company disclaims any intent or obligation to update these forward-looking statements.
However, we may choose to update them, and if we do so, we will disseminate 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 at www.SPPIRX.com.
I would now like to hand the call over to Dr.
<UNK>.
Thank you, <UNK>, and thank you everyone for joining us this afternoon.
I'm very pleased with our performance this quarter.
We have maintained strong fiscal discipline while advancing our pipeline.
We have four exciting events coming to fruition within next several months.
With two potential blockbuster drugs under development making progress, one in Phase 3, a registrational trial, and other entering Phase 2 study in the United States, one drug pending an FDA approval decision, and with yet another drug the filing of an NDA, we believe that the second half of this year promises to be full of exciting events.
In my further brief remarks, I'll focus on these four top priorities.
First, SPI-2012, a novel, long-acting GCSF or granulocyte colony stimulating factor ---+ this drug has shown a strong efficacy in Phase 2 clinical studies conducted in about 148 patients.
It targets a blockbuster market of nearly $6 billion.
It has the potential to change the face of our company, and remains our highest priority.
We are taking several steps that will ensure the success of this drug.
To ensure alignment with the FDA, we are pursuing a special protocol assessment, or SPA.
We plan to initiate a Phase 3 non-inferiority study.
After reviewing our Phase 2 data, and after discussions with several key opinion leaders, we have proposed powering the study at 80% to show superiority compared to pegfilgrastim.
Second, I am very excited about Evomela's potential approval later this year.
The discussions with the FDA are proceeding well, and if approved, Evomela will become our sixth commercial drug that will be launched with our existing sales force.
Let me now talk about our second potential blockbuster drug, poziotinib.
Based on our assessment of the market opportunity and the strong clinical data that we have seen in breast cancer, we are developing a Phase 2 program in consultation with US key opinion leaders.
In addition, our partner Hanmi is conducting several Phase 2 trials in various tumor types.
Based on early clinical data, we believe that poziotinib has best-in-class potential among pan-HER inhibitors.
Lastly, we are on track to file an NDA by the end of this year on apaziquone, a novel drug for non-muscle-invasive bladder cancer.
In addition, a conformity trial with apaziquone is being pursued with the FDA through another special protocol assessment.
We are continuing to work hard to control expenses, as evident this quarter.
I'm pleased with our continued commitment to fiscal discipline.
We are expecting to end this year with a stronger cash position than our prior expectations.
<UNK> will talk more about our operations.
<UNK> will then provide you more details about our financials, and Dr.
<UNK> will go in some depth with our clinical update.
Now, let me hand over the call to our Chief Financial Officer, Mr.
<UNK> <UNK>.
<UNK>.
Thank you Raj, and good afternoon to everyone on the call today.
I just want to highlight a few items in our financial results.
First, we continue to fund our highest-priority projects, but I think you can see from our second quarter results that we have made progress with reducing our operating expenses both year-over-year and versus the previous quarter, to address the declining Fusilev sales.
Our goal is to further identify operating efficiencies which will lead to additional reductions in SG&A expenses.
We will also continue to drive our R&D infrastructure costs lower, however, our overall R&D expenses are expected to increase with the ramp in clinical trial activity.
Also, let me make one comment on sales.
The second quarter product sales of $35.1 million exclude the $7 million in Fusilev sales that were deferred in Q1.
We still expect to recognize that $7 million in the third quarter.
Also in the second quarter, we recognized $9.7 million in licensing revenue associated with the CASI Pharmaceuticals transaction we signed last year, where we out-licensed the Chinese rights to three of our products.
You'll recall that we received a 19.9% stake in CASI, along with a $1.5 million promissory note.
The revenue recognition for this deal had been deferred until we signed supply agreements.
The supply agreements were signed in the second quarter, which allowed us to recognize the revenue.
I also want to make a few comments about cash.
The recent generic competition has created additional volatility in working capital quarter-over-quarter.
While net cash flow was particularly strong in the second quarter, we expect this to reverse in the second half of the year.
A better way to think about our cash burn is on a full-year basis.
We started the year with $133 million, and based on our recent operating results, we now expect our year-ending cash balance to be greater than $110 million, up from our previous guidance of $100 million.
This guidance does not include any cash flows from any new business development deals.
Before I hand the call over to <UNK>, I want to emphasize that we remain very active on the business development front.
While we continue to look at in-licensing opportunities, we are more focused in the near term on out-licensing, particularly in geographies outside of the United States.
With that, let me hand the call over to <UNK> to provide an operational update.
Thank you <UNK>, thank you Dr.
Raj, thank you <UNK>, and most of all, thank you for everybody on the phone for your interest in Spectrum.
We continue to focus on developing Spectrum's promising pipeline.
We're in a unique position to be able to advance these exciting programs while maintaining a strong commercial organization in the hematology and oncology marketplace.
First, I'd like to provide you with an update on our commercial business.
Our PTCL franchise demonstrated double-digit growth year-on-year of 11%, and quarter-over-quarter, growth of 16%.
Our team remains focused and disciplined on execution and increasing the breadth of our customer base.
Zevalin second quarter revenues were $4.8 million compared to $4.2 million in Q1, a 14% quarter-over-quarter growth.
In Q2, Marqibo sales had double-digit growth both year-over-year and quarter-over-quarter.
While the relative sales are small in this limited indication, our performance is of strategic value because these are the same centers that we'll be targeting for the potential launch of Evomela.
In regard to Fusilev, a generic entrant launched in the second quarter.
This had a negative impact on reported sales and average selling price.
As we said in the past, we expect our future revenues will be significantly impacted due to the competitive at-risk launch.
Uncertainty and price erosion are the direct result of the competitive entrant, and will continue to put downward pressures on this market.
We await our appeal in the legal system with this at-risk competitive launch.
As you know, our base business is just a stepping stone for us.
The cash flows from our base business help us develop our pipeline, and our pipeline has never been stronger.
First, let's talk about Evomela.
If approved in October, Evomela will be our sixth product in the market in the hematology/oncology space.
Evomela has a stability advantage of four to six hours versus the current version that is only stable for one hour.
This represents an important point of differentiation, as the current administration process is cumbersome and disruptive for caregivers when treating patients.
Our product is propylene glycol-free, and the peak in systemic exposure is about 10% higher.
The efficacy and safety were consistent with what we already know for high-dose Melphalan, followed by transplant for multiple myeloma.
The Melphalan market is around $100 million, and is concentrated in just 100 transplant centers across the US.
The top 20 centers represent over 50% of the business.
This market is very concentrated, and has excellent synergy with our existing infrastructure.
We look forward to October 23, and bringing this drug to market with our existing sales force.
Also, we plan to file another NDA by the end of the year for apaziquone, a potent tumor-activated pro drug for bladder cancer.
This will be our third NDA in three years.
In consultation with the FDA, we are pursuing a special protocol assessment for a confirmatory clinical trial.
Bladder cancer is an area of significant unmet medical need, with no new products approved in the last 40 years.
The second quarter was a busy one for our highest priority in the company, SPI-2012, our novel long-acting GCSF.
Our Phase 3 program is getting ready to begin, and I'm excited about the proposed trial design that we are finalizing with the FDA.
A Phase 3 program in breast cancer that is over 90% powered to detect non-inferiority and 80% powered to detect superiority, will address some very important clinical questions.
We are also keeping a close eye on ongoing marketplace events with regard to biologics.
You may have been following the first approved biosimilar in the US through the 351(k) pathway as it navigates both the FDA and the judicial system.
We are closely watching the approval, potential launch, and evolving legislation on how these products will be reimbursed.
We have modeled multiple scenarios based on the latest legislation.
Because ours is a novel agent, we believe we'll be in a favorable position of having untethered reimbursement.
Bottom line, we know this marketplace inside-out.
We are both confident, and looking forward to successfully competing, in this $6 billion market.
Finally, we're excited to be advancing poziotinib in the US Phase 2 program in breast cancer.
If the Phase 1 data are replicated, this asset has a potential to be best-in-class, competing in a multi-billion-dollar market.
As this asset advances through the development process, our strategy is to have two potential blockbuster products geared toward solid tumors, specifically breast cancer.
Our sales team could be in the unique position of promoting both a best-in-class oncology therapeutic for breast cancer, and a novel GCSF with potential superiority data.
That would be game-changing for patients, customers, and shareholders.
Again, I thank you for your time and interest in Spectrum.
I'll now turn the call over to Dr.
<UNK>, who's going to provide more detailed information on our development advances.
Dr.
<UNK>.
Thank you, Dr.
<UNK>.
We continue to execute our business strategy of acquiring, developing, and commercializing products for unmet medical needs of cancer patients.
I believe the second part of this year will be a very exciting time at Spectrum.
We remain energized and focused on the milestones ahead.
We have the potential to have six drugs on the market by year-end, and multiple blockbuster drugs in development and third NDA filing in three years.
With that, let's open the call for questions.
Operator.
<UNK>, thank you for asking the question, and thank you for being here today for our call.
So, let me give you a very straight, simple answer.
As you know, that this is a biological where the endpoint is a blood test, neutrophil count.
So, these studies are powered ---+ they're small studies relatively speaking, between 500-600 patients.
The endpoint we powered at about 90% to show non-inferiority.
So, the studies are designed to be non-inferiority trials.
However, we have built in a superiority margin of profit margin as showing the superiority at 80%, powered to 80% to show the superiority.
And this is all about ---+ the endpoint, as you know, is DSN, the Duration of Severe Neutropenia.
And we have been working with the FDA for the last several months, we have gone through multiple iterations with the FDA, and then we decided that since there's so much riding for Spectrum on this drug, and there are multiple biosimilars on the market, multiple other things that are happening, people are discounting.
People think that Spectrum's drug, you know, they start wondering with the pegfilgrastim being the marketplace will be ---+ by the time we come to the market in 2018, the marketplace might be crowded.
So, we clearly, based on the Phase 2 data, that was exciting.
That we saw superiority in about 40 patients, 30 to 40 patients we saw superiority over pegfilgrastim, at a certain dose.
So, we discussed with the FDA, and we decided to pursue that line of thinking.
<UNK>, do you want to comment on that, <UNK> or <UNK>.
Sure, <UNK>, how are you doing.
I think first of all, let's say non-inferiority.
Non-inferiority allows us to compete very well and go after a large, large piece of the marketplace.
I think with any drug, if you have the potential to have the S word, Superiority, it puts you in an even better position all the way around.
Since the data in Phase 2 were so robust, we looked at that and said, why not at least power to 80% to potentially get superiority.
But, I'm very, very comfortable launching in the marketplace with non-inferiority.
Obviously, I'm in a much, much better position even to have more fun, and go after a larger, larger piece of the market with superiority, if that was the case.
And we think we have data that potentially shows us that.
So, <UNK>, I don't think you want to waste more time on Fusilev at this time.
Clearly as we have stated before, we have a generic competition introduced.
That is ---+ we are still selling a lot of units.
We're still, a lot of units of Fusilev are being sold, but every sales price for our drug has been decimated by the generic launch.
And therefore, we're not counting much on the revenue of Fusilev going forward.
<UNK>, yes, indeed.
So, we have done trials with three doses.
The earlier trials were done, we had ---+ there was a low dose, medium dose, and a high dose, and we have chosen a dose that is closer to the high dose than to the middle dose.
This is apaziquone, right.
Yes, so, the understanding that we have is, that FDA wants us to do a confirmatory trial.
You know, the understanding that we have is that we'd be able to submit the old 2 trial, 612, but you combine as you remember, each study alone is not significant for the statistical plans submitted with those protocols.
However, when you combine those two studies, then the data becomes highly significant.
So, those two studies combined are going to be treated as one study, and FDA wanted us to start another trial for which FDA's input has been sought and is being further certified by the SPA.
The understanding is that the FDA, we can file the NDA now, but FDA will not review it.
FDA will send it to ODAC, but will not send it until we have included enroll a majority of the patients in the new trial.
And, the understanding, the FDA said that if we approve your drug now, or review your drug application now, there's no way you can complete a placebo-controlled trial.
Let me remind you, the protocol that we are now planning to do is a placebo-controlled study.
And therefore, to answer your question, until a majority of the patients have been enrolled into this trial, the NDA will not be ---+ the ODAC meeting will not be held.
I'm sure some review in the FDA will continue.
So, I'll let Dr.
<UNK> and <UNK> both address this issue.
So, package insert, and labeling and cartons, those are the kind of things that are now expected to be finalized.
In fact, next week we will be addressing a group of KOLs in this area, so we are very actively pursuing this in anticipation of approval.
We are working very hard.
So <UNK>, I'll have either <UNK> or <UNK> comment on it, but I can tell you, think about this ---+ PTCL is a very small number of patients, and now there are multiple drugs on the market.
And keep in mind that Spectrum has the largest share of this franchise, between Folotyn and Beleodaq.
So, with this intro I would have <UNK>, <UNK>, talk about this.
Yeah, I'll take that one.
I think, if I look at our PTCL franchise overall, I'm thrilled to see double-digit growth both quarter-on-quarter and year-on-year.
But if I look at the product performance, the team's not satisfied with it, we expect it to be better.
But you also have to take into consideration that this is a 6,000 patient market, that we anticipate some variability in demand quarter-to-quarter, because it is a rare disease.
But like I said, when I see double-digit growth, that I like at the product level.
Something we're taking a deep look at, and expect to be better.
So, let's talk about Evomela.
Evomela, as soon as the approval comes, we plan to launch this drug as soon as possible.
It may take a couple of months, but I would think that we should be able to launch quickly after approval.
The market is already preparing, as I said, they're having already meetings with the ---+ they're identifying the markets where the growth is.
We are meeting all the people who treat transplant patients, and what-not.
About poziotinib, it's a little bit early in the sense that we are right now in discussion with key opinion leaders who have been involved with pen-HER inhibitors, others like Neratinib and what not.
So, even if right from the time of [Esco] where we had meetings, we have planned several meetings at this time.
So, let me remind you that poziotinib was developed by a company, our partner called Hanmi in Korea, and they had found activity in a variety of tumor types: in colorectal cancer; in lung cancer; in breast cancer; and in gastric cancer.
However, we ---+ based on the 60% response that we saw in breast cancer, we have decided to pursue only breast cancer in the United States at this time.
And since then, we have been focusing on breast cancer patients.
Not the kind of details you're asking.
I think it'll be premature for us to share with you what the design would be, what kind of cancer patients we'd go after, but clearly you can imagine that we have a lot of expertise.
Dr.
<UNK> Yang who will be ---+ who is heading the development group.
We have assembled both inside the company and outside the company, expertise in this field.
And you'll be hearing more about it as the time progresses.
Well, I would say to be determined.
Having said that, I'll share my experience with you in not only in oncology, but in drug development.
When statins were developed, were selling billion dollars each, Pfizer came back with Lipitor with $12 billion in sales.
Until that time, there were many drugs that were bringing ---+ Prevacol, Mevacor, from AstraZeneca's group, they were selling a billion dollars each.
And people thought, well, why would Pfizer come back with a fifth statin.
And the fifth statin came and became number one selling, any drug, ever in the world, $12.5 billion in revenue.
So, you know, in oncology, the increments, the improvements with drug treatment comes in small steps, and based on the data that we are seeing, and our experts are seeing, we think that our compound has a chance of being the best in class.
And therefore, we are very excited about it, and we want to take our time to design the right study, both with the blessing from the FDA, the European authorities, and experts on both sides of the pond.
Thanks, <UNK>.
At this time, we would like to thank you again for joining us on the call today, and your interest in Spectrum.
Our passion is to deliver better treatment options for patients suffering from cancer, and we believe with the team in place and our robust pipeline, we are well-positioned for future growth.
Thank you.
| 2015_SPPI |
2018 | MRO | MRO
#Thanks, <UNK>, and thank you to everyone joining us this morning.
After a pivotal 2017, 2018 is off to a great start and has continued our returns-focused momentum with our development capital program on track to deliver over 65% annual improvement and corporate cash returns at strip pricing.
Our differentiated multi-basin model delivered strong 9% sequential U.<UNK>. oil growth.
And our asset-level execution underpinned our confidence to raise our full year 2018 resource play guidance, while also steering to the upper end of our total company guidance, all of this with our $2.3 billion development capital budget unchanged.
An important point to note is that our first quarter development CapEx is not ratable, due primarily to some higher working interest relative to the remainder of 2018 and other timing effects.
Highlights for the quarter were numerous, but I'd like to underscore just a few.
We continue to expand the core of our Bakken and Eagle Ford positions through enhanced well performance in the Hector area and Atascosa County, respectively, uplifting economics and inventory quality while generating significant free cash flow from both assets.
Bakken grew production 7% sequentially and continued its basin-leading performance setting new 30-day oil IP records in both the Middle Bakken and the Three Forks.
The June and Chauncey wells in West Myrmidon established new records for the basin and oil production, with an average IP30 of almost 3,500 barrels of oil per day.
The Arkin well in the Hector area, setting a new Williston Basin record for the Three Forks formation at an IP30 of just over 3,000 barrels of oil per day.
And just to underscore the compelling economics of this well, the Arkin has already achieved payout.
Finally, a West Myrmidon well brought to sales in the quarter achieved a remarkable IP24 of over 10,000 oil equivalent barrels per day, but has not yet achieved 30 days of production.
In part because we continue to bring on these basin-leading wells, we are proactively managing gas capture to remain in full compliance with all of North Dakota requirements and have the necessary flexibility to ensure no flow assurance issues as we continue to pursue this high-return program.
Eagle Ford held production flat sequentially and delivered results in Q1 that spanned the entirety of our acreage position.
These included 11 outstanding wells in Atascosa County, with an average IP30 of over 1,600 oil equivalent barrels per day at an oil cut of 76%.
The Eagle Ford continued its focus on enhanced completion designs and contributed significant free cash flow through the powerful combination of well performance and strong LL<UNK>-based oil realizations that were above WTI.
Oklahoma and Northern Delaware began their shift to primarily multi-well pad drilling that will dominate the remainder of their 2018 programs.
In Oklahoma, oil production grew 25% sequentially, primarily from outstanding base performance that included the Tan infill that came online late in the fourth quarter.
We largely completed our <UNK>TACK leasehold program in the first quarter and expect to be greater than 90% HBP-ed in the <UNK>TACK by year-end.
Looking ahead, 95% of our remaining 2018 wells to sales in Oklahoma will be in the overpressured <UNK>TACK and <UNK>COOP, the majority of which will come from 4 multi-well infills.
Northern Delaware, though still early in its development cycle, delivered wells across Malaga, Red Hills and Ranger areas at an average IP30 of 1,460 oil equivalent barrels per day at 69% oil cut.
Late in the quarter, we brought the first 2 Cypress infill wells online ahead of schedule and we'll report results once we have 30 days of production from the entire pilot.
Additionally, in the last 6 months, we've added 165 risked gross COOP locations, with an average working interest of 65% through trades and a small bolt-on and continue to pursue opportunities that increase our working interest, generate more operating sections and provide more extended lateral optionality.
It's difficult to speak about the Permian without addressing differentials and takeaway.
We're currently benefiting from our Midland-Cushing basis swaps and open positions cover us for 10,000 barrels of oil per day at a discount of less than $1 to WTI for the second half of 2018 and all of 2019.
Our swaps will help protect over half our forecasted oil production for the remainder of the year.
On takeaway, it is important to stress that today, Northern Delaware counts for only about 4% of our overall production mix.
However, while we anticipate no flow assurance issues, we are planning for future growth and have expanded our oil gathering agreements and are assessing both gas gathering and FT commitments for the longer term.
We are also transitioning our water-to-pipe throughout the year, which will reduce unit operating costs for the basin.
In addition to our 4 U.<UNK>. resource plays, we continue to generate value from our world-class integrated gas development in Equatorial Guinea, which contributed $124 million of EBITDAX for the quarter despite a turnaround at the LNG plant.
This unique gas infrastructure, LNG plant, gas plant, methanol plant, is well positioned to not only deliver free cash flow today but also could capture additional equity and third-party gas as the natural point of aggregation in the region.
Our financial flexibility is at the top of our peer group and was further strengthened by receipt of proceeds from Libya and our final Canadian oil sands payment.
This flexibility allows us to pursue multiple high-return uses of free cash, but we are taking a disciplined approach and we are not considering large-scale M&A.
Repurchasing shares is an option, and we have a $1.5 billion authorization already in place.
And we can also look at our already competitive $170 million annual dividend.
We have enjoyed higher pricing for just over a quarter.
But as our confidence in sustainable free cash flow generation continues to grow, we will consider returning additional capital to shareholders, and it is a topic of ongoing discussion with our board.
Our objective is to strike the right balance between additional direct return of capital and accretive opportunistic low-entry cost resource capture.
<UNK>pecifically, we have successfully added quality operated locations in the Northern Delaware through trades and a small bolt-on and have captured over 250,000 acres across multiple onshore exploration plays, including a material position in the emerging Louisiana Chalk at less than $900 an acre.
We recognize that these unique resource capture opportunities are episodic and challenging to forecast.
We spent $94 million in Q1 and expect another $150 million in Q2, but they offer the potential to generate outsized full cycle returns.
We now expect to grow resource plays 25% to 30% year-over-year, up from 20% to 25% for both oil and BOE, with our development capital budget unchanged.
And we expect our total company annual growth to be towards the upper end of our guidance, also for both oil and BO<UNK>
But growth is simply an outcome of our returns-focused capital allocation.
Thank you, and with that, I'll hand it back to the operator to begin the Q&A.
Yes.
<UNK>, maybe just for everyone on the call, we have talked about the Bakken having a forward inventory at kind of current activity levels of just over 12 years.
And the way I think about our success in the Hector today is that we're continuing to delineate across that acreage position there.
That's about 115,000 net acres.
We have had very strong early success there, record-setting wells there.
But we're still marching across that acreage position.
And I view this as, thus far, really providing us an opportunity to uplift the intrinsic value and economics of that 12 years of inventory as we elevate the inventory that resides within the Hector area.
Additionally, we are still looking to test other areas this year in the Bakken, including Elk Creek as well as the Ajax area, as we continue to apply the same workflows that started in West Myrmidon, transitioned then into Hector.
We're looking to apply those as well in these other areas.
<UNK>o right now it's a great outcome.
All credit to the team there for their innovation.
They are competing strongly at the very top of the portfolio with these kinds of results.
Yes.
Well, I think you said it well, <UNK>.
It's very difficult for us to forecast in this area because typically, these unique opportunities are what we would classify as potential lost opportunities, meaning that if we don't act upon them, they're likely going to move away or at least the low-cost entry element of them will move away from us.
<UNK>o it is difficult for us to forecast.
That's one of the reasons why we at least attempted to provide some visibility into the next quarter for you all.
<UNK>o that was an important element.
I think as we consider the scope of it and ensuring that we do apply discipline to this element of our business, just like all other elements of our business, it starts with return and capital allocation.
When the REx team brings in an opportunity, it has to compete on a similar basis as our other opportunities, meaning that there has to be a path there to achieve economics, full-cycle economics, that are competitive with our existing portfolio.
These are still exploration plays with a finite chance of success.
But we have to be able to see materiality, quality and value proposition, meaning that they can come in and compete for capital allocation.
The other point that I would make just on the spend question is that as you think about the framework, although we're very excited about the greenfield leasing that we've accomplished, bear in mind that the real work comes after the leasing occurs.
We have to get in there then and go through appraisal, delineation, and we hope it's ultimately predevelopment.
And all of those activities will require capital allocation.
<UNK>o as we look forward in time, we have to also consider those future capital needs that are beyond just greenfield leasing.
Yes.
Thank you, <UNK>.
Yes, first of all, I want to emphasize that return of capital to shareholders is and has been an ongoing dialogue with our board.
We obviously discuss our dividend, which is very competitive in our space, with our board each and every quarter.
<UNK>o that concept of return of capital to shareholders and the constructive tension with other investment opportunities is front and center with the leadership and with our board each and every time we sit down to discuss it.
What I would say is that, going back to my opening comments, that repurchasing shares is definitely an option.
We have an authorization of $1.5 billion already in place.
We can also consider the level of our dividend.
Although at $170 million annually, it's very competitive, that also needs to go into the calculus.
And you're right, I mean, we ---+ certainly, as we look ahead, we absolutely see the opportunity to get into a mode of sustainable cash ---+ free cash flow generation.
And I think as we move through that, returning additional capital to shareholders will feature in that forward dialogue.
I would maybe mention though just a few things there is that, first of all, we feel that we need kind of a minimum cash balance to run our business given the scale and scope of it of around $750 million of cash on hand, and that's plus or minus.
I would also point out that all companies are at different stages in their respective business models.
We have addressed our balance sheet very clearly last year.
We've also largely completed our major portfolio dispositions, meaning that we don't expect additional near-term material proceeds.
As I was just chatting about with <UNK>, we also recognize that leasing cost is just the first step in capturing some of the low-entry cost opportunities, so we must consider those future capital needs as well.
All that to say is that the bottom line is that all of these factors go into our considerations for pursuing what is the best ---+ what are the best options for long-term value creation through the use of free cash.
And I view it as it's not an either/or proposition.
We see multiple uses for that, including enhancing our direct return of capital.
All of that can be accommodated.
Yes.
Well, we plan to provide many more details as we move through the year.
But obviously, the Louisiana Austin Chalk, as you mentioned, did go through a bit of a development phase.
It was with very early technology designs on the completion size ---+ side and relatively short lateral lengths as well.
We see this as a natural extension of kind of this Austin Chalk megatrend that goes from Mexico across <UNK>outh Texas, all the way over to East Louisiana.
And having been one of the leaders in the development of the Austin Chalk in <UNK>outh Texas, we think we're well equipped to get in here and appraise and understand the potential of this.
But I want to stress again that this is exploration, and until we are able to get out in the field, do the necessary technical work and get some wells down, we don't really what we have here in terms of forward inventory or resource.
But it's exciting.
And I won't get into where we are on the map, <UNK>, because we're still obviously active in the play today, and so I don't think it's prudent for us to talk those specifics at this present time.
Yes.
Doug, we are ---+ as we said before, we have calibrated our development capital program at a level that we're comfortable with.
We believe it strikes the balance between generating those very strong material improvements and corporate-level returns that we talked about early on a strip deck.
We can ---+ we see cash return on invested capital improving year-over-year by about 65%.
We will always be looking to, I would say, adjust our capital allocation based on new information throughout the year.
But our $2.3 billion development capital spend, that is our spend for the year regardless of where commodity prices tend to track for the rest of the year.
Yes.
I've got it, Doug.
The beauty, I think, in our portfolio today, in our multi-basin model is, Doug, is that we are already biased very heavily toward oil opportunities.
And you're right, the Bakken offers very high crude cut.
But I would also point out that even in Atascosa County, we're riding upwards above 75% C&C crude oil cuts there as well.
<UNK>o that does go, and we look at obviously the product mix, but we're more driven by making sure that we're deploying to the correct overall economic value proposition.
And today, when you look at our relative capital allocation that we described earlier in the year, it's not surprising that a big component of our capital allocation is flowing to both the Bakken and the Eagle Ford while we progress the early development phases from a strategic standpoint certainly in both Northern Delaware and Oklahoma.
<UNK>o we feel that we have already accommodated that ---+ not only the oil cut but the overall economics that we see in the Bakken in our capital deployment.
But again, as we get new data, we can always look at adjusting and redeploying within our multi-basin model.
But I want to stress that the $2.3 billion is the development capital that we'll be working within.
Hey Doug, this is Mitch.
I'll see if I can address that for you and I'll carry on and probably I'll hit what you're looking for.
But maybe I'll start with breaking down our position a little bit just for context and in the slides.
But 70% of our operated D<UNK>Us in the <UNK>TACK are in the overpressured window, and about 30% in the normally pressured.
And you'll note that for the remainder of 2018, our focus is really in the overpressured areas.
How I would describe it is we completed our first phase of infills in the normally pressured window, the last one of course was the Cerny.
The most recent one, which we did a multi-horizon test there, including in Meramec, Osage and Woodford.
We've made a massive data set of production, subsurface and intentional data acquisition.
We're now integrating that into the same kind of internally developed workflow, multidiscipline integration work flow that we've applied in places like the Eagle Ford and Bakken to drive the results that you're seeing from us there.
I would note and just kind of keep in mind, in those 2 basins we've got about on the order of 1,500 infills, whereas in the normally pressured window, we've got 19 infill locations so far.
At a different phase, we have taken a few very significant learnings thus far and continue to optimize while we focus in the overpressured area and come back.
But the Cerny Meramec wells were delivered, about $700,000 completed well cost lower than the Eves, and through the first 60 days, we're seeing oil cums that are comparable.
<UNK>o no degradation in performance there.
And we believe we can take costs down even further.
We're currently evaluating the design that's more in the $3.5 million completed well cost range.
<UNK>o continuing to advance our learnings, more optimization to do.
And while we're in that integration and compilation phase, we're going to shift our focus more into the overpressured area.
<UNK>ure, Doug.
I wouldn't characterize it the way ---+ in the way you last stated it.
But what I would say is, as we look at the ultimate development plan here, as with all other operators, you have to consider the history of that D<UNK>U, and, frankly, the surrounding D<UNK>Us.
And so the majority of our D<UNK>Us do have a parent well or direct offset.
That would be true for our industry as well.
The best we can tell, our position there is not too dissimilar from the rest of industry if you consider parent Meramec, Osage or Woodford wells across the <UNK>TACK normally pressured area in particular.
<UNK>ure, <UNK>.
This is Mitch again.
I think if you look back over the past 3 or 4 quarters, we've been highlighting, in addition to the core Karnes area, our activities down at Atascosa, which don't have ---+ don't benefit from the same quality of rock and necessarily same fluid mix.
But we, in taking that multidisciplined approach that I described earlier, have gotten onto a pretty refined state where we're actually designing the combination of wells basin and completion style sub-regionally and in some cases, down to the D<UNK>U.
What that's translated to as we modified our designs is a significant operating or uplifting of the inventory outside of core Karnes County.
And that's why we keep sort of highlighting the results from Atascosa.
<UNK>o in general, I would say the pressure is on upgrading the returns.
The focus is on value optimization.
Not a significant change to overall inventory.
Yes.
I think ---+ this is <UNK>.
I believe that there remains an incentive for all operators to continue to drive toward more contiguous positions, particularly in Eddy and Lea County in Northern Delaware.
I think the progress that the team made over the last 6 months since we really closed those deals is very solid.
But this is going to take time, particularly when you start discussing trades.
You have to get to the point where you get to an equivalent value proposition with another party.
<UNK>o the incentive may be there, but as I like to tell people, no one likes to say they have the ugly baby in the trade.
And so it just takes time.
And a lot of times, those trades are going to come in smaller bits as well.
But we have a dedicated team that is focused on this.
We believe that is important for that asset going forward in time to continue to block up what we believe is a great acreage position in Northern Delaware.
And we'll keep you all posted, But again, it is going to be ---+ it's going to come in probably fits and starts and probably in small parcels, particularly on the trade side.
But it's something that our asset team and our land team are squarely focused on today.
Yes.
I think for us, the key thing that made that small bolt-on in fourth quarter very attractive was it was essentially a laydown in our Malaga area.
<UNK>o there was great synergy.
It ticked all the boxes for us.
It converted non-op locations to COOP locations.
It raised our working interest.
It gave us more optionality for extended laterals.
<UNK>o it was really almost the poster child for what we're trying to do.
And those ---+ that's going to be a small group of opportunities that can tick all those boxes and really be a synergistic and accretive add to our position.
<UNK>o we're going to be very selective.
These are going to be smaller in scale.
We obviously are not looking at any large transactions here.
But to the extent that we find other transactions and that transaction in 4Q was kind of a $60 million deal, we're going to evaluate those and if it fits, we're going to move on them.
And that's one of the advantages of having the financial flexibility that we do today.
<UNK>ure.
Thanks, Bob.
Let me come back to a couple of points I made earlier, and then I'll expand on that little bit.
But I hope you will understand, we're not going to reveal sort of the full detailed recipe of how we're doing what we're doing.
But I'll say it starts with the tremendous technical database that we've developed.
The team that we have there really refining the multidiscipline integration of that and the reservoir characterization that allows us to then design a completion that takes advantage of the local characteristics.
<UNK>upplement that with the culture that we've been building over the last few years, which is never to be satisfied with yesterday's results.
And what it's taken us to is an approach that allows us to customize to a very subregional level.
And if you'll look at our completion details across the basin, you'll very clearly see that we don't have a one-size-fits-all approach.
We custom design to take advantage of what we understand about local characteristics.
The Hector record ---+ record Three Forks well from Hector, the 2 West Myrmidon wells you mentioned, those records weren't delivered by accident.
It's true that there was good rock to start with.
But our completion designs were tailored to take advantage of the characteristics there.
And so it's a value optimization focus that drives it and a really refined multidiscipline integration of those large database that we have.
<UNK>ure.
The Cerny did have a parent well.
And so just as a reminder, we drilled 3 additional Meramec wells across 2 landing zones in a half section there.
And then we drilled 1 Osage well and 1 Woodford well.
The solution out there, as we've talked about several times, is going to be fairly regional and very specific down to the D<UNK>U level in some cases.
In this particular case, we did see some communication between Osage and Woodford, but not between Meramec and those intervals.
I wouldn't say that, that result is necessarily translatable across long distances.
We're going to need to do more multi-horizon tests to fully understand that and to optimize the solution.
Yes.
Well, I certainly I believe that the $2.3 billion is a capital discipline and returns-driven choices that we are making.
There's nothing intrinsic in either basin that is limiting us today from an activity standpoint.
Obviously, we look to drive maximum efficiency, i.
e.
running our frac crews 24/7, et cetera.
All those things come into play.
But when I ---+ I think the way, again, to think about 2018 for both of those basins is Bakken is absolutely on a growth trajectory, but it's also going to generate free cash flow this year.
Eagle Ford, we are managing to a more or less flat production profile in order to take advantage of its capital efficiency and ability to generate free cash flow to drive other elements of our portfolio.
I think on your question around, you mentioned, inflation.
And so we ---+ although it's something that our teams not only look to manage but actually look to offset each and every day, we feel very comfortable at this stage that we have that accounted for fully in our $2.3 billion development capital budget.
2019 is something that we're really not talking about quite yet.
But obviously, the Bakken and the Eagle Ford as well as our other basins will all be part of a multi-basin optimization as we go into 2019.
<UNK>o nothing is locked in and there are no constraints around the Bakken and the Eagle Ford of today that would not allow us to flex those assets up or down.
Yes.
<UNK>, this is Mitch, again.
I guess, we've got the remainder of 2018 focused on overpressured infills across <UNK>TACK, and then some infills down in the <UNK>COOP area as well.
And we've highlighted those, I think on <UNK>lide 11, if I recall.
And so we will have some inflow of information with a couple infills down there.
But nothing to report today.
And I think, just as a reminder, <UNK>, because the <UNK>COOP is clearly HBP-ed, we have had the optionality to not necessarily drive activity there until we are ready to do so.
And ---+ but we will have some multi-well infill drilling there this year, 2018, and it will continue on that path.
Just one quick question.
You had talked about progressing in Kurdistan.
Can you provide an update there.
Absolutely.
This is <UNK>, <UNK>.
We are ---+ as a reminder, <UNK>, for everyone online, we have 2 nonoperated blocks in Kurdistan: <UNK>arsang and Atrush.
We have a small working interest in both of those.
<UNK>arsang, there is already an executed sales agreement in place and we are looking to, again, moving that toward close.
I would say that we continue to progress agreements around the Atrush block as well.
<UNK>o it is certainly reasonable to expect, ultimately, a full and complete exit from Kurdistan.
That's helpful.
And I thought your comments on the needed cash balance were pretty interesting and talked to the scale needed to really prosecute a development program in the multi-well development mode.
Have you talked ---+ thought about or talked about in the past, the amount of capital needed from initial wells spud to last well put on production.
Just thinking about the amount of working capital that's getting put in the ground and that need as you think about the next couple of years by the <UNK>TACK or the Delaware or the Bakken really.
<UNK>, this is <UNK> <UNK>.
We spend a lot of time thinking about working capital.
The way you frame that question is a little bit different to me.
But let's take it back to the $750 million.
I think within a given month, and we kind of saw some of that this month.
You're going to see interim month working capital swing of north of $400 million, maybe at the $500 million, especially when commodity prices go up like they have.
It really influences things.
And so that's really kind of an important ---+ it's a very important data point now would calibrate that $750 million.
Plus it's nice to have a little extra flexibility in there in the event if something comes along or something like that.
I would also maybe add, <UNK>, this is <UNK>, that the point you raised around as you get more toward multiwell pad drilling and as the number of wells on pad increases, these traditional kind of short-cycle investments do start looking more like medium to long-cycle investments, and you need to plan that within your budget cycle and how you approach capital allocation, and it also presents, I believe, even some forecasting challenges, particularly when you look at quarterly results because clearly, if you have a large pad that moves out with the quarter, it could have dramatic results within the quarter, but not necessarily within the calendar year.
That's definitely the challenge of near-term versus an intermediate and longer-term perspective.
And great results in the first quarter.
Thank you, Hilda.
I'd like to end by just thanking all of our dedicated employees and contractors for their efforts in the quarter and, certainly, their efforts going forward.
At the end of the day, they are sustainable competitive advantage.
I want to say thank you for your interest in Marathon Oil.
And that concludes our call.
| 2018_MRO |
2016 | ILG | ILG
#Thank you, operator, and welcome to everyone joining us for ILG's fourth quarter and full year 2015 earnings conference call.
I want to remind you that on our call today, we will discuss our outlook for future performance and other items that are not historical facts.
These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate, or similar statements.
These forward-looking statements are subject to risks, assumptions and uncertainties, and our actual results may differ materially from those ---+ these forward-looking statements and the views expressed today.
Some of these risks have been set forth in our fourth-quarter and full year 2015 press release issued earlier today in our 2015 Form 10-K, and in other periodic reports filed with the SEC.
In addition, ILG disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.
We will also discuss certain non-GAAP measures in connection with ILG's financial performance.
I refer you to our press release posted on our website at www.iilg.com for comparable GAAP measures and full reconciliations.
In connection with the proposed merger between a wholly-owned subsidiary of ILG and Vistana, ILG filed with the SEC a registration statement on Form S-4 containing a proxy statement prospectus which we urge you to read, along with all other relevant documents filed with the SEC because they contain important information about the proposed merger.
And now I'd like to turn the call over to <UNK> <UNK>, our Chairman, President and CEO.
<UNK>.
Thanks, <UNK>.
Good afternoon to everyone participating on our call today.
2015 was an extremely busy and productive year and we were able to deliver record results.
In constant currency, consolidated revenue was up 15.3% to $708.2 million.
And adjusted EBITDA was up more than 9% to $188.5 million.
More importantly, we continued to successfully execute on our strategy with diversifying our business to create a stronger ILG with a balanced portfolio of complementary businesses and a clear path for continued growth.
At this time last year, we laid out an ambitious plan for 2015 and I am pleased to report that we made great progress towards these ---+ those goals, as well as the most transformative action we've undertaken, the pending acquisition of Starwood's vacation ownership business, Vistana Signature Experiences.
First, let's discuss the performance of our business segments in 2015.
Specifically, within Exchange and Rental, Interval International implemented a number of initiatives which added high demand inventory to the system through relationships with developers and HOAs and enhanced inventory distribution from other ILG companies.
In 2015, we added 59 resorts in 18 countries to the Interval network.
We signed a master affiliation agreement with Vacation Internationale which has more than 44,000 owners at its resorts in the US, Canada and Mexico and is known for pioneering the points-based structure in North America.
We also expanded our network by adding properties in Mexico, the Philippines, South Africa, Panama, China and many other attractive destinations around the world.
In 2015, Interval International saw 16% growth in new members entering the system.
Roughly 11% was from developer point of sale with the remainder from our HOA initiatives and the addition of Anantara Vacation Club's corporate membership base.
As we've mentioned before, we are working diligently with HOAs to enroll owners that are purchased resales or reactivate owners whose memberships have lapsed.
It's important to note that this strong increase in new members negatively impacts the average revenue per member in the short term, given the HOA initiatives and the fact that new members contribute less revenue in their initial years.
We have also enhanced the inventory in the Interval network by distributing excess Hyatt Residence Club branded inventory, utilizing available room nights at Aqua-Aston properties for get-aways and exchanges.
In 2015, this initiative resulted in $1.5 million in incremental revenue to Interval International.
As we have indicated, with respect to the Vistana acquisition we believe the ability to distribute excess inventory represents an important synergy opportunity as the high-end branded resorts are strongly demanded in the network.
With regard to the proprietary club business, Hyatt Residence Club added 16% more new members year-over-year on 8.2% greater transaction volume.
This was primarily driven by increased sales at the award-winning Hyatt Ka'anapali Beach property in Maui that opened in late 2014.
In 2015, 77% of contract sales were to new buyers which resulted additional members to our HRC and Interval networks and provided a strong base for future upgrade sales.
Overall, system-wide originated contract sales in 2015 were up 8.5% over full year 2014 to almost $100 million.
With respect to HVO consolidated properties, our efforts have been focused on bolstering the sales and marketing infrastructure to make sure we have the optimal platform to drive meaningful improvement and ultimately substantial growth in the business.
Our first priority was to bring on board the right talent to lead the sales and marketing team at the consolidated properties.
We recently completed that exercise and are now focused on incorporating the appropriate sales and marketing personnel at the site level as well as investing in additional marketing channels.
To that end, we are pleased to announce that we have acquired a prime location in the heart of Key West for our new sales center.
This distribution point one block off the world famous Duvall Street will permit us to market more effectively to visitors.
In addition, this sales center will be an ideal showcase for our Pure Points Club.
We are working diligently on the creation of the club which will be a very valuable tool to enhance sales at the consolidated properties.
As I have said before, these strategic investments will have some impact in the near term but we are confident they will enable us to increase the velocity and efficiency of sales and result in long-term growth in the business.
We are also busy finalizing our plans for the expansion of the San <UNK>nio and Bonita Springs properties with construction slated to begin later this year.
We also made significant progress with respect to our goal of leveraging VRI and Trading Places relationships with HOAs in order to strengthen the financial base of our managed resorts.
Legacy resorts have a great need to recycle inventory that has defaulted over the years.
ILG has been working to provide properties that we manage a sales and marketing platform that can be part of the solution to this ongoing challenge.
To that end, I am pleased to announce that earlier this month we purchased a 50% stake in Great Destinations which is a startup fee-for-service real estate brokerage firm.
It specializes in reselling resort timeshare properties on behalf of independent homeowners associations at legacy or sold-out resorts.
Great Destinations has worked successfully with its clients for the past few years marketing and selling thousands of timeshare intervals on behalf of HOAs.
A Club Interval membership is part of each sale, which gives new purchasers the opportunity to exchange on a points basis through the Interval network.
This transaction provides more opportunities for us to assist our managed legacy resorts.
Finally, during 2015, we were focused on the acquisition of Vistana Signature Experiences which we announced at the end of October.
Upon consummation of the transaction, Vistana will have the exclusive world-wide rights to use the upper upscale Westin and Sheraton brands in vacation ownerships in addition to the license for existing St.
Regis and the Luxury Collection fractional properties.
Today, Vistana's network consists of 19 vacation ownership resorts and three fractional properties.
Vistana has been delivering memorable vacation experiences to owners, guests, and resort customers for over 35 years at world class resorts which we understand consistently achieve among the highest guest experience ratings within the Starwood system.
We are very excited about this transformational transaction which will create a leading integrated shared ownership company that has the scale, financial strength, sales and marketing infrastructure, as well as the product portfolio to excel and drive value for shareholders and clients alike.
As we have mentioned before, Vistana will have approximately $5.5 billion in expected sales value of inventory from a variety of sources including inventory on hand, rejected returns from defaults, expansions of existing resorts with a proven track record, the conversion of five hotels in unique high demand locations, and projected purchases from HOAs and other third-parties.
The diverse sources of this inventory and the phased development plan along with the addition of new distribution points will enable Vistana to grow for many years to come.
In addition, we plan to fund the development in a capital-efficient manner by using receivables already on the balance sheet as well as those generated from ongoing sales.
This will allow us to maintain a strong balance sheet and healthy cash flow profile.
As of December 31, 2015, Vistana had $443 million of unsecuritized receivables which we expect to begin securitizing shortly after closing.
Following the transaction which we expect to close in the second quarter, ILG will have an expansive portfolio of approximately 200 managed vacation ownership resorts encompassing over 500,000 owners and more than 10,000 employees.
With an even more diverse offering of leading properties and broader geographic reach, ILG will be stronger than ever both financially and in our ability to thrive in a rapidly evolving industry.
By any measure, we are creating a stronger, more competitive company.
We will have the exclusive global master licenses and vacation ownership for Westin, Sheraton and Hyatt, three of the top upper upscale brands in hospitality.
We will have improved scale, global reach, assets, inventory, and sales and marketing infrastructure to support increased growth.
This will be complemented by an enhanced financial profile with a strong balance sheet.
We will have substantial free cash flow from recurring fee-for-service revenue such as management fees and exchange and club revenues.
Additionally, there are significant strategic benefits to the transaction, including meaningful, achievable costs and revenue synergies.
We are very excited about the prospect of bringing together ILG and Vistana, two of the most respected names in the vacation ownership industry with long histories of commitment to quality and customer service.
Now I'll call ---+ I'll turn the call over to <UNK> to go through the financials.
And then I'll describe in more detail our plans for 2016.
Thank you, <UNK>.
Good afternoon, everyone.
I will address the full year numbers and give you an overview of the fourth quarter results.
Before I begin, I\
Thanks, <UNK>.
As we move forward in 2016, let me outline our goals for the year.
In the Exchange and Rental segment, Interval International is working diligently on the development of a number of proprietary fee-for-service initiatives that will enhance our membership exchange options, enabling us to capture more wallet share.
We expect some of these programs will be rolled out in the second half of the year.
Similar programs launched in recent years have been very well received by our clients and members and have become important revenue contributors with attractive margins as they leverage our existing IT and marketing platforms.
For example, in 2015 revenue from Club Interval and Platinum memberships approached $20 million.
Since they were introduced in 2011, these programs have generated nearly $60 million of revenue.
With respect to HVO, as I mentioned in my opening remarks, we are focused on strengthening our sales and marketing infrastructure and channels as well as the launch of the Pure Points Club.
This club will combine inventory from the consolidated resorts in a form that can be more easily distributed through multiple sales centers.
We will continue to offer our home-week preference hybrid product for destinations such as Maui.
But a Pure Points Club will enable our sales to reach a wider demographic and to tack on smaller upgrade sales on a more frequent basis.
We are working diligently on the legal and operational details for the club with a goal to launch at year-end or early 2017.
This year, we also anticipate commencing construction at our Bonita Springs and San <UNK>nio resorts.
Additionally, we will continue our efforts to identify opportunities such as Great Destinations which enable us to broaden our role distributing inventory from legacy resorts.
But most importantly, in 2016 our team is working towards the closing and integration of Vistana.
In December, we received early termination of the HSR waiting period, one of the closing conditions to the acquisition.
We are waiting approval by the Mexican Competition Agency.
We have filed a registration statement with the SEC and once it's declared effective, we will mail the proxy statement to stockholders in advance of a special meeting.
As we have mentioned before, Liberty Interactive Corporation and certain ILG executive officers representing approximately 31% of ILG's shares outstanding have entered into voting and support agreements in favor of the transaction.
We expect to close in the second quarter.
As you can tell, we are investing in a number of meaningful initiatives from which we expect to see positive contributions beginning in the second half of 2016.
And finally, as <UNK> mentioned in the guidance discussion, the acquisition of Vistana will significantly transform our business.
The combined Company's scale, financial strength, and complementary product portfolio will position ILG as a quality leader in a rapidly consolidating industry.
And we'll be well-positioned for long-term growth.
With that, operator, please open the call for questions.
We gave guidance for the combined entity.
And we gave ---+ we also indicated that we expect our full year results to be relatively flat with the previous year.
Thank you, <UNK>.
Hi, <UNK>.
No, we're saying it's going to be consistent with 2015.
We have front-loaded expenses in the Hyatt sales and marketing infrastructure that we're investing in.
We also have some initiatives that are being built within the Interval International platform to be rolled out ---+ programs to be rolled out later in the year.
So we're saying that it will be consistent with.
We're hopeful that there'll be increases year-over-year.
But we're being conservative in our approach.
Yes.
Let's talk about Interval for a second.
So during the quarter we had an expiration of a reservation servicing agreement which was relatively thin margin but it has revenues.
Clearly a bit of a shift to corporates from traditionals is one of the features.
In addition, there was a 16% growth in new members as well as our HOA initiative which enrolls those owners at those HOA sold-out legacy resorts who have not renewed.
Or we get them back into the system at a low cost.
So that ---+ those ---+ the new member flow and the HOA initiatives in and of themselves are a lower revenue per member.
And there is a little bit of suppressed demand from the Mexican, Canadian, South American members because of the appreciation of the dollar.
We also [conked] up against the proprietary clause in the quarter which is part of the difference as well.
So that's on the Interval International side.
On the Hyatt side, we're doing a lot.
So we have hired the senior group in sales and marketing and training.
And we've completed that process.
They've all come from branded companies that have done significant volume before in their careers.
We also have acquired a great distribution point in Key West, which we'll be building out in concert with the roll out of the Pure Points Club.
We're working feverishly getting all the legal and operational and technology aspects of that club put together.
And at the same time, we are increasing other marketing channels for those properties.
So we feel like we're making great progress.
We've got the team.
We have to get more individual sales agents at the properties and marketing locally.
So that's the next phase of upgrading the group.
And we feel confident that this business with that tremendous brand is going to grow the business over the long term.
So we plan on getting some of the results back ---+ see some progress towards the middle of the year.
So it's a startup business.
We figure it's going to do about $10 million in HOA related sales on an annualized basis.
The bottom line contribution is not material as it's a startup.
They have a number of sales centers in California.
And so the goal would be to expand those sales centers into other regions to drive more velocity and obviously more scale.
Today, they are conveying on behalf of HOAs the weeks at properties that they have agreements with that are managed by either VRI or TPI.
And they couple a Club Interval membership to that week so that they can trade in a points currency through the Interval network.
In the future, we're looking at doing a Pure Points Club with the inventory.
But we have plenty of inventory for many, many years.
And this is an initiative that we've been looking to do for quite some time, as you know.
And we believe we found the right partner in Great Destinations.
And we can scale that as well as look at other vehicles that are in the same segment.
So it's going to being in our VO segment and we beli---+ we don't believe it'll be consolidated at this point.
Thank you.
Thanks, operator.
I want to thank you all for your questions and participation on today's' call.
We appreciate your continued interest in ILG and look forward to speaking to you in the near future.
Thank you very much.
| 2016_ILG |
2018 | CLD | CLD
#Good afternoon.
With me today are <UNK> <UNK>, Cloud Peak Energy's President, CEO and COO; and <UNK> <UNK>, CFO.
Today's presentation may contain forward-looking statements regarding our outlook for the company and industry; financial and operational guidance, volumes, prices, demand and costs; the regulatory and political environment and growth strategies; capital resources and other statements that are not historical facts.
Actual results may differ materially because of various risks and uncertainties, including those described in the cautionary statement in today's earnings release and in our most recent Form 10-K and Form 10-Q.
Today's presentation also includes non-GAAP financial measures.
Please refer to today's earnings release for the reconciliations and related disclosures.
Our earnings release is available on the Investor Relations section of our website at cloudpeakenergy.com.
I'll not turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
Good afternoon, and thank you for taking the time to listen in to our Q1 2018 results call.
I'm joined by <UNK> <UNK>, our CFO.
Shipments during the first quarter continued at a steady pace as our customers took their contracted coal.
The cold January increased coal burn, bringing down utility inventories.
But this slowed in February and March with warmer weather.
Our export business ran well, with strong demand from our Asian customers and good performance from the rail and port system.
This allowed us to export the forecast 1.4 million tons during the quarter.
There were no reportable injury during the quarter, at our operations and our rolling 12-month All Injury Frequency Rate is currently 0.14 injuries per 200,000 hours worked.
There were also no reportable environmental incidents during the quarter.
So it is now over 3 years since we had one.
During the quarter, our operations had some weather-related interruptions as is normal in Q1.
Per ton cost increased during the quarter due to the higher strip ratios we had previously discussed and the impact of lower shipments.
We continue to focus on maintaining the quality of our equipment and improving the deployment and effectiveness of our preventative maintenance and equipment monitoring programs.
At the Antelope Mine, we have began replacement of the tub of one of our draglines, which will take 2 months.
As the dragline downtime will reduce our stripping capacity, this has been time to coincide with the Q2 shoulder season when we typically have lower shipments.
I'll now hand over to <UNK> to cover the financials before I talk about the 2018 outlook.
Thank you, <UNK>.
Our consolidated adjusted EBITDA for the first quarter was $19.6 million as compared to the $20.4 million for the first quarter of 2017.
While the consolidated results are relatively consistent, a shift in the mix of earnings in the period occurred as improved logistics earnings and lower SG&A expense offset lower domestic earnings in the period.
During this first quarter of 2018, we shipped 12.3 million tons of coal.
This compares to our first quarter shipments in 2017 of 14.1 million tons.
The current-period volumes included 900,000 more tons of exports at higher margins as compared to prior year.
Our realized domestic price per ton of $12.20 for the first quarter is slightly higher than the $12.10 per ton reported for last year's first quarter, which primarily reflects the changing mix of our coal sales.
With the increasing strip ratios, higher diesel costs and the lower volume of shipments, our cost for the first quarter were $10.94 per ton.
Comparatively, the first quarter of 2017 cost per ton was a $9.87.
We forecast the magnitude of this comparative quarterly impact to decline throughout the year as the pace of shipments is expected to increase to achieve our guided volumes.
During the first quarter, our Owned and Operated Mines segment generated adjusted EBITDA of $18.6 million.
Export shipments for the first quarter of 2018 were 1.4 million tons, which is consistent with our rail and port contracts and is a significant improvement as compared to the ramp-up pace experienced in the comparable period.
With the steady pace in performance by the rail and port, efficiencies were gained, most notably, a $1.5 million lower demurrage charge in the period.
The logistics segment adjusted EBITDA was $7.1 million for the period, our best quarterly result since export shipments resumed in the first quarter of 2016.
With an average realized price of $57.13 per ton on our Asian export shipments, we achieved a $5.04 margin per ton, which is incremental to the domestic cash margin reported in our Owned and Operated Mines segment results.
The contracted and selling price for the second quarter is $2 to $3 per ton higher than the first quarter results.
We will benefit by approximately 50% of the increase as we incur higher rail rates in Montana severance taxes.
Our SG&A cost of $7.3 million were lower than the $11 million reported for the first quarter last year.
Overall, our SG&A costs were consistent with the prior year, except for our mark-to-market stock opposition expense that was updated for performance-based equity award.
As our stock price declined during the first quarter of this year, the calculation resulted in a $4.4 million credit to this estimated award value.
This mark-to-market volatility will continue throughout 2018 as these performance share units will vest in March 2019.
As we look forward, we are reaffirming our 2018 guidance.
Our range of shipments remains between 52 million and 56 million tons, of which we expect to export approximately 5.5 million tons.
Our 2018 adjusted EBITDA guidance range continues to be between $75 million and $100 million.
Our range for capital expenditures remains between $15 million and $25 million.
We ended the first quarter with $127.8 million of cash, which is an increase of nearly $20 million during the period.
While this amount will fluctuate throughout the year, particularly with the interest on our 2021 notes being paid in the second and fourth quarters, we continue to expect to grow cash on an annual basis.
Assuming we achieve the midpoint of our adjusted EBITDA guidance, the operating cash inflows would more than offset our forecasted capital expenditure and cash interest needs.
Our total available liquidity was $527.8 million at quarter-end, which is the aggregate amount of our cash balance plus available borrowing capacity on our undrawn $400 million credit agreement.
We are currently working to amend and extend our credit agreement, which matures in February 2019.
While we expect the replacement facility to be significantly smaller, our focus is on ensuring that we have adequate liquidity to support our business needs.
Our A/R securitization program was fully utilized throughout the first quarter to support the $23 million of outstanding collateral requirements on our reclamation surety bonds.
With that, I will hand the conversation back to <UNK>.
Thank you, <UNK>.
I will now cover the international and domestic outlooks before we take your questions.
The overall outlook for Asian seaborne thermal coal demand remains strong.
Chinese total electricity regeneration was up 10% in Q1 this year, largely supplied by coal.
Chinese imports in January and February were up 40% compared to last year.
Outside China, demand continues to grow as new power stations come online in Japan, South Korea and Vietnam.
We continue to experience strong interest in our ---+ from our Asian utility customers for our Spring Creek Mine coal.
Our Asian customers continue to seek the consistent quality and supply diversity our coal offers.
We have now contracted 3.3 million tons for delivery this year at improved prices.
With the rail and port system working as planned, we expect to ship 5.5 million tons.
The recent decrease in Newcastle and Indonesian thermal coal price indexes are common this time of year as the winter ends, and we expect prices to firm as the summer progresses and to be able to contract the remaining 2.2 million tons planned for delivery this year.
You may recall that last quarter we announced a new contract with JERA Trading to supply 2 new IGCC units that are currently being built near Fukushima Japan.
This contract had some flexibility to increase shipments.
We were recently notified by JERA Trading that they were exercising their option to increase shipments under the contract by 20%, bringing the annual maximum to 1.3 million tons after the initial ramp up.
We have seen increased interest from other Japanese utilities, who are keen to diversify supply and value the consistent quality our coal offers.
One successful test burn shipped in Q1 and another was recently contracted to ship in May.
We are also discussing test burns with other 2 Japanese utilities that could occur later this year.
On the domestic front, while the cold weather in January helped reduce coal inventories, the recent mild weather increased natural gas production, have allowed utilities to continue to hold off contracting.
Natural gas prices for May delivery are currently around $2.80, even with inventories 41% down on this time last year.
When utilities have issued RFPs recently, coal pricing had been very competitive as producers seek to fill their capacity.
We have currently contracted to sell 47 million tons this year, including the 3.3 million tons of exports.
This means we still have around 5 million tons of domestic sales to make to meet the midpoint of our production guidance range.
The 47 million tons of committed production are under fixed price contracts with a weighted average price of $12.28 per ton.
The 2 million tons we contracted or priced since our last call were at a weighted average price of $11.83 per ton, reflecting the mix of 8,800 Btu and 8,400 Btu coal and prevailing prices.
There was no change to our 2019 sale position since our last call, and we have contracted 24 million tons for delivery in 2019.
Of this committed production, 17 million tons are in the fixed price contracts with a weighted average price of $12.63.
So to sum up before we take your questions, as we come out of winter, we have seen a recent increase in the number of RFPs as utilities begin to contract for the remaining of 2018 deliveries.
Competition is fierce, keeping coal prices down, as increased natural gas production keeps prices below $3.
We expect gas prices and weather to continue to drive incremental domestic coal consumption going forward.
At the same time, the outlook for our export business continues to improve with strong demand and solid prices.
We are looking to take this opportunity to schedule test burns with new high-quality customers and to continue to build our long-term relationships to our existing export customers.
With that, we can take your questions.
<UNK>, <UNK>, I wanted to follow up a little bit on the industry comments that you shared in the introductory remarks.
You spoke of fierce competition.
Obviously, there's the usually dynamics with weather and gas.
But can we talk a little bit more about the structural issues, where do you see coal burn this year versus last year.
And then importantly, when it comes to retirements looking out to 2019 and 2020, what's on the horizon, and how does it impact the PRB.
Okay.
So I think, as we said in the remarks that there's clearly utilities have been holding off buying coal.
There's coal to be bought for the remainder of this year.
And at the moment, the utilities that have come out for pricing has not been that many and obviously, with PRB producers, such as ourselves, having excess capacity to fill in the second half of the year, as you can imagine, the pricing is very competitive.
So that's the dynamic at the moment.
I think if ---+ as stockpiles have come down a long way from last year, there is the potential with gas inventories lower.
So if there is an early start to summer and a strong hot summer, big cooling demand for ---+ that's big, a lot of burn of coal just as we saw in January, and that could bring the utilities into the market in a strong way.
The other side of that is if there's a very mild summer, then that would leave them with buying less, and that wouldn't be good for all producers.
So that's the dynamic we're in.
The reality is the industry has changed massively from where it was 5 or 6 years ago when utilities used to know what they were going to burn through their coal plants and would buy accordingly.
There is a lot more variability, which is what we're coming to terms with.
We're optimistic that the rapid rate of closures we've seen in the last couple of years is actually slowing down and that will actually give them some opportunity for the supply and demand to come into balance and give more sustainable margins to producers.
That's not occurred yet, but we're closer to being in that position than we were this time last year would be my estimation.
But equally, we have to recognize there is an awful lot of gas coming on.
How much is that's balanced by exports and the need to continue investing capital to keep that production going, will play out in the next year or 2 as those markets mature and the economy develops and exports develop.
But that's a ---+ we're in a very dynamic market and we've got to see how that occurs.
We are optimistic the rate of plant closures will actually slow.
And I think that would be a key thing, though, I think realistically, most utilities are ---+ have longer-term their plans to close plants.
But hopefully, it's not in there.
They have gone through this round of closures, and we've got a few years of stability.
That's a very comprehensive answer and I appreciate that.
Maybe just to hone in on the potential for retirements.
As it stands today, how many million tons will be impacted in both 2019 and 2020 from the PRB specifically.
I haven't got that number at my fingertips, <UNK>.
I think it's a lot less than the last few years.
But the big ---+ there is a factor there that it's worth recognizing, that even if you get some closures, it doesn't mean you can't burn a lot of coal in the existing plants because utilization rates have gone down.
So there is actually a fair bit of excess coal burn capacity even with maybe less actual plants than we have had.
I mean, obviously, closing plants isn't a good thing.
But it doesn't mean there isn't the ability to go up when demand rises in seasonality.
And I think that's the dynamic we're going to face going forward.
So I think the actuals ---+ the rate of closures, whilst it's not a good thing, it's actually the demand level for power and the price of gas that is really going to drive coal burn, and therefore, the amount of demand for our coal.
Well, <UNK>, if demand isn't there, if the customers don't come out for it, I think it's pretty clear, we won't sell it.
But yes, the pricing ---+ there comes a price where ---+ we're obviously very close to it, where you don't want to sell.
And we've seen, if you look at our business, the production has come down significantly in the last few years.
We're looking for some stability this year, but we're actually ---+ we're obviously being helped significantly by the exports, which you guys look at our domestic plant ---+ or the middle of our guidance range, domestic is down by several million tons, but we're able to balance that with the exports.
So yes, we'll ---+ we can only sell what customers want to buy and then, depending on how that ---+ how many of them want to buy it will drive the price ---+ the level of supply will help drive the price.
But yes, we can only sell what people will buy.
We believe the coal ---+ I mean, the real driver, if it's an extraordinary mild winter ---+ mild summer, that would be bad.
If it's a hot one, that would be great.
So if it's a normal summer, yes.
There is ---+ we do believe there is a significant amount of coal to be bought by the utilities.
They are still actually burning quite a bit of coal.
And for all the doom and gloom around coal, it's still roughly 30% of U.S. electricity.
It's still quite a lot.
And that actually means that we ---+ they do need to buy it and they need to burn it to keep the lights and the air-conditioners on.
So whilst it's a ---+ it's very dynamic and it's changing, we're still pretty active and several coal producers.
Okay.
So the main factors for us, I think, are pretty clear.
On ---+ you've got the international pricing on the remaining 2.2 million tons, and I'd see that as potential upside.
We've got a negative would be diesel price.
If that comes ---+ what comes through there.
And then the big one is domestic volumes and what price we ---+ so the amount of coal we sell and what price.
I mean, those are really the variables facing us at the moment.
And certainly, the domestic stuff in terms of demand and price, that we'll be able to see that play out with the demand and ---+ I mean, summer weather at the moment.
<UNK>, this is <UNK>.
We had offered that in that range, about $30 million from the logistics business.
So you take 5.5 million tons that we still feel confident with, you multiply that by the margin that we were reporting in the first quarter, that gives you the data points, that gets you to the upper 20s.
So ---+ and then we said ---+ so the $5 margins on 5.5 million tons, that's where we feel confident.
We've got the pricing in there as well.
And we've got contracted position for second quarter being $2 to $3 higher than what we reported for the first quarter.
So that gives you the data points that ---+ yes.
Okay.
Thanks, <UNK>.
As we said in the sort of prepared remarks in the release, the performance of the rail and port this year has been in line with our forecast.
We did the 1.4 million tons, which obviously, on a quarterly basis, is just where we need to be to get to 5.5 million tons.
And the system is working as planned.
So that's all good.
And especially in the first quarter, compared certainly to last year when we're trying to ramp it up and there was bad weather and it obviously was a problem then.
The main thing we see with these systems is once the rail and ports are sort of chugging along and you've got the ships coming and the trains all in motion, then it runs well.
But going up and down quickly can be a struggle and cause some operational issues.
So at the moment, we're very comfortable with the operation of the rail and port.
In terms of the longer-term ability to get capacity we will obviously be in discussions with Westshore and the railway to see if there's any opportunities to increase production if any space becomes available.
And we believe the demand is certainly there with our Asian customers.
But we will be very watchful of the level of take-or-pays that we take on because remember, it was only 2 years ago that they were a significant problem for us.
So we need to be cognizant of that.
But overall, yes, we see opportunities there and we're pleased with the way it's going at the moment.
Sure, yes, thanks for the question.
And certainly, the way we saw the winter was through December, it wasn't very cold, and burn was lower.
In January, when it was cold, obviously, a lot of gas went to domestic and commercial heating.
And coal burn was right up.
And I think the recent numbers that came out show that coal was well over 30% of American electricity in January.
Then it dropped off a bit in January and Feb ---+ I'm sorry, in February and March as the heating demand went down.
So look, it absolutely plays out.
If ---+ gas certainly, the winter, the gas is in demand, then utilities burn a lot of coal.
I think, as we've said before, as long as gas is over $2.50, then we seem to see that utilities are burning the coal, our coal they've taken.
And so that seems to be playing out.
At the moment, however, they do appear to be holding off pricing, because I think they're comfortable that there's enough coal and gas available to ---+ given their current stockpiles to see them through the summer and then they can always buy what they need going into the winter.
That's how it feels to us as we look at the way the market's developing.
So that does mean that if there is a big demand or gas nudges up a bit because of the exports or industrial demand, then there's the potential for it to swing up quite substantially.
And as we've said for a while, utilities haven't been ---+ there's been no squeeze on them for a while, so they seem to be comfortable that there's always lots of coal and gas available.
We're optimistic there will actually be some demands, they'll actually be caught out a little bit.
And remember why they want decent amounts of coal on their stockpiles.
But until that occurs, it's pretty easy to sit back and take whichever is most opportune and realistic in short notice.
And so our market, the whole business has changed and we're having to adapt to that.
And this is the reality where we are.
Well, I think, after that, just goes to the lack of pipeline infrastructure to get gas around the country.
So if the Northeast is very cold, the heating demand there means that local gas is available, the price shoots up.
But gas in other areas where there maybe is overproduction, not enough pipelines to get it out, obviously, is much lower.
So I think that just goes to tell you that there aren't enough pipelines and you get a very regional market.
Okay.
Well, thank you for taking the time to listen in and for your interest in Cloud Peak Energy.
Obviously, we'll look forward to updating you on progress during Q2 in July, when, hopefully, we'll have a ---+ obviously, we'll have more insight into how the summer is developing and the full year.
So we'll speak to you then.
Thank you.
| 2018_CLD |
2016 | RGA | RGA
#<UNK>, this is <UNK>.
The primary driver there is we have to revalue embedded derivatives that support some of the business that's written on a modco basis.
And that revaluation, on a net basis, was about $40 million.
On a gross basis, just in terms of the revenue line, it was about $92 million, as I recall.
But that's something that because there is a portfolio that doesn't reside on our books, we have to reflect some of the changes in the value of that portfolio as relates to credit spreads primarily.
And as a result, that's what drives the below-the-line, so to speak, sort of result.
It's primarily credit spreads, not equity portfolios at all.
Our expectation is that's an amount that starts at zero and ends at zero, and goes all over the place in between.
<UNK>, we see some companies that are a little more aggressive today than we thought they were a little while back.
It's always hard for us to attribute the causes of that.
That's hard for us to read.
The market is overall slightly increased in terms of competition around the globe, but not overly competitive.
We don't feel terrible about the about the status of competition in the marketplace.
No.
And really, if you look back historically, you see some of those sort of aberrations from quarter to quarter.
We can have changes of the variety that you mentioned.
So I wouldn't draw any conclusions there.
I think if you take a look year-to-year, and certainly at the end of this year when you look back, we'll have a fairly trendable sort of expense line in both of those segments.
I think the biggest affect you'll probably notice, <UNK>, will be on the currency.
Whatever happens to the Brexit situation, and the consequent effect on the pound sterling will have the biggest effect.
It should not affect business the flow or the experience in terms of mortality or longevity or critical illness, in any way that I can put it.
So, that would be the big effect.
Our assets in pounds sterling we don't think are abnormally at risk.
We really don't see a big effect from Brexit immediately, other than as it affects the macro trends in the economy of the UK.
We are just south of $20 million in that operation this quarter.
And that's actually less than the first quarter last year, but that's pretty much the way we would size it.
And so if the trend follows that we saw last year, we could give some of that back in the second quarter for the reasons that <UNK> mentioned in terms of the seasonality there.
But all-in, we expect for the year, Australia to be profitable and to continue building towards the profit levels that we experienced several years ago.
Yes, <UNK>, that's exactly right.
We wouldn't expect to change that projection now.
It remains to be seen just exactly where we'll end up, but no reason to change it based upon the first-quarter results.
<UNK>, on Canada, the mortality was not terrible.
It was off a few million bucks.
That's coming on the heels of three really strong quarters.
But you remember, last year, first quarter in Canada was highly seasonal, too, with a depressed level of earnings in Canada in there.
On the longevity side, it has ---+ it really is hard to predict on a quarter-to-quarter basis.
Normally, that's a very smooth operation, so we are not talking about a major deviation from expected there, either.
We had some group business that didn't perform as planned in Canada.
And put it all together ---+ it's just modestly off.
We expect, over the course of the year, those things will even out.
It's not common for us to have every operation actually so close to expected as we had in the first quarter.
We would expect, normally, a lot more variation than we saw this time.
But we do expect some things like that to happen.
And we don't view Canada as anything other than a variation from expected due to random volatility and maybe some seasonality, and not far off, at that.
Yes, everybody is stretching the amounts a bit.
We're hearing of companies willing to go up to $1 million, without fluids.
It's because of the advent of new information and new data; a little bit of experimentation going on, frankly, at the same time.
Everybody on the direct side would like to find a way to improve the process of underwriting to make it quicker, more consumer-friendly, and this is all part of it.
I think that the value of reinsurers becomes greater when you move off into the unknown, as companies are starting to do with some of the new underwriting protocols that you see out there.
Okay.
I appreciate that very much, <UNK>.
<UNK>, this is <UNK>.
I'll handle that.
It was a little bit stronger when you think of just generic flow at 7%.
Certainly, that's stronger than the more recent trend for that part of the business.
My suspicion is that will trail off somewhat over the following three quarters.
You always have some reporting issues that can move it 1 point or 2 from quarter to quarter.
But I think my takeaway comment is we view that to be ---+ that 7% to be fairly strong, and not necessarily what we would expect ongoing.
This is <UNK>.
I'd say a little north of the midpoint of that range.
So, maybe 7%-ish, ex-blocks, which would imply 3% with blocks overlaid.
In terms of the consolidated growth rate.
We target high-single-digits, which you can read that to be 7% to 10%.
So, we are hopeful that we could hit double-digits.
But I'd say somewhere midpoint of that range that I just quoted, probably the ---+ our best estimate.
Yes.
We had impairments of roughly $35 million during the quarter.
The lion's share of that was associated with the energy component of our portfolio.
So ---+ and particularly, we had one position that represented probably two-thirds of the energy impairment for the quarter.
So, it was a little lumpy.
And I guess we would characterize that the energy portfolio performed roughly as we would've expected; actually improved a little towards the latter part of the quarter, in terms of spreads on the various positions in the portfolio.
So, we are keeping a careful eye on it for obvious reasons.
But we are not particularly alarmed at this point.
It turns out, <UNK>, that we have a lot of tools that are very valuable for anybody looking at underwriting through alternative distribution or through non-specialist distribution.
It's not clear how ultimately we would participate in all this.
It's not in our plans at the moment to white-label anything.
We are supporting our clients who have ventures in this arena.
But I think you make a good point that as things move around like this, RGA is in a position to play in the game wherever the growth is.
And one of the benefits of RGA's platform ---+ our expertise and our people, frankly ---+ is that we have the ability to find ways to participate in growth in the industry broadly speaking wherever that may be; either geographically, product-wise, or even process-wise, some of these new innovations on the product side, and reaching middle income people and other target markets that have not historically been reached.
This is <UNK>.
With that, we'll end the call, and thanks to everyone who participated today.
Thank you.
| 2016_RGA |
2018 | NX | NX
#Thanks for joining the call this morning.
On the call with me today is Bill <UNK>, our <UNK>hairman, President and <UNK>hief Executive Officer; <UNK> <UNK>, our <UNK>hief Financial Officer; and George Wilson, our <UNK>hief Operating Officer.
This conference 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'll now turn the call over to <UNK> to discuss the financial results.
Thank you, <UNK>.
I'll begin with the income statement, followed by comments on the balance sheet and cash flow.
We generated net sales of $191.7 million during the first quarter of 2018 compared to $195.1 million for the first quarter of 2017.
We experienced solid underlying growth in our North American and European Engineered Products segments that was offset by the portfolio rationalization and divestiture actions we completed in 2017.
As you are all aware, the Tax <UNK>uts and Jobs Act was enacted on December 22, 2017.
As such, we realized a $6.5 million or $0.19 per diluted share net tax benefit during the first quarter of 2018.
The Tax <UNK>uts and Jobs Act\xa0reduces the federal corporate tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime.
The lower tax rate will be phased in over 2 years since we have an October 31 fiscal year-end.
Including the net tax benefit realized in the first quarter of 2018, we estimate that our effective tax rate for fiscal 2018 will be approximately 9%, or approximately 24% excluding the net tax benefit.
We will continue to evaluate the impact of the tax reform through the remainder of fiscal 2018.
We reported net income of $4.9 million or $0.14 per diluted share for the 3 months ended January 31, 2018, compared to a net loss of $3.7 million or $0.11 per diluted share during the same period of 2017.
On an adjusted basis, we had a net loss of $1.5 million or $0.04 per diluted share during the first quarter of 2018 compared to a net loss of $1.4 million or $0.04 per diluted share during the first quarter of 2017.
The adjustments being made for EPS are as follows: acquisition-related transaction costs; purchase price inventory step-up recognition; restructuring charges related to the previously announced closure of several manufacturing plants; accelerated depreciation and amortization for equipment and intangible assets related to these facility consolidations; foreign currency impacts primarily related to an intercompany note with HL Plastics; and the net tax benefit related to the Tax <UNK>uts and Jobs Act.
On an adjusted basis, EBITDA increased to $13.2 million in the first quarter 2018 compared to $13 million in the first quarter of last year.
The increase in reported earnings was largely attributable to lower stock-based compensation expense and the previously referenced tax benefit related to the Tax <UNK>uts and Jobs Act.
The lower stock-based compensation expense was mostly the result of moving away from stock options into restricted stock performance units for a portion of our long-term incentive compensation.
Moving on to the balance sheet and cash flow.
<UNK>ash provided by operating activities was $8.2 million for the 3 months ended January 31, 2018, compared to $3.1 million for the 3 months ended January 31, 2017.
We generated free cash flow of $381,000 during the first quarter of 2018 versus a negative $5.1 million during the first quarter of 2017.
And we were able to repay a little more than $4 million of bank debt during the quarter of the year that we have historically been a net the borrower due to the typical seasonality of our business.
We now expect to generate approximately $50 million to $55 million of free cash flow in fiscal 2018 compared to our prior estimate of approximately $50 million.
The increase is mainly a result of tax reform.
As of January 31, 2018, our leverage ratio was unchanged at 2.3x.
We remain focused on generating cash and deleveraging the balance sheet, and our expectation to end fiscal 2018 with a leverage ratio below 2x has not changed.
We do expect to take advantage of the recent changes in the tax laws and plan to repatriate approximately $3 million to $5 million in foreign cash during the second quarter, which will be used to further reduce our bank debt balance.
I will now turn the call over to Bill.
Thanks, <UNK>.
Our first quarter revenues were right on top of our expectations, led by another strong performance in our European Engineered <UNK>omponents segment where year-over-year growth was 5.4%, excluding eliminated products and after adjusting for FX.
Similarly, the U.S. fenestration piece of our North American Engineered <UNK>omponents segment grew at 4.4%, surpassing the latest Ducker estimate for the calendar fourth quarter of 2017.
This was especially strong as it included a 5% contraction in our U.S. vinyl profiles business due to some isolated customer operational issues and inventory adjustments.
Our spacer, screens and accessories business grew at high single-digit rates throughout the quarter.
The Kitchen <UNK>abinet Manufacturers Association indicated that growth rates for the semi-custom segment of the market for our fiscal quarter was a tepid 3.9% and flat for the stock segment.
Excluding eliminated products, revenues in our North American <UNK>abinet <UNK>omponents segment were flat year-over-year, mainly due to a product mix shift to entry-level, lower price point and lower-margin cabinets.
This mix shift plus inflationary cost pressures impacted margins in this segment by approximately $3 million.
Of this amount, $800,000 was related to mix and $1.5 million was labor, benefits and material inflation not covered by contractual pass-throughs.
A further $700,000 was a timing issue related to a policy change on vacation accruals that will balance out as we move through the year.
It's unfortunate that these inflationary headwinds masked productivity improvements of close to $1 million as we begin to see traction on many of the initiatives underway in this business.
We have completed a re-layout at one of our smaller plants, 2 other re-layouts are in the process, and we have just begun one in one of our larger plants.
We still expect significant margin expansion in the second half of this year in this segment.
Our longer-term expectation of achieving 15% EBITDA margins in this business before corporate allocations is unchanged.
Our fenestration businesses both in the U.S. and in Europe also faced significant material cost pressure during the quarter, mostly in chemicals and mostly as a result of supply constraints after Hurricane Harvey.
The inflationary costs not covered by contractual pass-throughs amounted to $1 million in North America and $900,000 in Europe.
Silicon and TiO2 continued to be the biggest challenges as both are in short supply and both are experiencing double-digit price increases.
Actions are already underway across all of our business units to offset these inflationary costs, but realistically, we will continue to play catch-up in Q2 and then see the full benefits in the second half of the year.
<UNK>overing these costs, combined with solid revenue growth across most of our businesses, plus underlying productivity improvements in our <UNK>abinet <UNK>omponents segment, give us confidence in reaffirming our original guidance for the year of $890 million to $900 million in revenues and adjusted EBITDA of $103 million to $108 million.
Free cash flow in the quarter was positive, as <UNK> said earlier, allowing us to repay a small amount of bank debt at a time when we typically have to borrow.
Full year free cash flow is now expected to be in the range of $50 million to $55 million, which should allow us to comfortably exit the year below 2x leverage and perhaps even as early as Q3.
There is no change to our stated strategy of improving operating margins, generating free cash flow and deleveraging.
Operator, we're now ready to take questions.
So I think with respect to the Ply Gem/Atrium deal, both are customers.
We don't sell extrusions to Ply Gem.
We do sell extrusions to Atrium.
At this point, we've been told by both organizations, it's business as usual.
At this point, I'm not sure I would expect to see any changes as it relates to our supply to them.
Of course, after that deal actually gets consummated and they get their arms around it, that could change as we get into the latter part of the year.
But at this point, I would say it's business as usual.
We don't expect to see any changes, neither good nor bad, frankly, with any of our products sold to those 2 companies.
Yes, I think as we've said before, new construction, which clearly is slowing down in the U.K., is not a big part of our business.
It is mostly R&R.
And up until recent times, it has not been as price-sensitive as other segments of the market.
I think clearly, in Europe, capital goods are slowing down.
But if you've got to replace a window, you've got to replace a window.
Now having said that, because there have been significant increases in resin costs in Europe, more so than even in North America, and as we stated, some of the other chemicals that go into that mix, we've passed on price increases, the rest of the industry has passed on price increases and we are getting to the point where we're not going to see sustained high growth rates.
I don't think it's going to go negative, but I think we'll see growth rates slow down somewhat, and it is going to be more difficult to pass some of these increases through, particularly in Europe where price points are so high.
I think generally speaking, without being too specific, it will be a challenge to get margin expansion in Europe this year, but I would not expect to see significant contraction.
In North American Engineered <UNK>omponents, again, significant margin expansion could be a challenge, but I would expect them to be closer to flat.
We do expect margin expansion in the <UNK>abinet <UNK>omponents segment.
It'll be a challenge to get expansion in Q2 but definitely in Q3 and Q4.
Yes, I think ---+ well, in Europe, it's going to be tough because we've had a number of price increases in the past year in Europe.
That's not been the case in North America.
And as we've said before, it's definitely a challenge with our customer base here in North America, but becomes somewhat easier when you're trying to cover highly publicized inflationary costs.
And that's what this is about, hence, our confidence level is much higher.
So the first part of the question, because of the way hardwood prices have increased and because of the way some of our customer contracts are structured, we did find ourselves in a position this quarter where there were a few hundred thousand dollars of material costs that did not get passed through, and it's kind of that inflection point issue and a color issue with some of our contracts.
That ---+ if prices stabilize and start to fall, that'll correct itself.
If they continue to increase at a steady rate, that may not correct itself without some further discussions with said customers.
So that was part of it.
Part of the increase is we transferred the Woodcraft employees to the Quanex benefit plan and the Quanex 401(k) plan, which is something we had to do this year, knew it was coming, and that increased their labor costs by a material amount that we still expect to recover as we go through the year here.
But that was the bulk of it.
Yes, I mean, the full year impact of ---+ the move from options to RSUs is kind of in the $1.5 million range.
And in terms of overall corporate, some inflationary increases offset by that benefit moving from the options to the performance restricted stock units.
That's a safe assumption, yes.
That's how we tried to present it, is think of it as a 24% run rate.
Actually, that's not quite the case.
It wasn't Woodcraft.
That ---+ the cross-selling initiatives really relate to North American fenestration.
And frankly, that's one of the reasons why the screens, spacer and accessories business is growing at a faster rate than market as those cross-selling initiatives start paying off.
We're obviously utilizing our strong contacts at some customers to get increased outsourced screen business, which is the easiest product for a customer to outsource, particularly in light of tight labor markets.
It's easy for them to outsource that product line to someone like us and then utilize that labor for other things.
And then the spacer business, the cross-selling initiative there was the development of the high-speed lines, which are going in steadily across the board, limited somewhat by the ability of equipment manufacturers to supply those lines.
There's nothing baked into 2018, and we continue to make progress.
There's a very slow sell-in cycle.
And because of the sensitivity of some of those discussions, we're not going to comment specifically.
But at this point, there is nothing baked into '18's numbers.
Yes.
There were 4 big projects underway that effectively re-layout 4 separate facilities such that we can reduce the number of touch points.
So the product literally will start at one end of the factory and flow with some semblance of order through various machine cells and come out the back end without a lot of material handling, a reduction in work-in-process inventory and a much more efficient and balanced flow.
That was completed in Q1 in 1 facility.
We have 2 other small facilities where the work is still in progress and will be completed in Q2.
And then our largest facility is really just starting, and will take all of the second quarter and into the early part of Q3 before that is completed.
And that's a pretty significant project in and of itself.
We're seeing benefits already from that.
That's where a lot of the productivity gains came from, even though it was disguised by inflationary costs.
So ---+ and that's one of the biggest reasons we have a high degree of confidence in the second half of the year picking up some significant margin improvement.
We were ---+ we got everything done that we had planned to do.
It's unfortunate that we couldn't kick off the big project sooner, so that's actually going to run through a busy period for us, which is not ideal, but it was held up because we needed some new equipment for a separate facility that needed to be installed before we could move some from 1 factory to another.
And then it was just a domino effect.
So the whole program got delayed for that reason, but we will manage through it in the quarter here.
Yes.
We do see that as a continuing market trend, and we're evaluating margins and evaluating how those product lines are manufactured and balanced in the factory.
At this point, we do not expect it to change our expectation of our 15% EBITDA margins in that business before corporate allocations.
We don't expect that to change going forward.
No.
I mean, really, we have about $10 million of cash.
So not a huge number that's outside of the U.S. So our intent is to keep the safety net of cash there so we're not constantly moving back and forth and creating a lot of administration there.
So we'll bring back what we feel is a safe amount here in the second quarter.
And then under the new Tax Act, we can begin to take cash on a regular basis instead of accumulating.
The good news is our tax strategy with HL, our most recent acquisition, unwinds itself in 2018 naturally with this intercompany note, so the timing was good for us.
The first question I had, just thinking about the business rationalization last year and the comps as we go forward this year.
When should we have fully lapped that and when should especially North America you think maybe the sales comps turn positive.
Yes, we should see more direct comps in Q2 for sure in the second half of the year.
There was still a fair amount of overlap in Q1, though.
And then the second question I had, just kind of building on what was asked earlier.
If oil prices ---+ oil and other inputs continue to move higher, are there some other businesses that you guys might be thinking about exiting or walking away from just because you can't raise prices fast enough to make up for the material cost inflation.
No.
I don\
Thanks, everyone, for joining us today, particularly as some of you, I think, are suffered from some inclement weather.
And we look forward to talking to you next quarter.
Thank you.
| 2018_NX |
2016 | CBL | CBL
#Thanks.
Good morning <UNK>.
I think it will.
JCPenney has had continued strong results, growth in sales, growth in profits, and they've made the statement that they are not looking to close stores.
The are looking to grow their revenues and grow their profits, and their stores are profitable.
They did some closings, but that's behind them.
And then Sears is focused on Kmarts, and that's where the majority of their closings are.
And the conversations I've had with their Head of Real Estate and their real estate people is that they're not looking to close Sears stores.
You know it's really persistence and time.
And unfortunately these transactions take longer than we wish they did.
But we've been working at it for some time and now we're starting to see the results, we haven't changed any criteria, we haven't changed any people.
We've been focused on it for a while and now we're seeing good progress.
Thanks <UNK>.
Yes, at the end of the quarter, we had 68 Aeropostales.
There are few that, it will be a little less because of some of the dispositions that we've made.
And then, that will bring it down to 65.
And of those, eight will be closing this year.
We anticipate, like we said last quarter that, the hit to NOI will be roughly $2 million for the year.
So, I mean one of the reasons that when we did our guidance for the rest of the year, we're going to start feeling the impact of some of those closings, and the rent reductions in Aeropostale because of the restructurings from the bankruptcy there.
So that's an impact that we are going to start to feel.
And then PacSun and Sports Authority and the bankruptcies that happened earlier this year are going to start flowing through to our revenues as we get into the third and fourth quarter.
Well, we did the overall, let you know what the full-year guidance is, and we do have Q3 last year was flat but, or Q4, had a robust 2% growth.
So that's a tough comp.
But as <UNK> pointed out, these bankruptcies and the store closure impact will be felt more in the second half of the year.
So it will moderate from the strong quarter we've had this year, in this quarter and last quarter, which is fantastic.
And we hope to continue with that momentum, but it will moderate some, primarily because of these impact of the bankruptcies and the store closures.
It's really sales.
Actually the leasing has been strong and we're doing a redevelopment, expansion at Dakota Square in Minot, we're adding some good tenants there and we've got strong demand.
We've got some other retailers that want to get in them, those markets and those malls, that we're trying to figure out a way to accommodate them.
So the leasing demand is strong.
We had a great run up over the past three years.
And now on the downside it's come back down, but the levels are still strong, and occupancy cost is healthy, it's not out of line at all.
It's just primarily sales.
You know Jeff, like I said you know, we're just not going to make any more comment at this time.
And we are pushing and doing everything we can to bring this to resolution.
And we are confident that it's going to be positive and we want that to happen as quickly as we can.
I wish today we had it wrapped up in a bow and we could tell you exactly that it's behind us.
But it's not.
And we're going to hopefully get there as quickly as we can, and believe me as soon as we have it behind us, we will tell you.
Okay thanks Jeff.
Yes, I can.
Fremaux Town Center and Ambassador, we don't really report the sales for those, they are large community centers.
And Hamilton Place mall is a tier 1 property, over $400 a square foot I believe by year end.
It was $402 at year end, that's right.
I mean it really cuts both ways because rates are low today, and the debt markets have come back.
The Bonita Lakes was free and clear, but buyers were able to get financing from a regional bank and you know, Fashion had the loan in place.
I can assure you it was a lot of work to get that assumed, and prolonged the transaction.
But given the terms of the loan, it was attractive to that buyer.
And the rate was below 5%, so that was favorable to them.
So I guess the best way we think of it, it cuts both ways.
And some of the properties in our disposition pool have financing, and some don't.
We're going to try to work through with the buyers in both circumstances to make the transactions happen.
Yes I mean it's happened.
It might not be C&BS, but the properties that we've sold, the buyers have been able to get financing.
I don't know what the terms are and what kind of financial guarantees or whatever, financial resources they have to provide, but I don't think it's institutionally driven financing.
But you can ---+ there's still a lot of spread when you look at where the cap rates are and where underlying interest rates are, even if you get some conservative-level financing, it pops returns on equities for these buyers, and they are private buyers, so I think from their point of view it's pretty attractive if they can do that.
Could you repeat your question.
We couldn't hear it completely.
Yes I mean you know, you probably saw the headlines.
Most of it came from organic growth and the top line.
Base rent drove it, percentage rent to some extent.
We had strong top-line growth.
The expense savings were comparatively a lot less compared to the revenue growth.
So only $0.5 million of expense savings and $5.6 million of revenue growth.
So, if you just compare the two, top-line growth drove it, as result of occupancy growth, as well as rental percentage growth that we have.
And all the new leasings that have kicked in.
You know tremendous ---+ H&M (inaudible) (multiple speakers)
No, I think expense line items do vary.
We may have some exposure to higher expenses in the upcoming quarters.
You know, store removal is an item that could impact us, real estate taxes could impact us.
Just those are the variables that we can control.
But to the extent that we have been able to manage the operating expenses, they are pretty much stable now.
You know, like I said earlier, we will be opportunistic in accessing the bond markets.
So today I don't really know that's if the spreads are where we want it to be, so we will continue to look at the bond market and be very selective because we do have the flexibility to access when we want it.
And we do have some secured loans coming up.
But they are great assets.
And we also have flexibility on our lines of credit because we do have over $700 million available.
In addition, if we continue to make asset sales, that will provide us with additional liquidity.
So again, with all the different sources of capital we have, we feel pretty good about making our right choices and driving our cost of capital down.
Thank you.
There was a little something special this quarter.
We had done some financing along with our joint venture partner on Ambassador Town Center and Fremaux Town Center, and there's a financing fee that the management company was able to earn.
So we have about $0.5 million or so plus financing fees.
And then we do have management fees that have gone up because we are managing some third-party business.
So as that continues, we'll hopefully have a good continuation of the management fee income.
But to the extent of these financing fees, that's sort of a one-time item.
I don't really know, maybe around $3 million I guess per quarter.
But it fluctuates.
So ---+
Yes <UNK>.
Good observation.
The tier 1 sales, the malls that I talked about, the energy sensitive and the border markets are in the tier 1.
So that's where we had the biggest impact on the negative side,.
It was offset by some good growth in other areas of the country, which is why we were flat.
And then the tier 2, really just speaks to the stability, the only-game-in-town-nature of most of those properties.
And tier 3, there's some volatility.
Some of the tier 3 is taking out some of the stores that were less productive.
So that helps them and also just a lower base so it's easier to move the needle there.
Well you know if the expenses pick up in the second half due to normal [roll] or something else, I would think that it would moderate.
But I think on a full-year basis around 100% recovery is a good run rate for us.
Thanks <UNK>.
That's correct.
I mean there's a little bit in Q2, but it really kicks in Q3 and Q4.
Well Rich, we've said all along we would balance it between secured and unsecured and be opportunistic.
But we were focused on unsecured in the beginning because we needed to get the secured ratio down.
And we have dramatically bring that secured ratio down to around 30%.
And as we continue to pay off more loans, that will continue to come down.
So we have the flexibility to take opportunity in the marketplace based on the cost of capital on the debt side of course.
And also look at when we can issue the bonds, and be opportunistic about it.
And we now have the flexibility.
We been working very hard to get the unencumbered NOI up around 50% or more, and we continue to make progress on that.
And so, of course it's also making sure that the market is at the right juncture for us to access.
Yes we have seven Seritage in our portfolio, Sears that are owned by Seritage in our portfolio.
And we're talking to them on a regular basis.
They've got actually some interest in a couple of the stores, in terms of taking the half of the Sears that they have the ability to take back.
And we're working with them and whether they do it or we do it together, it's a positive for the center to bring in those new uses and to have the Sears space be more productive.
We've got a great relationship with Ben and his team and I think are very supportive of their strategy.
I don't know Rich.
It's just a combination.
It wasn't just at one property, there were just a few different ones that contributed to it.
And, that's a really healthy market, a lot of 1031s and net lease buyers that are looking for yield.
And the pricing is very attractive so were able to tap into that.
Thank you Rich.
So it's about $2.5 million, a little more than $2.5 million is what the net impact is that we are projecting.
That's for the second half of the year.
Yes, roughly.
Well the Aeros for the most part, Aero and PacSun, they are keeping most of their stores.
Sports Authority, we'll backfill that, Sports Authority is about $1 million on an annual basis, and we'll backfill those pretty quickly because we have deals in place.
And then the Aeros and the PacSuns, those will take six months to a year to backfill them.
There are eight Aeros closing and four PacSuns, so a lot of that impact is just reductions that we negotiate as part of the restructuring through the bankruptcies.
Right.
I mean we're obviously trying to get it.
There's still some retailers out there that their sales are not where they want to be, and we have renewals with them.
They bring us down and on the other hand, we've got some that are doing well.
So our sense is that we'll continue to see some improvement, but it's not going to be dramatic.
Thanks a lot.
Well we started the effort to sell community centers in non-core last fall.
And the pricing has been strong and we got some others that are in the pipeline that we're working on, and I don't see any reason to stop on that.
The execution has been good, the demand is good.
It helps improve our credit metrics and our liquidity, so it's a net positive.
You know, if we look at them and we don't see really the growth in NOI, it's a good time to sell.
And that's really what were taking advantage of.
All right.
I mean, I'd say we're focused on getting through the strategic transformation, the 25 malls, as quickly as we can, to get that behind us and that's the priority.
That's where we made the progress and I think that the results are driven by that focus.
I wouldn't rule out looking at other areas in the spectrum for joint ventures, or other capital, and if we could find an attractive transaction, and it helps us in terms of narrowing the NAV discount and the gap there and improving credit metrics, then that's certainly something we'll always explore.
Because we're really motivated to narrow that discount as much is possible and get our stock trading where it should be.
You mean, which ones are helping us <UNK>.
I'm sorry ---+
I mean still, even though we're doing more restaurants, a lot of those aren't in the lease spreads because they are not comps basis.
Also some of the non-traditional uses, those are larger boxes like a Kings or a Dave & Buster's.
So it's really driven by the retail.
And in some of the categories, like I was talking about Elle brands and Foot Locker and jewelry, athletic shoes, just some of the cosmetics, the eyewear, some of the traditional categories.
I mean the biggest struggles really have been some of the juniors.
And we're working through that, we're reducing our exposure to a lot of those retailers, re-leasing that space.
But otherwise, there's really good results on the re-leasing spreads and sales and good stability in those other categories.
Yes, our TIs are pretty much what they've been the past few quarters on a comparable basis.
Maybe a little bit higher but nothing material.
And yes, gross is consistent with net.
There's nothing really distorting it.
Thanks <UNK>.
Thank you again for your time this morning.
And as you can tell, we are thrilled with our results and looking forward to continuing to have strong results over the next few quarters.
Have a great weekend.
| 2016_CBL |
2017 | BDX | BDX
#Thanks, Vince, and good morning everyone
Like Vince, I'm also pleased by the progress we are making with our integration planning for the Bard acquisition, and the value the combination will create for our customers, patients, and shareholders globally
Moving on to slide 7, I'll review our third quarter revenue and EPS results, which I'll speak to on a currency-neutral basis
Total third quarter revenues of approximately $3 billion dollars grew 2.4% on a comparable basis, which was slightly below our expectations
We estimate that the U.S
dispensing change lowered total company revenue growth by approximately 100 basis points, in line with our previously-communicated expectations
As Vince mentioned, our underlying performance is strong
Accounting for the dispensing change and the timing of items within the year, our third quarter results would have been in the low end of our full-year guidance range of 4.5% to 5%
I'll provide more color on revenue growth in the quarter in a moment, when I take you through the results by segment and geography
Adjusted EPS of $2.46 grew 7.7%
As expected, EPS was impacted by the divestiture of the Respiratory Solutions business, as well as the U.S
Dispensing business model change, which resulted in a combined headwind of approximately 600 basis points to EPS growth
We're very pleased with our performance year-to-date
Revenue growth is strong at 4.5%
Accounting for the approximate 40-basis-point impact from the U.S
dispensing change, we estimate that the revenue growth year-to-date would have been near the high end of our 4.5%-to-5% guidance range
Year-to-date EPS growth of 13.1% reflects our ability to grow over the dilution from the Respiratory divestiture and the U.S
dispensing change
Moving on to slide 8, I'll review our revenue growth by segment on a comparable currency-neutral basis
In the quarter, pricing declined about 20 basis points
BD Medical third quarter revenues increased 1.3%
Revenues in the Medical segment was slightly below our expectations in the quarter
Year-to-date, Medical revenues grew a strong 4.5%, which includes an estimated 50-basis-point headwind from the U.S
Dispensing change
Medication and Procedural Solutions, or MPS, growth was 3.7%, which reflects strength in infusion-related disposables and infection prevention
Growth in MPS in the U.S
was below our expectations, due to the normalization of inventory levels across several major distributors
Revenues in Medication Management Solutions, or MMS, declined 4.2%
We estimate that the U.S
dispensing change lowered MMS revenue growth by approximately 550 basis points
MMS revenue growth was also impacted by strong capital insulations in dispensing in the first half of the fiscal year, as previously communicated
In addition, within our International Infusion business, certain customer orders planned for the third quarter are now expected to occur in the fourth fiscal quarter
On an underlying basis that accounts for these items, we estimate that MMS would have grown in the mid-single digits
We continue to be pleased as we gain momentum in the market in our MMS business
Diabetes Care revenue growth of 2.7% was driven by 4.2% growth in the U.S
and double-digit growth in emerging markets
International growth was impacted by some softness in Europe, primarily in the U.K
, where we are seeing increasing pressure from government payers as part of austerity measures
Pharmaceutical Systems revenues grew 3.9%
Results were impacted by the timing of customer orders that benefited growth in the first quarter
Year-to-date, Pharmaceutical Systems grew 6.1%
BD Life Sciences third quarter revenues grew – increased 4.8%
Growth was driven by strong performance in Biosciences and solid growth in Diagnostic Systems and Preanalytical Systems
Revenues in Diagnostics Systems grew 3.8%
Strength in Core Microbiology was driven by blood culture and IDAST partially offset by the timing of BD Kiestra installations which we expect to occur in the fourth quarter
In addition, we saw strong accelerated growth in our BD MAX molecular platform driven by the recent introduction of new enteric's and women's health assays
Preanalytical Systems growth of 3.9% was driven by strength in wing sets, including the recently-introduced BD UltraTouch
Biosciences revenues grew a strong 7.1%
This reflects continued strength in research reagents driven by our Sirigen dyes and growth from new recently-launched research instruments such as the FACSMelody
Moving on to slide nine I'll walk you through our geographic revenues for the third quarter on a comparable currency-neutral basis
growth was about flat with BD Life Sciences growing at 5.2% and BD Medical declining 1.3%
We estimate the U.S
dispensing change lowered BD Medical U.S
revenue growth by approximately 270 basis points and total company U.S
growth by approximately 200 basis points
Performance in BD Medical in the U.S
reflects growth in the MPS and Diabetes Care units
This growth was offset by the timing and geography of orders in Pharmaceutical Systems and the U.S
dispensing change
Performance in the Medication Management Solution unit also reflects the timing of capital placements that occurred earlier in the fiscal year, revenues in MPS were driven by strength across a wide range of infusion disposables and infection prevention, partially offset by the normalization of inventory levels
BD Life Sciences growth reflects strong performance in Biosciences and Preanalytical Systems
Diagnostics business was driven by strong core Microbiology and BD MAX partially offset by the timing of revenues in some platforms
Revenues in Preanalytical Systems were driven by growth in wing sets and also reflect strong performance across all product platforms
Revenues in our Biosciences business in the U.S
were driven by strength in research reagents and growth from research instruments such as the FACSMelody and the FACSymphony
Moving on to International, revenues grew 4.7%
The Medical segment grew 4.9%
Growth was driven by customer ordering patterns in Pharmaceutical Systems and by performance from infusion-related disposables in the MPS business
Diabetes care revenues reflect strength in emerging markets partially offset by softness in Europe, as previously discussed
Performance in MMS reflects the impact of strong capital insulations in the first half of the fiscal year as well as certain customer orders planned for the third quarter within our infusion business that are now expected to occur in the fourth fiscal quarter
Growth in the Life Sciences segment of 4.4% was driven by performance in Diagnostic Systems and Biosciences
The Diagnostic Systems growth reflects strong sales in Core Microbiology including IDAST where we continue to see demand from the recently-launched Phoenix M50 and strength in BD MAX
Biosciences revenues reflect strong research instrument sales that partially benefited from an easy comparison due to the prior-year funding delays in certain geographies
On slide 10, developed markets revenues grew 0.9% and emerging markets revenues grew 10.9%
We estimate the U.S
dispensing change lowered developed markets revenue growth by approximately 130 basis points
The third quarter growth rate in emerging markets reflects double-digit growth across the Medical segment and also in Diagnostic Systems
By geography, China, greater Asia and EMA grew double-digits and sales in Eastern Europe and Latin America were up high-single digits
China growth for the third quarter was strong at 12%
Revenue growth was driven by continued strong demand for consumables in both segments as well as the Phoenix M50 and MALDI-IDAST instruments and diagnostic systems, and research instruments in Biosciences
For the total year, we continue to expect China to grow in the low double-digit range
With year-to-date growth of 9.1%, we are confident in our high single-digit emerging market growth outlook for the full fiscal year
Now, moving on to Global Safety on slide 11. Currency-neutral sales were flat year-over-year
Tough comparisons to the prior year in both segments and across all geographies were the primary driver of lower Safety growth across the portfolio
By geography, Safety revenues in the U.S
grew 1.5% and international sales declined 2% currency-neutral
Emerging Market Safety revenues were about flat due to a tough comparison to the prior year in which EM Safety grew approximately 20%
By segment, Medical Safety sales declined 2.1% and Life Sciences grew 3.7%
In addition to the tough comparisons to the prior year, U.S
and Medical Safety growth this quarter was impacted by distributor inventory levels in MPS as discussed earlier
International and Medical growth were also impacted by customer orders, planned for the third quarter within our infusion business that are now expected to occur in the fourth fiscal quarter as mentioned previously
Slide 12 recaps the third quarter income statement and highlights our currency-neutral results
As discussed, revenues grew 2.4% in the quarter on a comparable currency-neutral basis, including approximately 100 basis points negative impact from the U.S
dispensing change
As we move down the P&L, I'd like to point out that similar to prior quarters our results in the prior-year period include the Respiratory Solutions business, while the current period does not as the business was divested in October of 2016. Starting with gross profit, the decline of 1.3% year-over-year reflects the loss of gross profit from the Respiratory Solutions business and the U.S
dispensing business model change
On a comparable basis that accounts for these items, gross profit would have grown over 100 basis points faster than revenue growth
I'll provide additional details on gross profit in just a moment
SSG&A as a percentage of revenues was 23.7%, and we are very pleased with the leverage we are getting year-to-date
R&D as a percentage of revenues was 6.1% as we continue to invest in innovation to drive future growth
The decline in R&D spending year-over-year is due to the divestiture of Respiratory Solutions business, as well as the comparison to prior year where we ramped R&D spend in the third quarter as a result of the medical device tax suspension
Our tax rate declined to 16.5% in the quarter, which is in line with our full-year guidance
In the quarter, operating income was flat and adjusted earnings per share grew 7.7% compared to the prior year
Both operating income and EPS include 600 basis points of negative impact from the Respiratory Solutions divestiture and the U.S
dispensing change
Now, turning to slide 13 and our gross profit and operating margins for the third quarter
On a performance basis, gross profit margin improved by 150 basis points as continuous improvement initiatives, cost synergies and favorable mix, which includes the positive impact of divestitures, were partially offset by a slight decline in pricing
On an operating margin basis, we delivered 100 basis points of margin expansion
Year-to-date, we have achieved approximately 160 basis points of underlying margin expansion
We expect the fourth quarter margin performance to significantly improve, largely driven by the comparison to the high level of R&D spend in the prior year
We remain confident in our ability to drive 200 to 225 basis points of margin expansion for fiscal year 2017. Moving on to slide 15 and our full fiscal year 2017 EPS guidance
We are particularly pleased that the strength of our performance year-to-date is driving our ability to offset headwinds from the Respiratory Solutions divestiture, the U.S
dispensing change, and FX pressure
As a result, we are reaffirming our full-year fiscal 2017 currency-neutral adjusted EPS guidance of $9.70 to $9.80, which represents underlying growth of 15% to 17% and a 2% to 3% headwind from the U.S
dispensing change
As you're aware, foreign exchange rates have moved since we last provided guidance in May, and the foreign currency headwind has moderated slightly with one quarter to go
As such, we are raising our adjusted EPS guidance to $9.42 to $9.47. Our guidance assumes a euro-to-dollar exchange rate of $1.15. Turning to slide 16, I'd like to walk through the balance of our guidance expectations for the full fiscal year 2017. As we discussed, there are a number of puts and takes within the year, but our underlying performance is strong
<UNK>spite a headwind of approximately 50 basis points from the U.S
dispensing change, we continue to expect total company revenue growth of 4.5% to 5% on a comparable currency-neutral basis
This was comprised of growth of 4.5% to 5% in BD Medical and 4% to 5% in Life Sciences
Based on our current view of the environment, we continue to expect a small amount of pricing pressure for the year
All other P&L guidance from May remains unchanged
Now I'd like to turn the call back over to Vince, who will provide you with an update on our key initiatives and product portfolio
Sure, Mike, be happy to do that
So, if you think about the 2.4%, the underlying growth is 4.5%, and the way to get there is about 100 basis points related to the U.S
dispensing business we had articulated on the last call
Then we had timing factors
If you think about the first half of this year, we were running 5.6% year-to-date, and so we said that wasn't indicative
There was a lot of timing in there, and what was in there, particularly was, in MMS, they had a very strong first half, and so did Pharm Systems
Pharm systems grew over 7% in the first half, and we knew that is a lumpy business
Then on top of that, we saw some timing this quarter
In MMS International, we saw some orders that we expected to see in the third quarter that we now expect to see in the fourth quarter
And there was some Kiestra installations that moved from the third quarter to the fourth quarter
So when you normalize for all those items, you get to the 4.5% underlying growth
Now we did say we saw some softness in MPS related to normalization of inventory levels and a little bit of softness in Diabetes care in the U.K
But if you added those back, that would have brought us more to the 5% kind of level in the quarter
So that's where we saw a little bit of softness, going from 5% down to 4.5%
Sure
So, since we're at 4.5% year-to-date through the third quarter, we're implying in the 4.5% kind of range for the fourth quarter, and we do think that the inventory levels was a one-time adjustment within the third quarter, so we don't expect to see any hangover from that in the fourth quarter
We do see emerging market strength across the board
If you look at what we did in emerging markets this quarter, 9% year-to-date, 11% in the quarter, that's the best quarter in two years
China grew 12%, 11% year-to-date
So we're seeing – emerging market growth is very strong, so we see that continuing
Life Sciences, we see strength across (31:26 – 31:31) quarter bounce back
Until (31:33) we see strength in the fourth quarter, we see Diabetes Care rebounding, primarily driven by the U.S
, as we do think that the U.K
pressure will continue
MMS has the International Q3/Q4 timing, so we'll get a little benefit from that
MPS will actually have a tough compare in the fourth quarter, but we already had that baked in to our guidance
So that's how we get to a good solid fourth quarter, and to the 4.5% to 5% for the year
So that's why, as we said at the second quarter, we felt we were at the high end of our guidance range, and the pressure from the dispensing brought us down to the lower end of our – but still within our guidance range
So, as you said, when we gave guidance the last time, we were at $1.07. We use the 30-day running average, as you know, so that would be $1.15. Today, we are sitting at $1.18. So the $0.08 between the $1.07 and $1.15, if you think back to the rule of thumb that we've given in the past, 1 point of euro move is worth about $0.02. So the $0.08 move is worth about $0.16 cents for a full year, but we just have one quarter to go
And, really, where you saw the move was in the month of July, so it's truly an impact of just one quarter
So that'd be about $0.04 for the quarter
Then when you look at all other FX currencies, we actually are still seeing pressure from the pound, the yen, and the yuan, which really haven't moved at all in the past quarter, and so we still see pressures
All other currencies, there's about $0.01 of benefit since May, and so that's the $0.01 there and $0.04, so we see about $0.05 running through, and that's how much we increased the guidance by
In terms of your comment around next year, we use the 30-day average because the volatility in FX has been dramatic over the last year or so, and we like the direction it's going
So if it stays at $1.18, we certainly will see a benefit
The average for this year, if it holds at $1.18 for the rest of the year, the average for this year will be about $1.10. So $1.18 for full next year would be about $0.08. If you use the rule of thumb, that's about $0.16 of benefit
And then, you would expect to see a little bit of benefit from all other foreign currencies, where there was a little bit of pressure this year
So that's a way to think about next year, if things hold at $1.18, and we hope they do
So, <UNK>, as we said, the impact of the dispensing change would bring us from the high end of our guidance range of 4.5% to 5% for the year, down to the low end
So year-to-date, we're at 4.5%
So what that really implies for the fourth quarter is 4.5%
We do have some timing within the third and the fourth quarter, as I mentioned
The MMS International orders have slipped
We got some Kiestra installations that slip into the fourth quarter
So the combination of those things give us the confidence, and we see good strength across the rest of the business
The core is strong
Emerging markets growth, as I said, is looking very good, and Life Sciences is looking solid as well
So we feel good about the fourth quarter
I should just add, too, that as we preliminarily look at the work on cost synergies, we feel real good about the $300 million of cost synergies that we articulated and we also feel equally as confident in having revenue synergies that are measurable in fiscal year 2019. So we're really reaffirming everything we said at the time of the transaction that we feel good about the cost synergies, the revenue synergies and the potential for those
So we've made good headway in the last couple of months on those issues
And certainly Pharm Systems year-to-date is 6.1% growth so we feel good about that, so
So let me take the cost synergies
As you remember, we talked about those being relatively ratable over the three-year period, and that's what's playing out
So through 2016, we had about $170 million
We run about $80 million more per year on top of that
So that's what you would expect by the end of this year, and then the balance to the $325 million to $350 million would be in 2018. So that's pretty much on track, and you can see the benefit of that as we look at the margin growth
As we talked about in our prepared remarks, we expect this year to drive 200 basis points to 225 basis points of operating margin improvement
That brings us to over 500 basis points of margin improvement in the last three years through 2017. And then, as you think about it, we're talking about the Bard transaction driving an average of 200 basis points over the next three years
That's a lot of basis points of operating margin improvement over a five-to-six-year period
So we feel real good about that, and that's what we're seeing
The first part of that is driven by the CareFusion synergies
And I also mentioned in the prepared remarks the UltraTouch showed some benefit this quarter
So, as we mentioned before, if you really peel back the on the underlying performance for the year, year-to-date we're 4.5%, but that's in the face of significant headwinds from this U.S
dispensing change that we had of about 50 basis points
That puts you right at the 5% level, so we feel really good about that
Clearly, the headline is depressed by the dispensing model
We knew that was the risk
We tried to communicate that, that that would be a pressure in the second half of this year
You're going to see that same kind of pressure year-over-year in the first half of next year
And that's to be expected
It's the right thing to do
It positions us extremely well competitively in that business
And it actually helps us better focus on our customers and their needs
So, we're doing it for all the right reasons, but it clearly is going to depress the headline
We also knew that the timing was going to be a headwind in the second half of the year, because of the fact that we were running so hot in the first half of the year, 5.6%
So that had an impact as well
So, as I said earlier, the underlying for the quarter was 4.5%
It would have been 5%, except for the little bit of pressure we saw in MPS in normalization of inventories in the diabetes piece
So that would have been a strong 5% in the quarter as well
As we look out into the fourth quarter, we're very confident by a number of things that we see; the timing coming back to us a little bit on some of the things that moved from the third to the fourth quarter, but the strength of the core business is the most important
And look at the emerging market growth; that's the strongest it's been in a couple of years
We really feel good about that
The rest of the business is solid
So we really feel good about that as well, so it really hasn't changed from what we were talking about, in terms of the momentum of the business and the underlying business, when we talked at Analyst Day
And then, going forward into next year, we feel that same strength continuing again, albeit with the pressure of the headwinds of the dispensing change in the first half of the year
But for the full-year, that will normalize, because it'll be six months versus six months this year
So on the top line, we feel very good about the momentum that we have
And then, the ability to take that up to the 5%-to-6% level with the Bard transaction as that occurs
So, from a top-line basis, we're feeling like the momentum is there
And then, we haven't really talked about the EPS line, but when you look at that chart 15, we're driving 15% to 17% underlying EPS, FX and growth, and that's overcoming the Respiratory dilution of about 1.5%
That's really strong growth
Then you got the headwinds from the dispensing change that we have, which is real
That $60 million dollars of revenue that drops to the bottom line, there's some cost related to that as well
We're overcoming that
We're overcoming the headwinds that we saw in FX this year, which, although it's abated a little bit, that's still 3.5% of headwinds from year-over-year FX pressure
Hopefully, that turns around next year
So from a bottom line, we're feeling really good going forward as well
So, hopefully that addressed your question
Well, let me see if I can get some of those questions
I think your timing is about right in terms of Q3 to Q4; that feels about right
And we feel good about the ability to hit the 200 basis points to 225 basis points of margin improvement, you mentioned abnormal
The only thing abnormal is that we are driving 200 basis points to 225 basis points of margin improvement this year, and 500 basis points over the last 3 years
So, we feel really good about that
There is say a little bit of easier compare in the fourth-quarter as I think I mentioned, because R&D ramped so much in the fourth-quarter of last year as a result of the medical device tax repeal
And so that makes it a little bit easier
The operating margins this quarter are a little misleading because of the fact that Respiratory really had an impact in there
When you peel back the Respiratory piece, you see really good margin growth
The gross profit margin in the quarter was 100 basis points faster than revenue growth
And both OIBT and EPS were very strong in the quarter when you back out the overhang from respiratory
So feel real good about that
I have nothing to add
The year-to-date is 9.1%
That is a very high-single digits, and the momentum continues
And as I mentioned earlier, it was our best performance in two years in emerging markets
So we feel good about the momentum there
So there was about 20 bps of pressure in the quarter
Year-to-date, it's about 20 bps in total after the first quarter being flat, and the second quarter, actually, was down about 30 bps, so it's actually moderated a little bit from that
That's the kind of plus and minus we have seen for a while now, is 20 bps to 30 bps, up, flat, down, somewhere in that range
We did mention that we are seeing pricing pressure in the U.K in diabetes care from the austerity measures and the government payers
So that's continued, but pretty much in that range | 2017_BDX |
2017 | POOL | POOL
#All right.
Thank you.
Good morning, everyone.
And welcome to our first quarter 2017 earnings call.
I'd like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2017 and future periods.
Actual results may differ materially from those discussed today.
Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our 10-K.
In addition, we may make references to non-GAAP financial measures in our comments, a description of reconciliation of our non-GAAP financial measures is posted to our corporate website in our Investor Re<UNK>tions section.
Now I'll turn the call over to our President and CEO, <UNK>y <UNK> de <UNK> <UNK>.
Thank you, <UNK>, and good morning to everyone on the call.
Our challenge this first quarter was to surpass the extraordinary first quarter that we had <UNK>st year, and we accomplished that.
In fact, we realized 5% base business sales growth on top of <UNK>st year's 13% growth without the same weather benefit.
In addition, we continued to make investments in our business as we continued to build for the future.
And yet, we were still able to realize growth in our base business operating profit.
Altogether, a strong first quarter as we solidify our foundation as a value-added distributor.
Our base business sales growth in our <UNK>rge ---+ <UNK>rgest 4 markets: California, Florida, Texas, Arizona was 6%, while the growth in the rest of the markets was 3% as these markets were the primary beneficiaries of the mild winter <UNK>st year.
These base business sales results include our green business, which had a modest base business sales decrease in the quarter.
Although, their sales were up when including the acquisition that we closed in April 2016.
On the product side of sales, building materials and re<UNK>ted outdoor living products continued its strong performance with 14% growth, while commercial had 12% growth.
Pool equipment growth was 8%, despite the challenging comparable from <UNK>st year.
The growth in these product categories reflect both the ongoing recovery in the remodel and rep<UNK>cement sectors of our business as well as our consistent market share gains.
The retail product side of our business increased by 4% in the quarter, as the installed base of pools grew by 1%, with virtually no inf<UNK>tion and our performance reflecting market share gains.
Our gross margins were modestly up due to minor product and customer mix differences.
These differences in mix should <UNK>rgely work themselves out as we proceed throughout the year.
While our base business operating margins reflect a modest decline, that's <UNK>rgely due to both the extraordinary first quarter of 2016 and certain expense timing differences, for the year, we expect operating margins as well as our ROIC to increase.
We increased our annual guidance by $0.12 to $4.12 to $4.32 per share, reflecting both an increase in our estimated benefit from the new ASU from $0.20 to $0.30 per share and an increase of $0.02 in our diluted EPS using 2016 GAAP based on our first quarter results.
We are cognizant that we are just now entering the seasonally busiest time of the year, which is when our service level and value proposition are most distinctive as we work to help our customers succeed.
Of course, these results are only possible because of the commitment of our people throughout the company to our customers, our suppliers and each other.
We are extremely fortunate to be involved in a business where every day we help people realize their dreams of a better home life, while simultaneously assisting over 100,000 customers realize success.
We look forward to making 2017 another successful year as we continue to create exceptional value.
Now I'll turn the call over to <UNK> for his financial commentary.
Thank you, <UNK>y.
I'll start off by commenting on our base business operating expenses in the quarter, which were 7% higher than Q1 2016 and didn't provide the kind of operating leverage that you might be used to seeing.
There's a couple of reasons for that.
First, while we had a tough comp overall for the quarter, this was particu<UNK>rly true for our operating expenses given that base business expenses were up just 3% on 13% sales growth in the first quarter of 2016.
Looking at the 2-year growth rate on sales and expenses provides a better view of how expenses have been managed as well as the leverage we have.
Without going into details here, there were also some timing issues on expense recognition, which contributed to the high growth rate this year.
One factor of note is our employee-re<UNK>ted costs, which accounted for 58% of our total operating expenses in the quarter and are primarily driven by headcount.
Our total base business headcount was up less than 2% at March 31, 2017, compared to the prior year period, so no issues here.
The bottom line on expenses is that our Q1 expense growth rate does not cause us concern in meeting our projections for the year.
Next up for discussion is our tax expenses, which excluding the ASU adoption were in line with our previously stated guidance of 38.5% for the year.
The higher-than-expected positive impact from adoption of the new accounting standard was due to the higher than forecasted stock price in the quarter on invested equity and restricted stock as well as the acceleration of pull-forward of option exercises in the quarter from what we had forecasted.
This pull-forward of exercises <UNK>rgely came from exercises that we would have expected to take p<UNK>ce over the remainder of the year.
As we look out at the rest of the year and knowing that the higher stock price has a positive impact on our ASU-adjusted tax expense, while the pull-forward will reduce the benefit and <UNK>rgely offset the impact of the higher stock price, we are leaving intact our forecasted ASU tax benefit of $0.18 per diluted share per quarters 2 through 4 that I communicated on the February call.
As previously stated, we will continue to be very transparent about the impact from this accounting change as we report our quarterly results, and we'll be excluding this when evaluating management performance for compensation purposes.
Turning to our ba<UNK>nce sheet and the 2 major components of our working capital, receivables and inventory, you can see that net receivables increased 2% year-over-year, which was in line with our sales growth.
Our net inventories grew $52 million or 9% year-over-year, $51 million of which was for our domestic blue business.
90% of that increase was for new products and our highest velocity items or what we internally categorize as c<UNK>sses 0 through 4 items, which is out of 14 c<UNK>sses of inventory we carry.
So we have no concerns about carrying too much inventory into our peak selling season.
Looking at our statement of cash flow.
Let me first point out how the tax accounting changes impact the statement, which essentially moves the benefit of excess tax deductions we historically reported as a financing activity clubbed into the operating activity section of the cash flow statement.
As the benefit is recorded in our reported tax expense and net income and is, therefore, now included in operating activities, this increased our operating cash flow by $5.5 million over what would have been reported under the old accounting guidance.
One more item to point out in our statement of cash flow is our $19 million purchase of property, p<UNK>nt and equipment in the quarter, which is up nearly $6 million from Q1 <UNK>st year.
The increase is primarily re<UNK>ted to timing of delivery vehicle purchases, which were put in service before the season this year and also resulted in additional depreciation expense in the quarter.
Overall for the year, we expect our capital expenditures to be plus or minus $40 million or about 1.5% of revenue.
Finally, you will note we did not repurchase any shares on the open market in the quarter, although we do expect to repurchase 100 million to 150 million of shares for the year.
We ended the quarter with a very comfortable leverage level of 1.59, which is calcu<UNK>ted on a basis of debt to trailing 12 months EBITDA.
At this point, I'll turn the call back over to our operator to begin our question-and-answer session.
Well, we don't have it cut quite that way, but the blue business, basically it's a rounding error from a number standpoint.
So the blue business was just over 5% overall base business and the green business was modestly down.
And given the weighting, the green business is about 9% of the total, it just ---+ it still hovers around the same.
And the green business was affected primarily by the much higher levels of rainfall that took p<UNK>ce in the western part of the country, which is where our green business is concentrated.
Yes, the year-round markets were a shade stronger than the overall as indicated in my comments, up 6%, whereas the seasonal markets were up 3%.
And the reason that they were up a smaller amount was logically is that it was in the seasonal markets where we had the toughest comps.
Yes, what basically happened just to give you a little color.
Last year was an exceptionally mild winter.
So we basically got just about all our early buys out and shipped by the end of the quarter.
This year, for those of you in the northern states, you realized a little bit of cold snap in the middle to <UNK>tter part of the month.
So that de<UNK>yed some of the shipments and that basically have already taken p<UNK>ce in April, but there was about ---+ it impacted us about 2%, about $10 million have shifted from <UNK>st year, where we shipped it in March, this year we shipped it in April.
Okay.
Well, 2 parts.
The <UNK>tter part I really can't answer, we don't have that quantified quite like you ask for.
But in terms of when you look at our categories, our building materials and re<UNK>ted outdoor living products were up 14% overall for the quarter.
And that level of strong growth rate includes just like you described a fair amount of just market share gains on the same items that we were selling a year ago, but also include our continual rollout of adjacent complementary product categories.
And that's something that has very long legs to it for the future.
In terms of order of magnitude, those typical categories don't amount too much from an overall company standpoint in the first 2 or 3 years.
But certainly, over time, they continue to build progressively more and more traction.
And as you know, the whole category of building materials and outdoor living products is north of 12% of our business overall.
And perhaps to answer your question, if you look back, let's say, to 2011 time frame, it was less than half of that in terms of share recovery.
So it's adding certainly collectively at least 1% a year to our growth rate ---+ sales growth rate.
As long as people have houses and want to spend money on outdoor living space, and that's obviously a big deal in the Sun Belt, that is long legs for the next 20, 30 years.
Last year, we had 6%.
That was a very solid number.
For the year, our expectations are 5% to 7%.
So put it this way.
Is 7% possible.
Certainly, but I would say 6% is much more realistic.
When you look at the year, for us to have, on a base business level contribution margins of 15%, that's a reasonable expectation for the year.
Obviously, that didn't materialize in the first quarter, but some timing things that will get back over the course of the year.
So I think, 15% contribution margins for the year are reasonable.
And obviously, that means that given the weighting of our business in the second and third quarter, it's going to be 15%, 17% in the second and third quarters.
Well, not necessarily, I think if you read their recent S1, they noted that they were also down in the first quarter in base business sales.
So they didn't report a number, but I suspect it's simi<UNK>r to ours.
So the bottom line is that weather was not as favorable in the first quarter, that business is ---+ in our case, the weather sensitivity is weighted towards the West Coast given our presence being in the West Coast, heavily weighted towards West Coast.
And so everything is fine, moving right along.
We expect, obviously, as we proceed through the year for the comps to be positive and that business to continue growing both top line and certainly bottom line.
Yes, well, I'd say it is a little more challenging for the first half given that we're half way through the first half.
But for the year that is certainly still the target.
Whether we're on that or outside of that a little bit, I think that our expectation is we'll be close to that in the year.
No, no.
Yes, I had gone through that in the year-end call in terms of how I thought that broke out by quarter.
Obviously, first quarter, the difference was significant, but my comment on the $0.18 re<UNK>tes not only to the total, but also to how it breaks out by quarter.
And I'd have to go back and look, but it's generally smaller benefit in the second quarter and third quarter and the bigger benefit in the fourth quarter.
Yes, <UNK>.
If you look at rep<UNK>cement and remodeling activity, that's been strong since ---+ and recovering since 2011.
And obviously, when you look at our building materials growth rate over the course of time and our equipment growth rate over the course of time, those <UNK>st 6 years has been certainly very strong.
New construction is, in fact, recovering.
There is more ---+ appears to be more consumer band at present than perhaps we've seen in the <UNK>st 2 or 3 years.
So that's strong.
I will caution though that how much that can grow is limited, because of a <UNK>bor capacity issue.
Not to say that it's not going to grow, but it's not going to grow from 65,000 in-ground pools to 100, even though that may be the demands.
And I'm not saying that it is that the hundred is a demand this year, but certainly, the demand is stronger and, certainly, it's going to grow, but how much it grows is going to be in part limited by <UNK>bor avai<UNK>bility.
Sure.
I am ---+ I think confident in what we're going to be doing in the second quarter.
And as I mentioned just a touch ago, one of the issues we are having and this is not unique to our space, but at certain times of the year and given that our business is seasonal and the second quarter is the biggest quarter of the year, there is essentially a capacity limit on the part of our customers.
As you and all on the call know, what we sell to our customers is for them <UNK>rgely to utilize as they do what they do.
So they are selling their time and their talent.
They are using the materials and supplies that we provide to them to provide at the end of the day a customer experience.
So therefore, our growth from an industry standpoint is limited by our customer's ability to grow and add capacity and <UNK>bor is a constraint in and some of the more <UNK>bor-intensive services that they provide.
So therefore, my reference to 6% earlier in response to <UNK>'s question is more along the lines of how much share can we grow and how much is the industry overall capacity growth.
If it were more like the retail side of our business, that is not as <UNK>bor constricted, then perhaps it would be higher than 6%, but since the lines of our business is, in fact, <UNK>bor constricted, I think 6% is a very reasonable number.
Yes.
Sure.
Pete's been on board now 3.5 months.
And during that time, he has, I think, visited around 50 of our sales centers throughout the company, primarily ---+ entirely in the U.S. He is actively participating in every decision of any consequence in the company.
And he is actively involved, meeting not only our people and looking at operations and providing input into how we can get better, but also meeting with our more strategic vendors as well as a number of customers.
So he is out and about and contributing to our business to help us get better, faster.
Well, <UNK>, I would say, yes.
We would certainly have leveraged, but maybe not to the historic degree, because timing had to do with both how expenses were recorded <UNK>st year as well as this year.
And then, we had some acceleration of expenses leading into the second quarter.
So as we're preparing for the peak season, we got a head start in some areas to make sure that all the infrastructure was in p<UNK>ce and ready to go.
So I think that contributed to a little bit higher expense load just from a first quarter standpoint.
So if that helps you there.
Sure.
There is no one silver bullet.
And our process there is we're constantly evaluating different product categories that enhance the entire outdoor living space.
And we bring those in typically in 1 or 2 regions of the country, gauge customer and ultimately, consumer reaction.
And then based on what we see, then we begin to roll out in adjacent markets gradually over the course of time.
So ---+ but there is no one silver bullet.
There is no $100 million product category or anything like that, that we see as one.
We ---+ but there are a number of other product categories that gradually over time will gain more and more traction and continue to add to our overall business growth.
One of the other references there is appreciating the fact that our focus is our customer base and the highest point of leverage is to sell more to our customer base and while we ---+ as we gain traction in doing that, certainly our product avai<UNK>bility may enable us to sell those same products to other adjacent customers.
That's a tougher sale process and doesn't have the same overall leverage.
So again, it's both an opportunity, but also a limitation is our focus being selling more through the same channel.
Sure.
If you look at it in perspective, there are approximately 335,000 commercial in-ground pools in the United States.
The great majority of those pools are in the HMAC sector; hotel, apartment, condominium sector, so ---+ and then you have competition pools and then you have water parks.
When you look at that space <UNK>st year, our sales in that space were close to $100 million, which would round up to 4% of our total business.
And those are ---+ specifically the way we captured is products that are primarily sold to the commercial space.
So our actual sales in the commercial space is greater than that, because there are some products that are, for example, a lot of our chemicals are many of the same chemicals that are also sold to the residential sector.
So we don't capture that as commercial since most of the volume goes residential, so the bottom line is that when you look at that and our share of that business, we should be growing that at a double-digit rate for a number of years going forward as we continue to further our presence from an inventory standpoint and regionally throughout the country, as we continue to add talent on the sales side to be more of a resource to the customers in that space.
And frankly, also as we build our portfolio of products that we sell here to the commercial customer base.
<UNK>, I just wanted to c<UNK>rify to get out some more color to this expense question.
The ramp and support cost for the peak selling season, is that what are your referencing there.
Well, I made 1 reference already, which was trucks.
So we had ---+ just seeing our CapEx, we had a high CapEx for the first quarter and about half of what we'd expect to spend for the year.
So there is depreciation expense on that and that is really in anticipation of having the right equipments in our locations as they gear up for the season.
So that's really the type of thing I'm talking about, just a timing issue as well as preparing for the season ahead.
Right.
So it's the D&A piece that I wasn't picking up, that's in that channel line category.
Okay, the other question I have is, and then maybe this is a little bit broader question and maybe it's a trend, but nothing to worry about.
But it seems like the freight expense, maybe some growth-driven <UNK>bor, I don't know if that's the phrase you use, but is the mix of business causing a little bit more demand from customers for you to be shipping product, therefore higher freight cost or what's ---+ is there anything to decipher out of that ---+ those comments.
Two parts.
Certainly, on the freight side, we have been p<UNK>ying catch-up in the <UNK>st few years as we entered the season getting our fleet squared away.
And this year or <UNK>st year, we made the decision to order those delivery vehicles earlier, which is what <UNK> referenced a minute ago.
Part 2 is fuel costs are marginally higher than <UNK>st year, but when you get to the essence of your question, which is mix, there isn't anything significant from a mix standpoint in terms of delivery versus pickup that we've seen so far this year and don't anticipate anything significant from a delivery standpoint ---+ delivery versus pickup mix to take p<UNK>ce for the year.
Okay.
And then a follow-up to a question earlier on the green business.
In my observations, it appears you are proceeding strategically, but also cautiously.
Is that fair or is it a function of just not seeing the right business opportunities out there to further expand that business, whether that be geographically to the East Coast or less reliance on the West Coast.
Sure.
First of all, given our overall business, we have a high filter from a return standpoint, much higher filter than most companies and as evidenced by our own ROIC after-tax being over 20% and not that we are adverse, because we do every day, make investments where on a short-term basis dilute ROI<UNK>
We got to look at ultimately that they're going to have the right level of ROIC to make sense on overall company enterprise evaluation standpoint.
So switching over to our irrigation business, in our irrigation business, we're very focused on certain product categories and certain customer segments as well as some certain geographies that we believe have the opportunity to realize the same or very simi<UNK>r ROICs and organic growth rates over time, as the swimming pool business does.
And to that end, yes, we are not geographically going after every nook and cranny in the country nor we interested in ---+ so much in certain product categories, for example, the perishable side, which have different distribution dynamics.
Those are good businesses, but not good compared to ---+ not as good as the ---+ or don't meet our filter test.
So circling back, we're also cognizant of how we do things, and while our focus is very much Sun Belt oriented in the irrigation space, we continue to have dialogue, but again, we're not going to just do deals to do deals, we're going to do deals that make sense, not just for the short-term to drive EPS, because that's a very, very low hurdle.
We're looking at driving long and concerned about long-term organic growth.
We're concerned about long-term return on invested capital.
And that's the filters that we have in p<UNK>ce.
We did do a good size regional ---+ we did make an acquisition of a good-sized regional distributor in the irrigation space in the April of <UNK>st year and they, in fact, met their profit objectives for the rest of 2016 and continuing to positively contribute in the first quarter of '17.
So that business is good, and we continue to look for opportunities like that throughout the Sun Belt.
Right.
And just a c<UNK>rification, <UNK>y, it's very helpful.
Given the broader governmental policy and potential lower tax rates, does that open up more opportunities for sellers, because of their ability to have maybe a higher reinvestment rate.
Or is the nature of the candidates that come through the filter or get to the filter line, are those maybe because of broader events like death, divorce, et cetera.
Yes.
No, there is a number of factors that motivate a business owner to exit.
The more common one over time is age, but other factors also p<UNK>y in.
And certainly, when there is a tax change, and I remember when taxes were going to be going up years ago, that certainly was a motivation for people to act.
So yes, taxes, age, other events and business owner's lives, those are all factors.
And we as a practice, do not buy businesses unless the owners want to sell.
And that's an important distinction in the whole process.
It adds up to a good number.
Okay.
2 parts.
First, on the basic maintenance and repair, right.
The pools are there, they're going to consume, that's it.
On the discretionary part and discretionary part comes rep<UNK>cement, remodeling and the most discretionary being new construction.
I put them in that order, because from a <UNK>bor standpoint, that's how it is, in other words, tying into the product that we sell.
So to rep<UNK>ce a heater or a pump, it takes a fair amount of time and you tie that time to the products that we sell, and the products that we sell may represent depending on the product, 30% to 60% of the cost of that activity.
When you get to remodeling, more <UNK>bor-intensive proportionately and the cost of materials that we provide there represent a smaller percentage of the total bill to that consumer.
And then when you get to new construction, that's obviously the much ---+ the most comprehensive and the most <UNK>bor-intensive overall since you're building the foundation ---+ foundational structure of the pool and not just dealing with the surface.
So in that case, the percentage of materials that we sell is even less.
So when you look at all those pieces, I see ---+ we see the dynamics that you are identifying being very positive for the industry.
We have not yet seen the financing elements come into p<UNK>y as it was back in the 1980s and 1990s where people could borrow 80% against the value of their home.
That has not been really in p<UNK>y just yet.
But certainly, the native demands is there, the desire is there.
But there is only so much capacity from a <UNK>bor standpoint.
And therefore, I don't see any constraints whatsoever in basic maintenance and repair.
I see very little constraint on the equipment rep<UNK>cement side.
I see some constraint on the remodeling side.
And the greatest constraint is on the new pool side, which is the one that is the most <UNK>bor-intensive.
And again, the constraint is not a negative, it's a constraint on how much it can grow.
It didn't really impact the blue business for the quarter.
It impacted it in January and February, but March was a big recovery month.
And part of the answer there is that, as you mentioned, California is a very <UNK>rge market and is a significant installed base of pools.
So therefore, while it may have constrained the construction side, which is what is most impeded by rain, it didn't ---+ the basic maintenance, the basic repairs and a <UNK>rge part of the remodeling ---+ rep<UNK>cement took p<UNK>ce in the normal course.
So we didn't ---+ our customers did not lose as many days there as they did on the construction side, which is where the green is weighted.
That is correct.
Thank you, Anita, and thank you all for listening to our call.
Our next conference call is scheduled for July 28, mark it on your calendars, when we will discuss our second quarter 2017 results.
Thank you very much, and have a great day.
| 2017_POOL |
2016 | CATY | CATY
#Hello, <UNK>.
Yes, <UNK>, we think that 25 basis points probably added only $1 million to our net interest income in the first quarter.
That's according to our models.
The good news is that, there's a lot of moving parts.
We have not increased our deposit rates at all since the Fed increase.
But we continue to see some pricing pressure as our higher rate CRE loans and residential mortgage loans mature.
The new loans are maybe 25 basis points less than the ones that are maturing, so in the second quarter, we would expect the margin to drop by four or five basis points if the interest, because the interest recoveries were outsized.
And the interest recovering in the first quarter, that is related to that same recovery that I was ---+ the B note that was charged off as well as interest applied to principle.
So anyway, the second quarter of the margin should be lower.
There is the day count issue because February was still a short month.
So it's going to be less than 340 but hopefully not by much.
And then we are trying to run a more efficient, more compact balance sheet so we will try to keep the loan to deposit ratio, net loan to deposit ratio right at 100%.
Hello, Juliana.
I think it's going to be, I would say, I wouldn't say longer, but I would say in a steady and planned basis.
What Mr.
Wu is looking for obviously is to help with the commercial lending area and then there are several lines of business that we are contemplating, but want to make sure that we want to do it a public due diligence before we engage to it.
But at this point in time, we are pretty optimistic that Mr.
Wu would be able to help us in many areas.
We have identified two areas that we want to participate.
And we are in the process of planning.
It takes a little bit time, but nowadays what you want to do in new areas is that you want to prepare the policy statement and then go through the risk committee, I guess filtering, and then go through the process.
It's going to take a little bit of time, obviously.
We probably will see the impact in the late second and third quarter.
Again, depending on how soon we get everybody on board, but there are areas in syndications that we will take a close look at, but Kelly is a commercial and ABO lender and we have existing groups in commercial lending and in CBO lending that he will be able to make an immediate impact.
Yes.
That's part of our plan.
This is <UNK> <UNK>, we probably would do something again in August which is when we started our, which is when we resumed our buyback.
I think based on the work so far in defense, we don't think that defast results are going to be much different than the prior year, in our public disclosures.
So, we also look at our stock price too, so we would rather be patient than to get ahead of ourselves.
Well, congratulations or good luck in your retirement.
We will miss your questions.
You always have a lot to say.
Please stay in touch.
Thank you for joining us for this call and we look forward to talking with you again at our next quarter's earnings release.
Thank you.
| 2016_CATY |
2017 | ECL | ECL
#Thank you
Hello, everyone, and welcome to Ecolab's third quarter conference call
With me today is Doug <UNK>, Ecolab's Chairman and CEO; and <UNK> <UNK>, 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, Ecolab's underlying sales and profit fundamentals continued to improve through the third quarter and we are building momentum as we finish 2017. Continued pricing and new business gains drove third quarter acquisition-adjusted fixed currency sales growth in all our business segments despite the unfavorable impact of hurricanes in North America
The sales gains along with product innovation and ongoing cost efficiency work more than offset higher delivered product costs
These along with our work to lower interest expense and our tax rate as well as fewer shares outstanding yielded the third quarter 7% 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 item from both years, third quarter 2017 adjusted diluted earnings per share were $1.37. Hurricane related impacts on sales and costs were estimated to be a negative $0.04 per share in the third quarter, representing a 3 percentage point reduction in our EPS growth
Consolidated acquisition-adjusted fixed currency sales rose for all of our business segments
Europe and Asia Pacific led the regional growth
Absent the impact of the hurricanes, acquisition-adjusted fixed currency operating margin declined an estimated 20 basis points as price and volume increases were more than offset by the margin impact of higher delivered product costs in the quarter
Absent the impact of the hurricanes, acquisition-adjusted fixed currency operating income is estimated to have increased 3%
The operating income gain along with lower interest expense, a lower tax rate, and fewer shares outstanding yielded a 7% increase in third quarter 2017 adjusted diluted earnings per share
We continue to aggressively work to drive our growth, winning new business through our innovative new products and sales and service expertise, as well is driving pricing and cost efficiencies to grow our top and bottom lines at improved rates
We also continue to see underlying sales volume and pricing improve across most of our business segments and look for that to more than offset continued delivered product cost headwinds and yield stronger operating income growth
We expect fourth quarter fixed currency sales to rise in the 5% to 6% range with net income increasing more than 10% as improved sales momentum and stronger pricing drive results and more than offset higher delivered product costs
Adjusted diluted earnings per share are expected to be in the $1.35 to $1.45 range, up 8% to 16%
Hurricane related impacts are estimated to be a negative $0.04 per share in the fourth quarter and the loss of Equipment Care income will reduce earnings per share by an estimated $0.01 per share
Together, these represent an estimated 4 percentage point headwind to fourth quarter EPS growth
Reflecting the impact of the hurricanes and higher delivered product costs, we've tightened our full-year adjusted diluted earnings per share forecast to the $4.65 to $4.75 per share range in 2017, rising 6% to 9%
We expect the impact of the hurricanes on full-year sales and costs will be approximately a negative $0.08 per share, and the Equipment Care sale to reduce income by $0.01 per share
We do not expect 2017 hurricanes to have a meaningful impact on 2018 results
In summary, we see momentum improving in our business
We expect to deliver strong adjusted diluted EPS growth in 2017 and we look for our investments and actions to drive better growth ahead
And now here's Doug <UNK> with some comments
That concludes our formal remarks
Operator, would you please begin the question-and-answer period? Question-and-Answer Session
Thanks
That wraps up our third quarter conference call
This conference call and the associated discussion and slides will be available for replay on our website
Thanks for your time and participation today, and our best wishes for the rest of the day
| 2017_ECL |
2016 | CAKE | CAKE
#Well, as you know we are in a lot of malls.
The malls that we're in are all of the higher A-plus ---+ A to A-plus malls.
We like being in malls, and we bring traffic to the malls.
When we choose a site, we look at many factors ---+ parking, exterior door.
We look at all the demographics, and malls are great places for us to be.
The amount of money maybe that's being spent at some of the big box department stores in some of the lower malls, or maybe even some of the malls that we're in, that might be down some; but specialty retailers are doing well, and we're doing well in malls.
The components, I said that earlier, but the comps were 1.7%, price was 2.6%, our mix was positive 0.5%, and traffic was up 1.4% ---+ I mean down 1.4%, excuse me.
Grand Lux comps for the quarter were up 3.4%.
In the third quarter, our Las Vegas restaurants, which are our highest-volume Grand Lux restaurants, continued to perform well.
We also saw improvements in our Florida locations.
Grand Lux traffic was also positive in the quarter.
Well, geographically, I think it's good news that we continue to see fairly consistent performance across geographies.
There is about a 4% gap on the average between our best-performing and worst-performing geographies.
California is our ---+ in the northwest and the northeast, those are all our strongest markets.
Our weakest marks are the mountain region and the southeast.
In fact, those are the only two geographies with negative comps.
With respect to Texas and Florida, both of those were slightly positive, as we started to see signs of stabilization and growth in those markets.
I don't think so.
The comp-store sales guidance for 2017.
Well, certainly we see it as achievable.
That's why we said it.
But 1% to 2% would assume traffic somewhere in the neighborhood of negative 1%.
We can get with you offline on that.
Okay, so let me see if I've got this.
From a labor standpoint, in the third quarter, the increase as I mentioned was largely driven by hourly wages.
It was also partially driven by a group medical expense being higher year over year.
Certainly, the fact that our comp-store sales were over and above our range that we gave, 1.7%, that helped with some leverage on the comp line.
Also, we had some, during the quarter, some timing of expenses that benefited the third quarter, and are moving into the fourth quarter that we have incorporated into our guidance that also helped us with the earnings-per-share beat over and above our ---+ the high end of the guidance we gave.
We also, I think frankly, effectively managed our costs very well during the quarter.
G&A and Management labor came in somewhat below plan, and that helped earnings per share in the quarter, as well.
Then your other question, I forgot it already.
Well, that's the way ---+ that isn't the way it works.
The tax-rate guidance is going to be dependent on what our stock price really is, because it's a tax benefit that we're now able to run through the income statement that before had to go on the balance sheet.
The tax benefit that we get from a tax deduction, when restricted shares lapse or stock options are exercised, it's going to be dependent on what the share price is at the time we do it.
That's our estimate for what the tax rate will be for 2017, based on an assumed stock price that we've assumed throughout the year.
We have to do the same thing.
We have to assume stock prices for share repurchases, as well, so we've done it with respect to this, too.
No, I mean they only shifted a few weeks.
The year or the month that you open restaurants, they're not positive obviously for a couple of months anyway because of the pre-opening that's involved.
No, I don't think there's a material change.
You're welcome.
Well, it's a unique concept.
It has a high customer appeal.
It's been voted in several surveys as a very good restaurant, and is frequented by high-profile people.
It's on trend, we think, with the increasing consumer interest in ethnic cuisines.
We just think that we're interested in trying a second site to initially expand the concept beyond the southern California market.
We believe we've identified a good candidate for 2017.
Do you want to add anything to, that <UNK>.
We had property that we could expand on, and we wouldn't put a Grand Lux there, and so we decided that this would be a perfect time to have Rock Sugar grow.
We had the property, it was there.
We controlled it, and we decided this would be a perfect site.
That's why we're doing it.
We would like for it to be in every location.
As our partner continues to expand into new markets, we will expand with them.
There needs to be a density of population for them to expand, but we should be close to 100 restaurants by the end of the year, and we will continue moving forward next year, as well.
Our hope would be that we could get to all of the restaurants by the end of the year.
Well, we can look at the current restaurants today and monitor whether or not we feel like there is cannibalization.
We could look at our percentage of to-go sales in general, and see if they are growing in those restaurants.
We have seen some to-go sale ---+ we have about 10% of to-go sales on average, and we have for a long time.
We've seen some incrementality to that, and we haven't seen cannibalization in the restaurants that have seen those increases.
That gives us insight into understanding exactly what's happening with those guests, and whether or not they are trading off one experience for the other.
No, it's purely something that now impacts the tax line, the tax expense line, when previously that tax benefit, we put ---+ we went through paid-in capital.
It went on the balance sheet.
The new accounting rule says you can't put it on the balance sheet any more.
You've got to take that tax benefit on the income statement.
It's not necessarily always going to be a positive.
I mean it's a positive for us for next year in that the tax rate is going to be a lot lower, because of the fact that our stock price has increased since these equity awards have been made.
We're recording actually in the income statement the tax benefit on that difference in what the options or the restricted shares were issued at, and what they're ultimately redeemed for, if you will.
It's pure GAAP impact.
Well, labor is a big part of it.
We're ---+ 5% wage rate inflation is ---+ we have, we expect the comp-store sales for the year at 1% to 2%, as we've talked about.
We've been managing through the industry labor pressure, and continue to believe, as I said earlier, that we have pricing power in 2017.
We have a 53-week year, is one of the big things this year, comparing to a 52-week year next year.
If you look at that, that represents probably 3% or so.
Instead of say 5% to 10% growth over 2016 at the mid-point, that would make it like 8% to 13%, because we have again a 52-week year.
The labor rate, wage rate inflation, you can look at it as being largely offset by that tax accounting change.
No, we're still deciding on it.
I did talk about it, and it's going to depend on what is the commodity environment and the traffic trends and other costs actually doing at the time we make the decision about that.
We talked about believing we did have pricing power in this market given our differentiated positioning, and we could take pricing similar to the pricing levels we took this year, if we felt the need to do that.
We are not, really.
One of the markets that we have had the most government-regulated wage rate increases has been California.
Then when I talked about geographies, California is actually one ---+ is our best-performing market.
I don't think we're seeing a lot of impact from that more regionalized type of pricing.
Sure.
Well, as far as MasterPass goes, the campaign was very limited in the period.
It was probably a handful of ads that ran during that time.
The majority of them are going to be running in November and December.
It would be hard to attribute the benefit of the sales to anything that had to do with MasterPass thus far.
We look forward to seeing what's going to happen in November and December.
The early adoption of CakePay is promising.
It's still early, however.
As mobile payments become more popular, I think CakePay will continue to be used more frequently by our guests.
We do now have a full-page ad that's running in our menu to increase awareness within the restaurant, once guest do arrive.
It's still early, as it is I think with mobile payments in general.
But we feel good about it thus far, and we think that the master pass will give us also more awareness of CakePay, because the ad itself does show the phone and a mobile payment process.
| 2016_CAKE |
2017 | COO | COO
#Thank you, <UNK>, and good afternoon everyone
Welcome to our third quarter 2017 conference call
This was another solid quarter with share gains, improving margins and strong cash flow
On a consolidated basis, we reported 556 million in revenue and non-GAAP earnings per share of $2.64. CooperVision posted another strong quarter with 7% as reported revenue growth or up 8% in constant currency
Daily silicone hydrogel lenses grew 47%, while Biofinity and Avaira combined to grow 10% both in constant currency
CooperSurgical posted revenue growth of 13% up 4% pro forma with Fertility up 26% or 6% pro forma
Moving to the details, CooperVision posted third quarter revenues of 437 million, up 8% in constant currency
By geography, the Americas grew 2%, EMEA grew 13%, and Asia-Pacific grew 13%, all in constant currency
The Americas stands out as it was soft, but based on market data the entire market was soft
We continue to see good data in the Americas so it appears this was an anomaly and we expect stronger growth in future quarters
Overall, revenues continue to be driven by our silicone hydrogel lenses led by MyDay and Clariti in daily space and Biofinity in the monthly space
Regarding daily, our two tier approach within the daily silicone hydrogel space allows doctors to offer premium in mass markets lenses with the latest materials
MyDay is our premium daily silicone hydrogel lens and is offered as a very high quality sphere and toric
Our Clariti products are sold on a mass-market basis and remain the only daily silicone hydrogel lenses family with the sphere, toric, and a multifocal offering
In addition, Clariti is competitively priced against several daily hydrogel products that we maintained a nice competitive advantage
Overall, we continue to believe where it deserves the healthiest modality compared with the highest quality, oxygen permeable materials to ensure the best health for the eye
This is done with daily lenses using silicone hydrogel lenses such as MyDay and Clariti
Moving to other products, Biofinity continues to perform extremely well all around the world
This includes the full product offering of spheres, torics, multifocals along with our expanded offerings of Biofinity Energys and Biofinity XR Toric
We continue to see diversified geographic strength from Biofinity and expect solid performance for many years to come
Within the two-week space, we're continuing to transition wearers to our upgraded Avaira Vitality lens from our legacy Avaira products
As we’ve discussed in the past, this is a large and time-consuming endeavor, but I'm happy to say our customers are receiving this upgrade very positively
Our timing remains the same which is to finish the transition by roughly the end of fiscal 2018. Turning to product categories, we remain the global leader in torics which grew a solid 11% in constant currency, primarily driven by Clariti one-day Toric and Biofinity Toric along with the rollout of MyDay Toric in Europe
We believe there's still a lot of room for growth in this category both by modality and by geography
Multifocals grew 7% in constant currency, we have a diversified set of products in this space and arguably the best multifocal design on the market with Biofinity multifocal and we expect continued growth
Turning to the global contact lens market, for calendar Q2 we grew 7% versus the market that was up 4%
This included growing faster than the market in each geography with the Americas growing 2% against the market, up 1%
EMEA growing 11% versus the market up 6% and Asia-Pacific growing 12% versus the market up 8%
By modality, single uses lenses continued driving growth with CDI up 14% and the market up 12%
And finally CDI's non-single use lenses grew 4% while the market declined 3%
On a trailing 12 month basis, CooperVision also reported very strong numbers growing 8% versus the market up 4%
Going forward, we are still targeting 4% to 6% market growth driven by the continuing shift to improve technology such as wider suite of silicone hydrogel lenses, the continuing trade up to dailies and to specialty lenses, geographic expansion and the expansion of the wearer base particularly outside the United States
And given our strength in these areas along with our broad private label offering, we expect to continue growing faster than the market
Turning to a different topic, we completed the acquisition of a small specialty contact lens company named Procornea in August
This added a leading ortho-k technology to our lens portfolio and increases access to several fast-growing myopia control markets
This acquisition supports our specialty lens strategy led by our MiSight products
Myopia control is currently in its infancy, but we are developing a nice specialty lens platform to remain a leader as this market starts taking shape
Note, the financial terms of this acquisition were not disclosed
Moving to CooperSurgical, we reported third quarter revenues of 119 million, up 13% driven by organic growth and acquisition
On a pro forma basis, we grew 4% in Fertility with Fertility leading the way up 26% or 6% pro forma
This quarter was an improvement over the last two quarters, and I believe Q4 will continue another step up in the right direction
With the IVF, we are continuing to work through integration matters, but we are making progress
We're also continuing to execute on our growth strategy as the global leader in medical devices and genetic testing within the Fertility space
The IVF space remains a global market with long-term, strong growth dynamics and we look forward to continuing our positive trends
Our office and surgical products business grew 1% for the quarter, with strength in our disposable hysteroscope EndoSee offset by weakness in the older product lines
Before turning it over to Al, I want to express my appreciation to our employees for their hard work and dedication
I also want to especially send our best wishes to those impacted by the storm in Texas including our employees located in that area
And now, I will turn it over to Al
Sure, <UNK>
Pricing gets a lot of questions and has historically got a lot of questions
It is true there are some competitors raising prices ---+ list prices
It's also true that as an industry we've been trading up, we've been more about trading up
So, 90% of the action of growth in the industry is trading up, less than 10% has anything to do with pricing and that's been that way forever for 30 years
So pricing sometimes is a tactic, it allows you to do things as you are shifting wares from a two week modality into a one day and a one month modality
So, you may do something with your list prices
At the end of the day, it's the net growth that matters, it's the trading up that matters
And I would say pricing is nothing more than a minor tactic in achieving whatever you're trying to do
The industry has done a phenomenal job of moving now people out of the two weeks space into the monthly, into the one day space
The growth of the industry the last four years plus has been the one day modality in the U.S
; and for the last 10 years, it's been the one day modality outside U.S
So, I'm not going to comment too much more on the granularity of pricing tactics
Yes, you're going to have to mute I think there is something because it is in the background, okay, that's good
Yes, the Americas, the North Americas, as I indicated was soft, we think the on eye activity is good
So, the throughput is good, the trading up is phenomenal going from two week to one day
So really some of the anomaly I think if we look at the last six quarters since J&J started their activity and whether it's the migration from UPP or whether it's consolidation of distribution whether it's some of the tactics that J&J has used in the marketplace by way changing distribution channels, there is a host of activities that could lead to tough comps and hard to figure out what's going on
Net, net, net over a multiyear period and I have to go multiyear even though our UC like to go 12-months, the market is very good
But I must admit it's been I'd say one quarter does not a trend make
This quarter clearly is not indicative of a trend nor do I think it's indicative of the market strength, which is fine on a ---+ clearly on our worldwide basis
Sorry, I don't have a better answer than that, but it's ---+ I would admit it's pretty squirrelly
I will deal with the first one
You are absolutely right
There is an acceleration of the two-week space shifting into the daily and to a lesser extent the monthly
We have been putting up pretty good Biofinity numbers
So yes some of them are waiting for the monthly category
I applaud the efforts that J&J has in that arena
They are about 90% of that market or a little more
So that's the wear base
And we want that wear base and they know it out of the two-week and to other spaces and primarily the one day modality
Since they have adopted that strategy, really when they came out with the one-week product and then the one day product meaning a one-week oasis and then a one day oasis, they have really accelerated the depth of that two-week space
And we find that, we are getting our fair share
Obviously, when you look at the Clariti and MyDay numbers 47% growth over a higher base, so year-after-year that base goes up and it continues to grow very impressively
And clearly the U.S
is a big part of that growth because of that shift from the two-week into the one day space
Okay, on the Americas
Our confidence really comes back to ---+ if we look at from a four year perspective the Americas has done well
More like 4% and we do have the acceleration of the trading up and keep in mind I've mentioned in the past that a trade up of an oasis non-compliant wear is 800% trade up to an oasis one-day compliant wear
So two week non-compliant referring it as a monthly and buying it in ---+ available in a two year supply because they buy a one year supply at two weeks which turns into a two year supply on a monthly basis
They then shift to buying 730 lenses and they're very compliant because they don't have lens care regimens and all that stuff
So, we're highly confident that once you get through the noise level of everything that's gone on including just how much J&J sells the pipeline in the third and fourth quarters of 2015 that kind of created anomalies throughout the next period
And to including some of the antics of going direct, trying to go around the middle man and to including some of the consolidation going on with partnerships of large retailers, so there's a lot of moving parts, but underlying that is the market that looks very healthy from a wearer perspective and a trading up perspective
So, we're highly confident, we'll see normalized correlation between that shift and the revenue line in the future
Yes, I think surgical price
The third part it was to touch weaker than certainly at least I was expecting it was going to be the Fertility business did okay there was still some integration activity and the probably linger to little bit longer than I thought it was going to
So I think it we will see a little bit stronger fourth quarter performance there
The base there is so, yes, there is a lot of legacy products there so, EndoSee, as Bob mentioned are disposable history to scope is doing really well and we're continuing to make a lot of progress there, but some of the base products are a little bit harder to get moving there
So I still think that business is more along wise of the 3% to 4%, 5% maybe kind of growth business that component that base business component of it
So that was a little bit lighter it's hard to get into the any individual quarter and pinpoint the specific issues associated with it, but I do think you'll see a little bit of improvement on that in Q4 also
On Procornea, we obviously haven’t given a lot of air time at this juncture
But you are correct that big part of their business is in fact in China
Relative to whether or not and to what degree that will allow us to accelerate, our overall franchise in China, I would assume yes there will be some benefits, but quite frankly a lot of what makes, what's okay and what Procornea is about and myopia control, it’s pretty much in the hands of a specialty area where people really focusing on what it takes to slow the progress of myopia particularly in younger generation, younger part of the generation
So I don't think there's a real lot of spill over there
We are tremendously excited about the space, but we also are realistic to say this can be a long haul development
Myopia's going up around the world significantly
It’s gone from you know basically 20% of the world and it will be approaching 50% of the population by 2050 and directionally, it's clearly headed that way
What's causing it very much is taking people off rural area the countryside, putting them in schools is one of the leading thoughts
Having less natural sunlight is a thought
Whatever the real reason is, it’s clear that myopia is going up around the world and that the world will need a better portfolio of products to address high myops which run into problem later in life with retinal detachments and various other forms of eye challenges, so we're excited about it but it’s not going to be immediate so we're looking beyond the next five years I think in terms of where it starts moving the needle
On the dynamics of toric and multifocals, we have a lot of activities going on around the world both as to products and as to geography
In terms of a lot of activities that's leading to solid growth in Asia-Pac with MyDay Toric continuing to roll out there and torics in general by far the most mature market in the world and that's a relative term not really mature is the Americas where Torics are far advanced compared to the rest of the world by a factor of more than 50%, meaning there's a lot more penetration
For example in Japan and Germany, there has been a history in the past of dealing with astigmatism by RGPs, big in Germany, big in Japan, but new ---+ the newer generation, the young adults are not getting RGPs
They are getting torics when they have astigmatism
So, tremendous growth opportunity is there
We're happy with the numbers we're putting up
We're happy with some of the progress we've made with MyDay Toric, which is early in the game in terms of rolling it out now into your and later next year in the U.S
We're happy with Biofinity extended range, the made to order
So a lot of good things that should keep a solid momentum in that specialty contact lens area
Well, I want to thank you for joining us today for an update on how the year is progressing
We have a lot of positive activities going on as you can see
We look forward to updating you as we approach and come out with our year-end numbers
and I believe that’s on December the 7th
And so, we look forward to giving you an update at that time
Thank you
| 2017_COO |
2017 | DGX | DGX
#Thanks, <UNK>, and thanks everyone for joining us today
This morning I'll provide you with the highlights of the quarter and review progress on our strategy
Then <UNK> will provide more detail on the results and take you through updates to our 2017 guidance
We turned in another strong quarter and are delivering on all five elements of our strategy to accelerate growth
Here are some highlights
Revenues grew approximately 2% on a reported basis and 2.3% on an equivalent basis
Reported EPS of $1.37 was flat from 2016, and adjusted EPS grew approximately 16% to $1.55, which includes an increase of $0.08 over the prior year of excess tax benefit associated with stock-based compensation
Based upon our progress in the first half, we have raised our outlook for revenues, EPS, and cash from operations for the full year 2017. Before I describe the progress we've made to accelerate growth and drive operational excellence, what I'd like to do is briefly discuss PAMA
This month, a number of ACLA Board members met with the executive branch as well as key members of the Senate Finance Committee, that means energy and commerce held subcommittees, reiterating our belief that the current regulation effectively excludes hospital outreach labs, which are a significant segment of the laboratory marketplace
Last month our trade associations sent a letter to CMS recommending postponing the calculation of publication of the new clinical and fee schedule redefining the definition of then applicable laboratory to ensure in a good hospital outreach laboratories and upon gathering data from hospital outreach laboratories publishing new clinical and fee schedule rates effective not earlier than July 1, 2018. While we support reform of the Medicare payment system, we believe any modification should be market based and appropriately include all applicable independent and hospital outreach laboratories
At this point, we have made a strong case to CMS and Congress
While we continue to believe that CMS has not carried out the congressional intent of PAMA, we recognize that a new clinical and fee schedule could be in place by January of 2018 and we will be prepared
Now let's review progress we've made executing our two-point strategy to accelerate growth and drive operational excellence
In the second quarter, we delivered on all five elements of our strategy to accelerate growth
The first element of our growth strategy is to grow 1% to 2% through strategically aligned accretive acquisitions, which we expect to achieve for the fifth consecutive year
We built out our leadership position in advanced diagnostics with our recently completed acquisition of Med Fusion and Clear Point
Under the second element of our growth strategy, we continue to expand relationships with hospital health systems
On May 1, we completed our acquisition of the outreach operations at PeaceHealth Laboratories and began managing 11 PeaceHealth Laboratories serving medical centers in three states in the Pacific Northwest
We began to recognize revenues from this acquisition in the POS agreement in the second quarter
Our existing professional lab services relationships with hospital systems such as RWJBarnabas, HCA, Montefiore, also continue to perform well and drive revenue growth
The third element of our growth strategy is to offer the broadest access to diagnostic innovation
Our acquisition of Med Fusion and Clear Point will not only accelerate Quest growth in U.S
oncology diagnostics but also host the promise of improving cancer care
Quest will become the preferred provider of the U.S
oncology diagnostics for the U.S
oncology network consisting of more than 1,400 independent community-based physicians
In addition, Quest will be a preferred provider of a full range of in-patient and out-patient diagnostic services for 12 hospitals of Baylor Scott & White Health in North Texas
Advanced diagnostics, including genetic and molecular-based tests as well as general diagnostics, grew in the quarter
Drivers of advanced diagnostics growth include Q-Natal, which is our offering for non-invasive prenatal screening, core infectious disease testing and Quantiferon TB testing were part of the growth
Within general diagnostics, prescription drug monitoring and Hepatitis C screening continued strong double-digit growth
We recently expanded our tumor profile offer through IBM Watson Genomics for Quest Diagnostics to include a 50 gene panel
With this enhanced insight, doctors can take more informed actions for treatment and feel more certain about the best path forward
Finally, last week we launched QHerit, a new genetic screening service that provides women and men with insight into genetic risk of passing on heritable disorders on to their offsprings
We also made significant progress executing the fourth element of our growth strategy, which is to be the provider of choice for consumers
Our relationship with Safeway continues to expand as we are now operating in over 100 stores
We still have clear line of sight to be operating in 200 stores and now expect to reach that number by mid-2018. Patient satisfaction and convenient scores are above 90% for our Safeway locations and feedback from these sites remains overwhelmingly positive
We can't say it any better than two recent feedbacks we have received from our customers on our Safeway locations
One from a network member from Alexandria, Virginia recently wrote, 'I really like the location of this Quest center at Safeway, it saves me time, grocery shopping, pharmacy, plus blood test, all in the same location
' And my personal favorite is one from Longmont, Colorado where a customer goes on to say, 'the best blood draw I've ever had, you rock
' Now this is an exciting era of the empowered healthcare consumer
More and more people are taking control of their health and asking to receive their lab results in the palm of their hand
More than 4 million patients are receiving their lab results through our MyQuest mobile application, and we are on track to reach 5 million users by the end of 2017. And then finally, in late June we announced our collaboration with Walmart to help improve access to care and over time help lower healthcare cost of providing basic health care services
The collaboration will initially launch at approximately 15 Walmart stores in Florida and Texas by the end of 2017. These cobranded sites will initially provide laboratory testing services and over time offers are expected to expand to include other basic healthcare services
In the future, these services will help us deliver on the fifth element of our growth strategy, which is to support population health with data analytics and extended care services
Turning to the second part of our two-point strategy to drive operational excellence, we remain on track to deliver $1.3 billion in invigorate run-rate savings as we exit 2017. As we indicated at our Investor Day last fall, we also believe we will be able to generate additional savings beyond 2017. As we drive operational efficiency, we continue to improve the customer experience
We are e-enabling our processes behind the scenes as well as in our patient service centers
More than 600 patient services are now live with e-check-in
We plan to deliver this digital experience to over 1,000 patient service centers by the end of this year
At these locations, patients use a tablet to sign in for their appointment, and are provided with an estimated wait time
They know they are in the system and when they will be seen
So that's good for patients, it's good for us too
On the back end of this system, data provides us real-time insight into patients' flow, enabling us to direct phlebotomists to the locations where they are needed most
Since we introduced this service earlier this year, more than 7 million people have utilized this service to date
Finally, 2017 is our 50th anniversary of empowering better health with diagnostic insights
We've had numerous events around the Company to mark the occasion, and our employees have enjoyed engaging with former leaders and learning more about our history
We are proud of our 50 year legacy and look forward to promoting a healthy world, building value, and creating an inspiring workplace over the next fifty years
So now, I'd like to turn it over to <UNK> and he will take us through our financial performance in more detail
<UNK>?
We turned in another strong quarter and are delivering on all five elements of our strategy to accelerate growth
Based on our progress in the first half, we have raised our outlook and are well positioned to meet our expectations
So with that, we'd be happy to take your questions
Operator? Question-and-Answer Session
First of all, as we said in the past, we look at a lot of different external measures
Then we do an internal measure where we look at our same account measurement where we do a measurement where we know we have a good account and we look at year-on-year comparison of volumes
And what we've said in the past remains this quarter, we think the underlying volume in the market is stable, is the best way to summarize it
And then to your second point about volume in the quarter, as you know we don't guide on volumes, we do guide on revenues and it's important that we continue to drive revenue growth, it's what we are entirely focused on
So I'll turn it over to <UNK> to provide a little bit of color around what's in the mix
<UNK>?
I appreciate that
As we've talked about and raised the case, when we engage with a healthcare system integrated delivery network, we talk about three things
First of all, what we can do to help them with their in-patient laboratory, and that's what we refer to as professional laboratory services engagement
The second part of this is the inside diagnostics that I referenced, testing, and we believe we could be very effective provider of more and also help them with what they do, so a significant part of the discussion
And then the third case is that we are in that discussion to decide what their strategy is from hospital outreach, and [indiscernible] is a good example of that where we bought their operating [indiscernible], we're helping them with 11 of their hospital in-patient laboratories
And to your specific question, in that relationship we are also helping them with the reference work as well
So, in all these engagements, we typically become a stronger presence in that account for reference work
Thanks for asking
We are quite excited about it as well
There are a lot of different reasons
That goes down there last week, we had our date one [indiscernible] with a town hall meeting and spent some time with the management team
So this acquisition actually kicks four elements of our accelerated growth strategy
First of all, obviously it's part of our growth through acquisition, so that's good news
Second is in terms of innovation, it brings to us a nice [indiscernible] up our portfolio around what we could do around oncology and precision medicine, so we are encouraged about that
Third is to your point, it brought it to present in the second largest state in the country, Texas, where we already have a strong presence
And then with this, it's all about providing better health care at better cost levels, and we think with some of the work they've done in the engagement for instance with U.S
Oncology, we can help with the data and understanding what we would do to form better cancer care, so four elements of our strategy
So we are encouraged by that
And the relationship in Texas is strong, and so we are deeply engaged how we continue on what they built with that engagement and continue to grow from that given our broader presence now with us at Quest Diagnostics
So we're excited about it and we think it's a great acquisition as well
So thanks for the question
So first of all , we study with two of the largest states, Texas and Florida
We also have a strong presence in Florida, so two nice states, second and third largest state now in the country for us to make progress in the large states
Yes, we will look at some of their sectors for our patient service centers, but as importantly, what I said in my introductory remarks is, we are actually going to use this strong metric to provide some of the basic healthcare services that help with what we could do with population [indiscernible] to cost curve
So what are some of those things? Now can we help with people dealing with hypertension and do blood pressure checks, can we make sure that people are staying out their [indiscernible] beyond a diuretic suffering, congested heart failure, that we help you with that by periodically taking your weight, making sure you stay in your diuretic staying range
We can also help with diabetes management
We're also working with some of the healthcare insurance companies where we could close gaps in care to help them with their quality scores so they get reimbursed by the healthcare that we all know is the best healthcare
So those are the basic healthcare services, and fortunately at Quest, we have the world's largest laboratory, so we'll be, absent for the last five years, we are in the field of diagnostic information services
We have over 20,000 health care workers, 10,000 [indiscernible] with 10,000 other health care workers that provide services already for wellness services from Florida that help insurance companies
We are also providing health checks for life insurance pre-qualification physicals and checks
So, we are leveraging those resources and its relationship as well
So, we are excited about it
We think it's a great opportunity for us to just expand our already unsurpassed access to the marketplace, but also engage with the ecosystem healthcare with some of these basic customer services that can in our mind really help them to cost curve for healthcare in populations that are difficult to get access to
So the current schedule as you know, we submitted the data already
That was delayed by two months because their portal was not available and so we recognized they'd listen to us and postpone it
We have put it in our data
Those people that are submitting the data have done that by the end of May
The current schedule thereon is to publish tentative rates in September, so the schedule that they currently have published
However, we have shared with them that we believe that several things are going on with the data they had collected
One is they haven't included all the data from those laboratories that they are buying from, typically hospital outreach
We believe their approach still limits the size of the sample, and we shared that
And also this has been reinforced by the officer and Inspector General that [indiscernible] that only 5% of the laboratories are being asked to submit data will submit data, which is about 69% of what they actually buy from
The second is what we have heard from some of the smaller laboratory association that affect some of the data input
So we have shared this with them because some of the smaller laboratories did not have good access to retrospective data
And while our concern is that they use that data for the basis of publishing at tentative [indiscernible] fee schedule in the fall, it won't be right
So our strong recommendation to them, and we have got word from Congress broadly, many different leaders of Congress as well as the center [indiscernible], we believe the best thing for us all is to take some time to get it right
So our recommendation is to postpone it
We have made a recommendation of how we believe they could collect the data
That will take some time
We think if they work in that aggressively, they possibly could publish the due clinical and fee schedule no earlier than July of 2018. So that's the path we are on, but the current schedule we have is that they are going to extend the schedule to get out some rates in the fall with the refresh clinical and fee schedule in the first of next year, and as we said in our introductory remarks, we are prepared for that but working hard because we believe it does not reflect the impression or intent to get a full sampling of the marketplace and get that data in a good form and get good quality data to establish a rate for itself
So we are pushing that in a big way across the trade association
We continue to be excited about the prospect here
And again, to start at the highest level of possible systems, and I have shared in the past their lab strategies are on the shortlist of strategic things they are talking about
And so they welcome meetings with us to help them think through this
And in that context, a big part of this is how we can help them become more efficient with their hospital in-patient laboratory, and it is that spectrum
The broadest capability is we help them manage it, the leverage of our procurement
They also learn from our best practices of running the world's largest laboratory
And to answer your question about across that spectrum, where is that set, I would say it's equally distributed across the lowest level of involvement, the most no predominant necessarily of one end of that spectrum
But to your last question, once we get in the account and we begin to develop the relationship, we do see increased levels of engagement by the customer with us and we do broaden our services broadly and we do spend more time on what we'd do to help with them their reference work, and then also in that context, we do continue the conversation about their outreach strategy if they are in the outreach business
So, the way we see it is we start with an engagement but that's just the beginning of engagement
And then we also use this as a discussion broadly of what we could do for them in terms of what their mission is and their strategy, which gets us into discussion about population health and what we could do in data analytics
We've got a lot of capabilities there, we have talked about that in the past, we've seen a nice value-added
These new extended care services are of great interest, particularly those integrated delivery system, that are taking on risk [indiscernible] they are quite interested and probably can leverage these access points for putting in place with our two [indiscernible] with Walmart is one example
So, this strategy is really a strategy of how we serve possible systems in a bigger way, and one aspect of what we could do with them is around their professional answers is engagement in their in-patient laboratory, but it's much broader than that
Now what we talked about five years ago just for the world's largest laboratory, but the business that we want to focus on is Diagnostic Information Services
And so, the information and the services portion of our portfolio is the big portion of what we've really put our shoulder into over the last several years, and you are seeing some of the contributions in the way of business in the last few years
So let me just walk through what that means and where do we see this going
So in that strategy, we believe that hospital systems were becoming stronger
We knew that hospitals were acquiring physician practices
And therefore it was quite important for us rather than thinking about the hospitals as primarily a competitor, we thought [indiscernible] partner with them with their lab strategy, and that has worked well
They are all over trying to become more efficient
They are trying to understand how they can provide better patient care
And then finally, they are realizing that being in the outreach business is not necessarily something that they all want to focus on and therefore they can team up with us and we're a good provider of that
So it's a nice service [indiscernible]
And then as we get in, similar to what I said to <UNK> in the last question, it's all about their strategy and their strategy is to be a broader provider of integrated health services within a geography, and we could help them with that
So we have brought out a broad line of information products
We launched this a couple of years ago with the [indiscernible], we call it Quanum
And in that portfolio of products, we offer capabilities to take a look at your utilization for diagnostics, allows the data to be put on the table to ask questions about are we doing a proper work-up to make sure we have an informed decision that happens, that [indiscernible] what happens next in healthcare, which is an important part of delivering good health care at lower cost
Second is we also served up with a nice access to the workflow within the physicians workflow, the ability to look at all past data from our relationship with [indiscernible], and that data we think is valuable to get a full view of what happens to that patient
So those data analytic services I think are helpful
So that's the conversation we also get into
And as we work on this discussion, they are all interested in how they retain their current patients and grow the patient population as well as their membership, and we all see that there is a sea change happening where the consumer is much more engaged and that's why we think it's very important for us and we put a lot of energy on broadening and expanding our brand and what we believe our brand stands for
As a matter of fact, we have talked about our brand and our tagline being action from inside
Our vision is to have better health with diagnostic insight, not just [indiscernible]
So in that consumer strategy, which is part of our growth strategy, there's multiple aspects to that
One is the migrating access
So we believe our retail strategy helps us with that
We started with Safeway, we said we're going to do more, we recently announced our relationship with Walmart
So we think that's expanding our access
Second is to provide products that are consumer-oriented
We have talked in the past earnings call about what we're doing to be a provider of testing directly to consumers
We have launched a pilot, we're doing some of that in Arizona
We are now expanding that pilot of selling testing where states allow it to be done, to Missouri, to Colorado
We have a great business that's growing around wellness
We have a product coupled for wellness
We have expanded that to the field of sports where we have the sport diagnostic product
We have done the work with [indiscernible]
So there's a whole portfolio of more consumer-oriented products that we've rolled out as well
And then we have also improved on the access and consumers remarkably want to have all their health information, and frankly we're quite surprised by the pickup of our MyQuest application, I mentioned in my introductory remarks over 4 million of people have registered with us
We believe we are tracking to be on track to get above 5 million users
So, if you look at all those elements, we believe that this positions us nicely as that diagnostic information services company that's thought of when the consumer will have [indiscernible] the diagnostic testing, and over time we believe with better transparency, because we do offer we believe one of the strongest [indiscernible] proposition in the marketplace, the physician will ask the consumer which laboratory do you want to test and to go to and they will remember this great experience that they had at Quest Diagnostics
They will have information that's provided to them
They will have access to products and they will be able to easily access our capabilities, and so the choice will be given to us, and that's our strategy
We picked up the powerful element of our strategy and it's where healthcare is headed
Consumers will have more choice and consumers will direct more at healthcare
So we are making a lot of progress, we're excited about it and we think that's going to help us with our core business today but over time it will become a larger piece of our portfolio over time that we really do direct healthcare in a better way where it is needed, which is not necessarily only in hospitals but throughout the health care system and communities that are touched not by traditional healthcare but other places like our retail strategy
So that's where we are going with it
Part of our discussion with these hospital systems were on their lab strategy, they see pressure on rates broadly
They are feeling pressure from their commercial insurance relationships, but they also are looking forward and realizing that the clinical and fee schedule will be refreshed
And as we talked about in the past, they have more exposure than we do to that
<UNK>ughly 12% of our revenues is a much more meaningful percentage of their laboratory revenues
So, when we engage in these conversations, one aspect of their consideration of what they are going to run [indiscernible] is they are going to be under pressure both on the commercial side as well as on Medicare
But the other aspect as you know is related to what their strategy is, do we want to put more capital and increasing more complicated area, and in some cases they decide not to
Second is they realize that our scale is significant and as we move away from a fee-for-service model to a much more value based reimbursement model, it's still longer to be in activity, it's going to be making sure we have the best cost per service unit and our cost structure is far superior than any other cost structure
So, in many of the cases we are engaged around this and in some cases where we have bought their [indiscernible] business, it's because they see reimbursement changing and they believe that they have to move to team up with someone like Quest that has a very efficient model delivering the necessary diagnostic services, so as part of that overall strategy for the integrated delivery system, a part of this is looking at pressure and range, but it's more comprehensive than that as well, Issac
Yes, so we shared this at our Investor Day
Look at the market we compete in, ourselves and the nearest competitor, less than 25% share
We have a very compelling value proposition where we offer some of the best pricing and we believe best service and quality on the planet, and we believe we should have more share
We're working hard at gaining that organically but we are also believing that we can consolidate more of this marketplace and that's why we have the strategy of 1% to 2% growth through those strategic [indiscernible] acquisitions
We have announced a number this year with [indiscernible], we're moving forward down with Med Fusion and also we also announced recently [indiscernible] in Massachusetts
So our march continues to drive that strategy
So we think the commercial rate pressure on the rest of the marketplace will help accelerate the strategy we are on and we should over time take up more share both organically and through acquisitions
I can't handicap it, but I will share that we are actively working the communication with CMS, and when I say we, it's the Board of Directors and all members of ACLA are actively talking to our Congress members both on House side as well as the Senate side
We have also met a couple of times with the leadership at CMS
The leadership at CMS understands this well, understands that the current approach has issues associated with it, and our simple messaging on this is take the time to get it right
We continue to support the idea of paying or having CMS pay market-based pricing
To get the right data, take the right approach to bringing on those rates is important for all of us
And what we remind them of is the reason why we have PAMA is reflective of the work that's to protect access to Medicare Act, and it's important for Congress and it's part of their congressional [intent] [ph] not to just pay at the lowest rates but to make sure that they pay for what they use, and the reason for this is there's many parts of this country that are not served by the large national laboratories
And the concern that they are now aware of is if in fact, if this is not done in the right way, rates could be cut, smaller labs that are very necessary in smaller rural areas, in some segment of the marketplace the majority of what the testing is has provided the Medicare marketplace could be substantially cut, and the example of that is what's happening in nursing homes where a majority of their single testing is basically the most routine tests that are done for many small laboratories all over this country
So we remind Congress and we remind CMS of where we started and why we believe paying market based price is quite important
So, what I'll share is we think they are very, very responsive to listening to our concerns
We realize there is an element of administration
They realize that what was put in place was put in place over the last couple of years
They realize there is an opportunity to work with us to get it right
So we remain hopeful but I can't handicap it
We have been at a point where we don't have the capacity to do deals that make sense and we spend a lot of time looking at deals, we say no to more deals than we say yes to
It's important
We continue to go back to our philosophy on doing acquisitions
They have to be strategically aligned and also we have to make money on those deals
And a key part of making money on those deals is making sure we have the right integration plan
And so, as we integrate this, we have a small structural team that helps us with the integration but also a large part of the integration happens in our regions as well
And so, if you look at the distribution of some of these deals, they have been distributed throughout the United States
We have done a number up in the north
[Indiscernible] being one example of that, Harvard Health Care being another example, but most recently we are doing this deal out in our western region with PeaceHealth and we are working on that with enough capacity to pull that off
So, our capacity has not been [indiscernible] at all
It's more the [indiscernible] factor to making sure we have deals that we believe are strategically aligned and we could make money on
I appreciate that
First of all, the relationship is getting nowhere near
We said we are going to focus on two largest states, Florida and Texas, and we're going to pick 15 sites that will be our initial pilot sites
And what we'll provide at those sites are some of our patient service center capabilities like we've done with Safeway, but we believe there's more we could do on those sites with basic healthcare services
And what will specifically get done is really dependent upon where we forge relationships with healthcare insurance companies, their integrated delivery systems for ACOs within those geographies where we think there could be some value of providing with basic healthcare services in those great access points that Walmart has
This will be a joint venture
We are the majority holder of ownership in that joint venture
We have not provided visibility or guidance of how large this will be, but we are hopeful that this year we'll be off to a good start and we'll share more in due course as we get into it
The second part of your question, as we said when we announced Safeway, Safeway was an excellent relationship
We are proud of what we have done
We are half way into what fully we can realize, about 100 stores, we've got another 100 to go to get to 200. What we are doing with Walmart we think is complementary and every one of the retail strategies that are – retail companies that are in our space have a different strategy
So we continue to enjoy a nice good working relationship with [CBS] [ph] [indiscernible]
We believe Walgreens has a different strategy as well
And what we will do is – Walmart and what we will do with Safeway, we believe there are other ways we could work with other retailers that could be complementary to what we agree to do with these two that we have announced so far
We are working our way through that
The Safeway relationship is different than what we're going to do at Walmart and we already have working relationships with some other retailers
I mentioned CBS and Walgreens, different strategies, all these have different strategies
And frankly, I think we'd like to have a handful of strong national brands that we work with
We'd like to make some progress with those before we expand too broadly
So we have two now and working relationships with others
So, we are totally focused on executing against what we've said we would do with Safeway
We feel good about that
We just launched this new relationship with Walmart
We want to make sure we make progress in 2017. And as far as others, in due course we will talk about that as we work with them on their own trend, [indiscernible] how we could be helpful, but a good way of thinking about this, we started with one, we've now moved to two and a handful will be a good number that we could then manage over time to provide what we do and help them with their health strategy
So we are open to working with others
We want to make sure that what we do doesn't in any way contradict what we are doing with some other partners
But as you know, Walgreens continues to broaden their health presence
They have a working relationship as you know with Med Express
Med Express will provide healthcare services and that strategy will change over time
And as you know, most of these retailers work with all different brands, no matter what category and laboratory services are going to be different
So, they are selling all different bands in their stores, so therefore they are open to different brands and we believe that this strategy is good for us to think about how we could team up with different people in the ecosystem in healthcare and every one of these players has different strategy
So, we think there is an opportunity here as well
Okay, so that concludes our day
We had a strong first half in 2017. We look forward to continue to meet our commitments by executing our two-point strategy, which is to accelerate growth and drive operational excellence
We appreciate your time on this call and we hope you have a great day
| 2017_DGX |
2016 | UVE | UVE
#9/6/2016 for renewal, 8/1/2016 for new.
Yes, we have actually filed an aggregate 2.6 rate increase.
We have received some questions from the department in normal due course of business.
And we should get some finality on that within the next 30 days.
Yes, we do.
I think obviously you can look at our market share.
I think there is plenty of good rate adequate business in Florida, so I think there is some upside and I think there is some room for us to grow definitely in Florida.
Yes, we are pleasantly surprised.
This initiative has really only been in place for three, four months.
We've really started in Pennsylvania and then we added a few other states, Alabama, we added South Carolina recently and Indiana and Minnesota.
So obviously we think we've written in excess of 100 policies really with very limited marketing expense.
We've been obviously using SEO, search engine optimization, to drive as much traffic as we can to our website.
We think that over time that the acquisition cost could be significantly lower than what it is right now traditionally with our agents.
But as we've stated previously the difference between really what our marketing costs are and the traditional commission we're pulling that money together and giving the difference back to our agents who are specifically in a territory who are appointed with us and our meeting certain criteria.
So we are really pleased by this process.
We believe we are the first insurance Company to offer a policy where you can find coverage and pay for it in one transaction and we've gotten a lot of good results from it and good feedback, so we are definitely encouraged.
Yes, this is <UNK>.
I think the best way to look at those ratios would be to put a range on them.
And notwithstanding any unforeseen events in the remainder of the year and excluding the $8.4 million severe weather events I'd be looking at a range of 25% to 27% in the direct loss ratio.
Including the $8.5 million severe weather losses that we had in the first quarter it would be 27% to 29%.
And in your expense ratio I would look at that somewhere between 36% and 38%.
Now just as a point of clarification ---+ pardon me.
It's on a net basis, the expense ratio on a net basis 36 to 38.
And just as a point of clarification I told you that the second quarter of 2015 was 25.6%.
That was actually the full year.
The second quarter of 2015 was 24.3% and as you recall in the fourth quarter we strengthened our reserves, so the full year was the 25.6%.
No, we have not.
We anticipate launching Florida end of Q3, early Q4.
No, that was for full 2015.
Yes, give me one second.
The first two quarters 720 quarter one, 698 quarter two.
I don't have 2015 but I will get that for you.
It's a 4% decrease in severity.
You said buyback and what was the other one.
I'm sorry.
Obviously it just comes down to really analyzing our capital, really where is our stock trading at an individual moment in time and figuring out what the best way is to deploy that capital.
Obviously our Board is heavily involved in that as well as the management team but it's not an exact science.
But I will tell you that the share price obviously has a direct correlation to it and that's how we look at it.
Yes for two months of the three.
If you were to roll the expense ratios from last year to this year, last year we had 37.8% and the absence of the ceding commission added 3.2% to that.
But we also had economies of scale and that brought it down by 4.1%.
Then we also had last quarter we talked about some initiatives that the Company and its compensation committee has taken to address executive compensation.
In addition to attaching performance measures to certain restricted stock awards that were included in the 2013 agreements with the new agreements effective January 1, 2016 that replace restricted stock with performance stock units.
Rather than having a fixed number of shares that are awarded at a future date which could have an impact on future earnings if the price goes up it's a fixed dollar amount.
So what is variable would be the number of shares.
So that brought down the expense ratio in the second quarter by 1.9%.
So that's how you get from the 37.8% down to the 35%.
I'm sorry.
Repeat the question.
Well, the Fast Track is part of the claims group and those expenses are included in LAE.
So that would not be reflected in your general and administrative expenses.
So those are efficiencies that would ultimately flow through to the LAE ratio.
No, we have not.
As I stated earlier, obviously it's a little too green.
We see a lot the efficiencies in place, we see a lot of the improvements in place but we just don't feel like it makes a lot of sense right now to change that currently.
And we will judge it as we continue going through for the rest of the year and take a look at it.
Give us one second.
So premium is for our other states portfolio ---+ one second.
$79 million, expressed as percentage in would be 8.6% of in force premium as of 6/30.
I was just going to say obviously the cost of policies outside of the state of Florida is considerably lower.
The contribution of what.
I'm sorry.
The investment income for the quarter was $2.1 million and the book yields on the fixed income portfolios is 1.47.
We have 426 employees.
We are pleased with our performance in the second quarter.
And I believe we have the right strategy in place to drive continued profitable growth and shareholder value creation.
Our experienced and dedicated team, focused underwriting discipline, robust internal capabilities, superior claims operations and strong independent agent distribution network coupled with our new Universal Direct platform are all competitive advantages that we believe will allow us to capitalize on our future growth prospects.
In closing, I would like to thank our independent agents and our employees for their hard work and dedication as well as all of the shareholders, our Board of Directors and, of course, our management team.
Thank you.
| 2016_UVE |
2016 | LPSN | LPSN
#Yes.
Yes.
We already moved, well, we moved 100 mid-market and enterprise, in that number of 100 there's the enterprise is in there and then we have all the Greenfield enterprises went live.
One of the biggest growers right now is a Greenfield enterprise, it's a big (inaudible) over the UK that's been on it for about, almost a year, a little less than a year.
So they're dual really well.
So we feel good about the whole thing.
Obviously the biggest challenge is the platform does it work and how is it working and how are they using it and that's going very well.
Now we just need to sort of bite the bullet, move forward, get them over because, as I said, it's not about, we're just trying to go apples-to-apples with the platform.
It isn't replacing a chat platform, it does have those capabilities.
but what it's focused on is really disrupting the contact center.
I mean, we literally can go after, you know, and we'll start showing more of this as we go forward, but we can start taking away voice calls and even though chat does that on a certain level, we can really accelerate that and that's where the big spend is.
And so our sales team is very excited about the consideration they're having but it allows us to go after a much opportunity.
I have said this before, even in our best customer, and we are the best at what we do, about 10% of interactions will be chat and 90% are voice and the vision, from when I started the Company, was I want to move as much of that to digital.
But 90% sits in analog and I think we have got away now to actually move that 90% and I know we have to prove it and we're just starting, but we have our first enterprise to kind of fire up on the vision and many beyond that so it's exciting.
You know, it's actually similar.
They're all similar.
It's just that there's a complexity in the enterprise there's more people it touches are momentum traffic, so we want to take our time with it and we want to make sure we get it, but we can move them very quickly.
We can move customers within days, weeks, months.
It's really what they want to do.
The thing that we did, though, is we secured the dates for everyone to move and so we now have all the information that we need to execute on our plan.
We're not just out there figuring it out and we actually have our dates.
That's why we're able to sort of get a handle on the business and where it is, but you know.
I know for everyone on the call, for you guys, it's about the migration.
It's very important for us, but that's the foundation for us to build our vision and that's what we are focused on, too.
So we got to move the migration, but we're also not just trying to move them to chat.
We want to move them to the vision.
We want to get them on mobile.
We want to impact the contact center.
We want to go after the IDR and so we're not just trying to move them apples to apples and we're moving them but we want to move them to the vision because that's the opportunity.
That's right.
So what we want to do is just kind of get it behind us, in many ways, and be able to talk to you guys about where we think the business will be so that we're not, every quarter, coming up with a different hey, now we just focus on this customer, we really spent the time to map and go through it and understand what the risks are.
Now we understand them and now we can move forward and like I said the interesting thing is that we can actually generate more operating margin even as we move forward because of what this platform will do.
So our future is in a place that we're really excited about.
We just got to move it ahead and we're ready now.
First I, it's going to be a much more, we have a very focused list of customers that we're after because the opportunity is in a very focused set of verticals that we already in play.
So you're going to see larger deals, which you have been seeing, not as many deals, but larger size because we're very focused on how to disrupt the contact center that has 20,000 agents, 40,000 agents, a hundred thousand agents, and so that's really where our focus is.
On the mid-market small business we're, obviously, partnered with Facebook to do some stuff down there, but our focus on the enterprise is a very discrete group that we are after.
And we already have a handful of them, they are already customers that are migrating so that's what you should see.
Larger deals, fewer deals but much larger deals.
Thanks, <UNK>.
It's full production, full contract.
No.
Not right now.
Not until we get live and we'll put it out there when we get live.
I don't think the timing exactly works out that way, <UNK>, but obviously with our pricing model the more customers use, we'll have the opportunity to go back and talk to them about pricing.
But right now our focus is really towards getting them on to the Live Engage platform and aligning our customers to our vision and driving value.
Well, the displacement is really with the Genesis, Avaya, Cisco and the traditional call center companies.
You know, the way we're approach, which is focused on mobile and not this concept of the Omni channel, I don't believe Omni channel work, and we have a lot of funny videos that we put out on the marketing side around it.
It doesn't work and the concept around that, you're bringing in social and mobile and web and calls, the reality is we played it out and the majority is still calls.
So I feel like it's like, it's something that the call center guys put out there, but the only channel that seems to succeed with the call center guys is phone, they don't promote any other channel.
They don't want any other channel to make it so we have a different strategy.
I'm not going to go into detail on what makes our platform work, specifically for competitive reasons, but I think which have a good strategy.
And it's of proven by I think signing a very large enterprise around it.
We are going to look to impact voice tremendously at that enterprise and it's not and Omni channel strategy.
So today our real focus and the enemies that we see, it's not the low end chat guys.
And that's what people have to understand, like yourself.
We are not looking at the low end chat guys as our competitors.
Yes, they have always nipped away at non-strategic accounts.
They have always done that thing but we're looking at the guys that are providing, you know, calls and they are 264 billion phone calls out there and those companies don't grow, their technology is very old, it's never really been disrupted and so we're very focused on disrupting that and that's really what our key is right the now.
They are, you know, we're doing a lot now so we're trying to get as much as we can now, but they're kind of evenly distributed, so because we obviously have some constraints on bandwidth and they have theirs so we match with those two, but we're not trying to back end load it or anything.
We're all focused on just getting it done and move on and getting people to the vision.
No.
I mean we've got the features we need in the platform.
(Inaudible) innovate around, especially around some of the data pieces.
We have a new scoring algorithm to score the health of a customer, called a Meaningful Connection Score, which is very interesting, and it's a different way to do CSAT and MPS, so we can score in real-time what the relationship is with consumers.
So we keep adding pieces like that, but those are just additions to the platform, but we have what we need right now.
<UNK>, since we started focusing on these small business customers and we've got about a hundred mid-market it's less than the 45% that we have over there, but as we move to mid-market enterprise customers you will start to see that revenue pick up quite a bit.
Yes.
What we did with the platform, so the platform does both sales and service, but the platform is actually built around this idea of a campaign.
So you can set a service campaign and you can set a sales campaign and so basically we made it really easy to actually blend both in the system and you can easily set it up yourself and set the goals, if you wanted to you can easily, you can also just use our predictive intelligence on both side, sales and service.
So it's and integrated system now, but it's all goal based.
It feels kind of like, that's why people like it this is why they're using more of it.
It's sort of like setting up Google keywords.
You set a goal and you see how it operates and you keep setting goals around that and it's all campaign-based so we see service campaigns, we see sales campaign, marketing campaigns, it's made for different users.
Well, there's a greater opportunity in service when we come to impacting the contact center because there's a lot more calls happening on the service side.
So I would say that you're right.
About, we have over, I think, about 60% of our revenues in the sales side and we will continue to expand that but we're also focused on the service side.
Where I used to think that the service side was sort of a commodity and there's always pricing pressure and there's always cutting of budgets.
We see service now as a very important thing because companies are looking at the overall experience with the consumer and if you're a bank you're selling similar products, if you're a teleco you're selling similar products but service can change the difference and how you're connecting with the consumer can change the difference and so we're seeing a renewed investment in service and sales continues to grow but there's definitely renewed focus on that where it was kind of like a secondary thing, but it's definitely a new focus.
Thanks, <UNK>.
Thank you, everyone for joining our call.
We will see you next quarter.
Thanks, everyone.
| 2016_LPSN |
2016 | ZBRA | ZBRA
#We see a lot of, first, strong secular growth trends that we are trying to capitalize on.
We're starting, from a vertical perspective, in healthcare.
Healthcare has been a strong growth vertical for us for several years.
And really the catalyst has been the electronic health records.
And we expect that there's still plenty of untapped potential within that vertical.
Particularly in the US in the short term, but over time we expect that to become more global.
Transportation logistics has been a good vertical for us also over time.
I think e-commerce continues to be a good driver.
And we are, for T&L, also developing a lot of new and exciting solutions that are uniquely suited for T&L and to help drive more value for them.
On the retail side, every retailer that we talked to has a big program around how to drive omnichannel or enable omnichannel.
In our view, omnichannel will be at least a neutral driver for us over time.
But it might be a little more choppy in the short term, as some retailers have more opportunities to invest than others.
But we are seeing a lot of good opportunities to ---+ or a lot of growth already from retailers that are adopting omnichannel-type of strategies.
So if you think of ---+ if you do click-and-collect or something like that in the store, it drives a totally different level of technology intensity around our products.
And, say, maybe on a geographic perspective, Asia Pac continues to do very well for us.
We think it's a ---+ we have good opportunities to continue to do well there.
We believe we're very well positioned in Europe and the US also.
And our program to reinvigorate growth in Latin America feels like it is also starting to pay off.
And as a backdrop, I would say we are very excited about the new types of solutions we are developing around Enterprise Asset Intelligence to really help our customers get greater visibility into their operations to drive productivity improvements and enhancements to their service levels.
This is <UNK> <UNK>.
I'd like to add one more dimension to the sources of growth.
And that is that we continue to be in the middle of, and in fact driving, technology transitions in three major areas.
The first one is the transition in mobile computing from legacy operating systems that requires a migration of operating systems.
There's over 15 million mobile computers that need to migrate off Windows CE and Windows mobile platforms by the end of 2020.
And as you know, we are leading that transition.
We had a very strong market share position in that transition in the first half, and even in the last year.
The second is in scanning where the transition from 1D to 2D scanning is one that we are now leading.
And the third is in printing where the transition from ---+ where the expansion into mobile printing is providing lots of new growth opportunities for us.
Yes, I think it's a few different reasons for that.
I'd say in Q1 it was a lot to do with budgets hadn't been fully allocated out to the business units.
They weren't necessarily in a position to go forward with some of those projects.
In Q2 I would say it was more that many of our customers are saying there were a lot of things going on and they needed to pull back and be more focused.
They didn't want to take on more projects than they felt they could realistically execute on.
So they were being more, I guess, diligent about which ones they picked and focused on.
And I would say that it was probably more from a retail perspective where there was a lot of things going on within retail around omnichannel activities.
So those would be the ---+ probably the top priority thoughts around that.
If I could correlate it with you.
If you looked at the holiday season, which is of course the key season for retailers last year, it really was a very mixed season with some clear winners and some clear losers, if you can say, retailers that struggled to keep up.
As a result as they entered into Q1, some of these retailers then went into introspection and reconsidered their plans for the coming year.
That is not unusual, but because the Christmas season was so split in performance I think it led to the reconsideration of some of the spending plans in Q1 in particular.
Some of it is spilling over into Q2 and the rest of the year.
No, it was definitely stronger.
We saw good improvement, sequential improvement, particularly in North America, and it was both around traditional brick-and-mortar retailers as well as e-commerce.
And we start to see e-commerce as a category to become more and more prominent within our overall retail category.
Yes, so the full integration is expected to be completed in the middle of next year.
I would say that we talked about the fact that at the beginning of the year we saw $50 million of synergies coming through of which $30 million was going to be cost of goods sold and $20 million was operating expense.
Operating expense is primarily a full-year impact of the things that were done last year.
The cost of goods sold, as we said, a good chunk of it was realized in the first half and we'll still realize some in the last half.
Obviously our gross margin in the printing business is always ---+ has always ---+ has been traditionally higher than it has been in the Enterprise business.
If you look at it, what we do is we do ---+ you will see the Q, and the operating income will come in that area going forward.
I think one thing we want to make sure you realize is that we're very pleased with the gross margins and those trends.
We're realizing the benefits of the cost reduction initiatives, associated procurement, design to value, service margin improvements, more favorable sales mix.
We also have ---+ gross margins within mobile computing were particularly strong.
These are result of obviously multiple quarter efforts.
And we expect the trend to trend positively.
I will say that we did see sequential improvement in the gross margin on the Enterprise business, which I think was favorable.
Yes, I think it's going to be probably closer to 25%-ish long term.
But it has not changed dramatically.
Yes.
Yes, it will go up sequentially every year.
I think the ---+ printing was slightly weaker from a revenue year over year, but it was due to really tough comp last year.
There was one particular deal that we couldn't replicate.
If we had been able to replicate that, we would have seen growth, but the margin profile across the business, though, is quite steady.
With the improvements we see there, it really goes back to all the efforts we put into driving improvements in gross margin, or reductions in cost of goods sold.
We've had a very deliberate initiative around procurement and design to value also for printing, but also for our Enterprise products since we closed on the transaction.
And we're now starting to see those programs or initiatives starting to bear fruit.
Services is another area that we put a lot of emphasis on improving margins, which is also nice to see that that's now coming through.
Yes, I'll start and I'll ask <UNK> to help out also here.
I'd say we have seen lots of good opportunities for our better together story resonating.
You can go from a high level, I'd look at healthcare.
That has been a focus area for Zebra for a long time but not so much for Motorola.
We have made healthcare a focus vertical for the entire business.
And we've seen great growth for both mobile computing and scanning in there.
I'd say similar in retail, we are seeing new wins for printing in retail where we didn't have before.
That's how the strength we have from one part of the Company across other verticals are helping to pull through business.
I'd say also the examples that I went through in my prepared remarks, each of those examples are utilizing a number of different products, and all including both Enterprise and the pre-transaction Zebra printer products.
<UNK> <UNK> speaking.
I would add, we put a lot of emphasis early on in cross-training the sales force in order to be able to sell the entire portfolio and to implement initiatives and incentives that would indeed incentivize the cross-selling.
I think it is fair to report that we are seeing good traction on that, not only in the examples that <UNK> included in the prepared remarks, but throughout our business we regularly see deals where both printing and our Enterprise products are included.
We are moving ---+ in fact I would say beyond that now ---+ to where we have ---+ to where we are implementing solutions in our customers where we integrate those combinations of product into more of a solution.
Indeed, some of the things that <UNK> described are examples of that.
One other thought on the cross-selling.
Of course, I mentioned earlier that 83% of our sales goes through partners.
So in order for us to be successful at the cross-selling, it isn't enough that our own sales force does this but also that our partners do this.
And the new PartnerConnect program is in fact helping us to do this.
If you look at the elements of the program, it provides incentives for cross-selling.
It provides certifications for partners to acquire capabilities across our entire portfolio.
And of course we only launched it in April, but we're quite confident that it will help us in that ability to cross-sell.
We're doing a lot of things to integrate the products, product families, to work better together.
Initially you can say there was almost like two separate products that were sold together as a bundle, but now we have done things around how to make it easier to pair products.
But also we now integrating our printer products into the OVS, our services ---+ cloud-based services platform ---+ to make sure that we can manage all products, irrespective of the history of them from one platform.
Yes, we are very pleased with the progress on expanding our Android business.
We have the industry's most comprehensive lineup of products for that, and we are getting a lot of recognition for product superiority in that area also.
I'd say the largest, most sophisticated customers are the ones that are leading the charge.
They have their own IT department to understand what is going on with Android and Microsoft and other operating systems, and can make their own decisions about what's really in their best interest over the longer term.
And so we ---+ I'd say we almost exclusively see larger tenders be for Android devices.
Further down, if you look into more the smaller deals, run rate type of business, there I think it's a bit more inertia, that people know the products they have.
They have written applications around those, that they don't necessarily have the resources in house to migrate those off a legacy operating system to an Android, say.
So we expect it to be a lag before that happens.
But we are seeing Androids having more and more traction deeper down in the pyramids.
So it is working.
And we are having a number of plans for how to engage with ---+ both directly with end users as well as through our distribution and reseller partners to educate and train both resellers and end users on these things.
Then lastly on the margins, if you look at ---+ if you compare a large deal, say, for Android versus a large deal for a legacy operating system, the margins tend to be very similar.
If you compare a run rate type of deal for Android versus a legacy operating system, they again would be very similar.
The difference we've seen in margin profile between Android and legacy operating system has been much more driven by the proponent or the portion of the total revenue that comes from large deals versus run rate.
This is <UNK> <UNK>.
I will answer that one.
We were ---+ are very pleased with the fact that the deals that pushed out from Q1, we were able to close a majority of those.
I don't have an exact percentage for you.
But we were able to close a large number of those deals.
That said, we do continue to see the caution that <UNK> mentioned, in particular in the retail sector.
And we've talked about it in some of the earlier questions.
We do see some of that caution persisting.
So some deals in Q2, we saw push out to Q3.
And so we see some of that caution continuing.
But we're quite confident, to your point, that it is a matter of timing and that it isn't that people are fundamentally reconsidering their architecture and their approach.
I think they are weighing the project in the context of an altered economic environment for themselves and an altered budgeting cycle that they perhaps find themselves in.
Good morning.
This is <UNK>.
A couple things to your point.
We have achieved a number of significant milestones thus far.
Again, the Asia Pac go-live went successfully, as well as the PartnerConnect.
Keep in mind that as we went through those, within the region we had a 10% growth.
I think that speaks to the fact we had good execution.
We've also rolled out aspects of our services program.
All those have been executed well.
We look at the integration spend in two buckets.
One is IT related, which is hooking up the systems to run the business.
The other is non-IT, or integration costs.
The IT piece is on track and on budget at this point.
And the non-IT expense was running about $20 million higher in the first half of 2016.
We wanted to make sure that there was smooth execution.
I think we've demonstrated that in the results that we have.
We want to make sure that ---+ these things include the operating model by which we run the Company.
The legal entity structures.
Again, this is a carve-out, very complex.
Structuring the PartnerConnect program to accomplish the things that are important for both us and our partners.
We also had corporate rebranding as we move from a Motorola name to a Zebra name, consolidated, those types of things.
I think it is important to [note], these additional costs that are non-IT are behind us.
The integration expenses have peaked.
We expect to step down going forward.
And we remain committed to a debt pay down goal of $300 million in 2016 and $350 million in 2017.
China has been a fast growing market for us for a long time.
And we have a very strong team, I think, in China.
We're putting a lot of emphasis, a lot of effort, into making sure that we have the right strategies for the long term, including making sure we have the products to support the Chinese customers.
We are very excited about what China can do for us and how we can continue to grow in China.
We've definitely seen our footprint expand over time.
So when we first entered China it was very much based on really Western manufacturing companies.
But over time we moved into a lot of local manufacturing.
But over the last few years, we have seen a lot more retail, particularly e-commerce, as well as T&L.
Of course, all those e-commerce packages need to be delivered somewhere.
We've also seen actually quite strong healthcare growth.
So the portfolio of products we sell in China is now much broader.
It starts to be much more similar to what we would see in the US or Europe, as examples.
I'd add two other opportunities for growth that we're pursuing, and have been pursuing, in China.
It's been really a growth story that's extended over many quarters for us now.
The two others are ---+ is cross-selling.
We talked about that a bit earlier.
We have strength in different sectors between the pre-transaction Zebra and the Enterprise business.
Enterprise, as <UNK> was saying, having charged into the retail segments, the e-commerce segments, fast growing areas where the printing was very strong traditionally in manufacturing.
We now have the ability and are in fact cross-selling between those two.
That is one very nice source of growth.
And then the other one is we have the opportunity to expand geographically within China.
So you have multiple tiers of cities.
We're quite present already in the larger cities like Shanghai, in Guangzhou, in Beijing, but the second and third tier cities are ones we are in the process of penetrating and staffing.
So we have lots of growth in that dimension as well.
Absolutely.
This goes into the broader initiative we have around gross margin improvements.
We're working on both the regular procurement activities.
So working very closely with our contract manufacturers, or JDM partners, to make sure that we get the lowest product cost we can, from that perspective.
But we also having a number of what you call designed to value initiatives going on.
This is where we take an existing product and look at ways to how we can redesign it to design cost out of the product, to reduce the product cost and improve margins.
Both of these initiatives were meaningful drivers for the gross margin over-performance that we had in Q2 here, and are included also on Android devices.
So we see clearly working very hard to make sure that we are very thoughtful and focused on improving margins in our Android portfolio.
Yes, I think that as you look at that, we tend to look at ---+ we obviously have a bottoms-up detail.
And we'll end up with, for example, adjustments to stock-based comp and stuff like that that sort of goes up and goes down.
We tend to look at the ---+ as we look for reasonableness, we tend to look at it for a total OpEx trend.
I think in Q3 we are seeing things that are driving our total OpEx going up a little bit, as we have some duplicative IT costs that are going through G&A where, for example, you have two systems that have to work at the same time until you get off the old one.
We have higher litigation expense.
We also have some higher healthcare costs.
Absent these costs, our total OpEx would be lower year over year.
I don't know that giving you definition of OpEx for sales and marketing and all those other things would necessarily be helpful at this point.
Probably through this year.
It is just related to some of the litigation associated with the acquisition of ---+ as we did the acquisition, we ended up with ---+ assuming some of the responsibilities for some of those items.
And it is just ---+ it's not huge, but it is several million dollars quarterly.
Yes.
Again, we had said, I think, around $130 million to $150 million for the full year.
Our integration expenses have peaked.
We said that our expenses for the year are about $20 million associated with the non-IT related spend.
Again to your point, we expect a big step down going forward.
And we certainly remain committed to the $300 million debt pay down in 2016.
Thank you all for participating.
Have a great day.
| 2016_ZBRA |
2016 | BHE | BHE
#A combination of timing and production ramps associated with supply chain and ongoing qualifications.
But none of them are of the nature that were specifically concerning or push out cancellation.
They are ramp.
As you recall, these are often longer term in the nature of the products that are being supported, as well as the complexity.
And so we expected them to fall into the second quarter and expect now to be able to do a good bit of biz in the third quarter.
One and the same on defense and aerospace.
The defense and aerospace was primarily associated with the program ramps.
So it was that impact.
No, we have not seen any customers point to that as having a specific impact.
It likely causes some caution associated with our forecasting, but nothing specifically has been pointed out to us.
Thank you.
Hello, <UNK>.
The new program ramps, again, as we expected them to occur in the second quarter, the costs associated with the ramps ---+ the inefficiency associated with the ramp is ongoing through the process of getting to a steady state of production.
So it's not to say there's no cost or no inefficiencies in the future, but at the cost incurred on the initial start-ups has already been accounted for.
Well, the regulated industries, medical and defense and aerospace, typically will have both longer production ramp cycles and higher upfront costs associated with those, due to the nature of those programs.
But that is the primary differentiator in those type of programs.
I think, <UNK>, we had targeted 4.8% on our last call exiting the fourth quarter.
I think given the choppiness that we're seeing in industrials and the overall macro challenges, at this point I certainly don't think we're going to be able to attain that.
But I would say we should have, depending on where revenue comes up, we're projecting a positive trajectory as we go into next year.
And as <UNK> indicated, ultimately, we want to drive to the 5.5%, if you will, adjusting for the amortization that we talked to today.
Yes.
Coupled with the mix that we have and the actions that I previously mentioned, yes, there is a pathway to get there.
I believe we will see the bookings begin to tick up.
As we indicated, we are, I would call, exceeding the base of our high-growth, high-value market base of customers.
And as we see those number of those opportunities are at the front end, and we are trying to continue to move to the point of leading with engineering.
And as we do that, those opportunities will differ in size.
So as expected, and I believe as we've talked about over a number of calls, that is exactly what we're seeing.
And as we move towards next year and as we continue to focus, as well as invest in both sales and marketing and engineering portions of our business, we expect to see those bookings begin to increase.
I believe they've been more flattish.
As you likely know, any time you're estimating those, there can be a range.
But we do believe that they've been pretty much flattish, with a good mix of business that we've seen and we'll want to see those begin to accelerate in 2017.
Thank you, Operator, and thank you, everyone, for joining us this morning.
We know it's a very busy day in our industry for earnings calls.
We'll look forward to hearing from you and follow up.
Have a great day.
| 2016_BHE |