Thank you.
Thank you.
Ryan, in general terms there is not a lot we can say at this point in time. We go through our normal procedures as we do every year during the third quarter. We do our internal studies, we supplement that with external studies, we get external and internal actuarial advice on that. Our auditors are involved, we look at economic assumptions, we look at actuarial assumptions, we look at policy holder behavioral assumptions and so on. And then we come to conclusions. At this point in time we had not drawn any conclusions and there is no further commentary we can give. Obviously, we will come back to you with a clearer explanation with all the details during our third quarter earnings call.
Thank you, Karen. Thank you all for joining us again. Appreciate your time. We’re real excited obviously about the progress we’re making on Bad Daddy’s and continued progress on Good Times. We look forward to talking to you next quarter. Thank you.
The first one is it will have full functionality. Release one will have the click-through seating, where am I on the waitlist, is my table ready and the ability to pay at the table. Released two, which will come upon after that we will have some even cooler things that I don’t want to get into for competitive purposes on that, so that should be terrific. In terms of the loyalty program, as you know, we have been really far ahead on this. That is really one of the advantages of our portfolio. We really like what we see with our Dine Rewards program. Having four brands allows us to have a loyalty program that people don’t get tired with because they can dine across the four brands. We’ve expanded into Georgia this year, out of its five test markets. And that is going to be a piece of the go-forward strategy when we complete that task. But so far we really like what we are seeing. And any app that we would come out with in the future would dovetail really nicely with the loyalty program.
Good morning.
Sure. So we expect the book-to-bill ratio in Electronic Systems and Communication Systems to be slightly above 1.0 for this year, and in Aerospace just under 1.0. Now, there's a lot of opportunities, some that Mike talked about, that we're pursuing in Aerospace. And to the extent that we can capitalize on them, that book-to-bill ratio in Aerospace Systems should move to 1.0. But from what we're seeing today, I have it just under 1.0 for 2016.
We are at the very front end of the commercial air part. So it is beginning to be more meaningful but not yet. But you are probably not far off. And the R&D thing, Shawn?
Thanks, Rick.
We agree that opportunity exists for margin expansion in all four of our operating segments. In our trucking segment, truck load dedicated in swift refrigerated. We believe we can improve margins even in a soft break environment as we hyper focus like never before on utilization, improved safety and increased driver retention.  In our intermodal segment margins should improve as we continue to work to fill the existing container fleet and meet our turn objectives of two turns a month. Reaching these levels of turns will significantly improve our chassis and dray costs and as a result create opportunities to expand our intermodal margins. Additionally we have nearly completed the build out of our dray operational infrastructure, which is a critical component to improving and sustaining our desired intermodal margins.
Good, good to hear your voice. Big picture, we don't give the specifics on that, but it was significant enough for us to mention it. But as Marc already alluded, it's been factored into the guidance going forward, but it was significant enough for us to put it in our comments.
I think that will come following the release. We actually have an ACH capability today. It's actually a choice chosen least often among our offering, but as we continue to ramp up our investments and MoneyGram mobile and online platforms we'll accelerated some of our service offerings around the ACH. But we're not really beating our self up or anything about where we stand today. We're happy with our offering.
So I think the margin story will follow that theme, as in New York City as Doug mentioned we have some speculative inventory, if you will, and we will be motivated to move it.
Thank you. Look, as we said on our business update call, this is a focus of ours. Increasing the gross margins is a priority. Creating the operating margin between that and our OpEx deployed is a priority. So you should see that trend continue. We've improved it over 200 basis points in the last quarter. We think there's more as we said in our update call, that we're going to be able to do. And as we continue to scale the business, we're seeing the benefits of that. So you're going to see it trajecting upwards. As we said previously, it's $0.35 a watt of average gross margin is what we're targeting for next year, which is up from what we're seeing currently in the run rate. So big focus, top priority, and we're making good progress.
Well, I’m not sure, I understand your question, but we have an IR firm that you absolutely can call, there are number of contacts that are listed in every press release, virtually are from our IR site and also on the investor relations site. If you want to e-mail me personally, I will make sure that you get response, but in any case, we’re absolutely there for you.
Several questions in there, I'll try and get to – get them all, Eric. If I don't, ask again. But if you look at our capabilities, we have very rich long-haul and metro assets throughout the U.S. We don't have as rich in EMEA and LatAm. And so, obviously, those are areas that we want to continue to expand. Whether that's through organic or inorganic, we want to make sure that we build an infrastructure that matches our opportunity in those markets. And so, we believe that we have great opportunity to do that. With respect to pricing of those types of assets, I don't really have any comment on that. We will be disciplined if we look at M&A activities and make sure that we believe that the value that we're getting is appropriate for what we're paying, and we'll continue to use that discipline that we've demonstrated in the past and making sure that we believe we can execute on the integration in the way that we've done in the past and we'll continue to focus on those things.
Well, that's a combined growth for both.
Yes, it's relatively - we talked about $0.25 for the full-year. It's slightly higher than that Kristen. There was a number of moving parts as you can imagine, and certainly there are currencies that have weakened where we've got large expense bases as well. So it's probably just slightly higher than the $25 million -- $0.25 for the full-year. And I think a range around where currencies are today, I think we can manage through if there is another material step-down, we’ll obviously have to reassess that. But clearly the business and the operations are performing in a way that has allowed us to absorb that slight incremental increase.
Thanks, Haendel.
Overall -- the margin, we were basically right at what we had projected for the year. We were about -- of that. But part of that has to do with the startup expense at Lenexa. Although it was probably slightly higher than we had projected. But generally, we were flat from the plan for the first quarter
I would say that that 6 million, you remember we put it in context that that was a scenario that, if we would buyback 200 million of stock during the year and if we would do acquisitions, this is what it could look like on a go-forward basis. That was not necessarily our prediction of what was going to happen in the year. So in terms of what our expectation is for the year, our expectations will continue to buyback opportunistically. Obviously, you get an idea from the last two quarters here. We’ve deployed a fair amount of money in buybacks because we think it’s a good buy and based on what our outlook is for cash flow and acquisition pipeline and timing of deals and where we want to be from a leverage standpoint, I don’t think it’s changed at all. Obviously, we revisit it quarter-to-quarter but there’s really no change in our view.
We don’t see either one of those as an issue. From an accounting perspective, we are audited on a regular basis. Everything has always been above board and will continue to be above board. With regard to IT, we’re in the midst of a IT rollout but that’s gone very smooth and it’s a three-year plan. We’re about halfway through it. We don’t anticipate any changes or any negatives with regard to that other than as it rolls out segment-by-segment, we see increased visibility into our own networks and increased productivity and efficiencies that come with obviously the IT that we’re bringing on board. So we don’t see either one of those as an issue, Thom, not at all.
We can have this as a side – about, perhaps, these fine details.
All right, thanks.
Yes, this is Pat, and I'll address that. This was a great momentum-building quarter for vCloud Air. We had strong initial response from our Japanese offering with Softbank. We launched with Telstra in Australia, the most penetrated virtualization market anywhere in the world, so very sophisticated customers. A lot of excitement around the vCloud Air service we launched in Germany. So taken together, a lot of very strong geographic expansion. We also had strong product expansion with the on-demand service going live, NSX service, hybrid networking. So a great product quarter as well. And we definitely are seeing that continued very dramatic year-on-year growth rates for vCloud Air; starting small, accelerating rapidly, but also is the broader vCloud Air Network and that had another very strong quarter as well, and that clearly amplifies significantly our presence in the industry. We also had a strong vCloud Air government service launch as well, which we were really quite pleased. Literally every agency, every three-letter acronym, et cetera, was showing up for the service launch as well. So overall a lot of momentum. With respect to Google, what we said when we announced that in Q1 was later in the year we will begin to offer four Google services through vCloud Air; and object service, DNX (36:58) service, BigQuery and NoSQL offering. And those will come on later in the year, so we'll be updating you as those services become available, but we believe that's a very strong offering to further extend Google's presence into enterprise and further enhance the vCloud Air offering with the largest network and cloud offering on the planet. So we think this is quite a marriage made in heaven and we're excited to see it come into the market together with us.
I would say the funnel is increasing because we continue to talk to more companies and we're engaging with so and as we come across opportunities with customers will go back into the finals. Okay, let's revisit this for that opportunity. And we may be willing to pay, because obviously a bit and then ask why the many times we can't do it because we don't have an immediate customer that we can say, okay here this customer will justify the purchase.  So when we come across a customer we go back into the funnel and try to pull the right opportunity to be able to justify the purchase.
Well, I think that something that management is going to decide depending on what type of pickup and demand we see and the type of margins we’re going to see. I think that this is an area that we feel we could generate cash and that won’t be an incremental expenses.
So, part of the decline in margins is due to the additional royalty cost that I mentioned and so that does play into it. And then the other thing that plays into it of course, with being on a cash basis for more than half of our revenue is the timing of reimbursement one quarter versus the next. So, that also plays into it a little bit for this quarter. And certainly with being on the cash basis we still have tests that will process this quarter for which we’ve incurred the cost and won’t be reimbursed until future quarter. So I think there is a little bit of impact from that variability as well.
Hey, Jim. Let me talk about the growth question. Yeah, we do – first of all, we do expect to grow in 2016 over fiscal year 2015. We think overall we're going to have a better year. Definitely, MSI project is part of that growth. That's something that we worked on for a long time. We're going to hopefully start shipping to them in the second quarter of fiscal year 2016. I think for the first quarter, we are here exactly what we expected at six months ago. We knew that the second half of calendar year 2015 for us will be a little bit better than the first half of calendar year 2015. So that's coming per our plan. No major surprises in the short term. So I think we're well positioned. So, we do expect to have a better year on top line and on the bottom line and across all other metrics that we are looking at, at least what we see today, unless the whole economy goes in the wrong direction, Jim. So assuming that, as I said, the economy is stable, nothing crazy goes on, Sanmina should have a very good year in 2016. Bob?
All right. Well, this time again, I'll thank you for your interest and look forward to speaking to you on our next call. Have a great afternoon.
$2.5 million.
No I think we – since repurchase the center, [indiscernible] about 10,000 square feet I am going to say. So we’ve taken a step back when we – when we first bought the center and well before of course are in due diligence. We identified the spaces that we thought were lower market, this the tenant that Bruce is referring to would knew is below market, probably lower quality tenants that we would want to have in this particular asset. And we’re trying to be mindful of the fact that we have an asset across the street. And so as we’re looking sort of more generally of tenanting both assets, we’re trying to create the strongest tenant mix. So we don’t want to just plug-in tenant simply for specific rents. We wanted tenant to be able to do quality sales and pay the rents. And so we have to be mindful that tenants who are across the street as well. So this particular tenants [indiscernible] does not compete with the tenant across the street, so we expect very strong sales there. We’re able to drive very strong rents. And we expect that the anchored space that Bruce is referring to 25,000 square feet or so that we will be able to better the rent and certainly off the quality and traffic that would be associated with that kind of thing.
If you look at it on certain of our fixed-price added products, that's absolutely right. The fixed price added remains the same regardless of lumber market, so at a lower market, the margin would necessarily be higher.
Good morning.
Again, it would depend on the requirements of the purchasing agency and our ability and ability of our commercial manufacturing site to provide.
Well, I would hope they would give us a look because of the values that we deliver and the quality and consistency of our services and the breadth of the things that we bring. And I would say also the innovative dynamic, we are well-known for being in the forefront of innovation. And we have really compelling cost structures and probably deeper into in more diverse and care management to the commentary this morning. So I would hope that they would be looking at us for those elements, and then good if they're concerned about other dynamics in the marketplace I can't comment on that, but I would hope it is for the former and so I would kind of leave it at that. I do think the marketplace will be strong and robust in the next couple years. Jeff, do you agree?
That’s including Medical Innovations in that.
[Audio Gap] in our combined company, I am looking forward specifically to working with Dave and Dennis and moving forward and creating the additional value that this merger will bring. So with that, we'll look forward to talking with all of you in the weeks and months ahead. Thank you.
Yes. Roughly, if you looked at land and land development of the overall portfolio, it's roughly around 7% of that of the billion one.
Can you remind the second part, what kind of opinion you like me to have about the position, about the current or the year-ends effects?
Yes. So, let me add some clarity. You generally have it right. So, let me start with what I said in my prepared remarks, but I'll actually use some numbers. So, we received approximately $190 million in TSA revenue through fiscal 2015. And we have plans that will mitigate approximately $125 million of that, and so over the course of the next four years, we're going to develop additional plans to deal with the remaining third or roughly the remaining $65 million over that four-year estimated wind down. Now, what comprises these both the two-thirds and the one-third. So, in the two-thirds, we have things like the TSA from Haggen in there, but we also have – and a significant amount of it is cost reductions. With respect to the remaining one-third, we're first going to explore additional cost reductions. And as you know and as I've said in my prepared remarks, we've done an extraordinary job as a management team with respect to cost reductions over the course of the past two years, so we'll continue with that effort. We'll look at additional professional services like the Haggen's TSA to help offset and leverage our fixed infrastructure. We'll look at additional revenue growth through strategic initiatives, things like the Rainbow acquisition as a way to offset the decline. And as I've said in the prepared remarks, we've built a five-year plan. And in that five-year plan, despite the fact that we have this revenue going away, we still have a planned adjusted EBITDA growth year-on-year over the course of those five years. Is that helpful?
Brain, this is Terry. No, we did not seek approval from A.M. Best. We believe we have a very strong capital adequacy position from a rating perspective, more than sufficient to sustain a current A minus rating. So yes, we did not seek or obtain approval from A.M. Best on this. The capital that’s been deployed is at the holding company levels. So, we’re really not addressing any operating company capital adequacy...
Actually it is quite meaningful compared to kind of Bestop. It is in the neighborhood of about $90 million of net proceeds.
I would say there’s no big change. We have some products that are higher than that, some products that are lower than that. It’s just different mix of products. We’re pretty comfortable with the low 30s on the gross margin. And of course we’re always looking to improve it and if we outperform, it would be great.
Yeah, that's a multivariable question and one for which we continue to look at in terms of – obviously, managing the short-term obligations, the 2017 notes, is priority one. And obviously, as you can see on that liquidity – that pro forma liquidity slide, we've got those proceeds coming out for that. Then the kind of next part of that equation is really looking at – when you think about the recent rash of downgrades across the – credit downgrades across the industry, we've been in very active, and have been for a while – very active discussions with our banks and we're very optimistic about where we're going to end up with our credit facility covenants coming out of this Piceance sale. So, again, when we think about managing the liquidity versus the potential returns that we are going to be able to see out of these Delaware assets, it's just something that – obviously, we've got to get the deals closed, first and foremost, but once those deals are closed we'll have a pretty good game plan coming out of that and what we're going to do with those.
Ron, speak up a little louder please.
Sure, Mike. Hi. I’ll give you some color on that. So as you know, both the OPTIC and the OPTIC-2L trials are underway. We’ve guided generally to first data from OPTIC probably in 2017, given the need to have a reasonable follow-up on those patients. And as we get further into the trial, we’ll probably refine that. OPTIC-2L, we projected two years for enrollment. So that takes us to approximately the end of 2017, and then interim data potentially in 2018. We do have ISTs underway, a large number of – if you like, targeted investigator sponsored trials, targeted by the investigators to specific areas of potential for Iclusig, both within CML and Philadelphia-positive ALL, and outside those core indications, including AML and some lung subsets. We don’t – as you realize, control those trials operationally, so we don’t have complete control over when they may readout. But we would expect to see a steady outflow of potential data from those trials over the next year or two years. Some of those trials are in earlier lines of therapy, but obviously are not robust control trials. And I hope that gives you a bit more color on where we are.
That's exactly right. That's truly – no, no, no. That's exactly right. So you're sitting on a tremendous amount of equipment under that scenario that you can either sell or more likely redeploy for other new business. We're at redeployment mode right now.
No, I don’t think we went into that yet Paul, because we really need to understand the nature of this pilots, how they perform when they’re confined with other wells, we didn’t actually make any view prediction about what we expect to find. We’d rather do that after we're seen the pilot test results.
Well it’s a general rule Chas, yes, I mean part of the reason for us focusing on consolidating around the series of growth brands as it gives us the opportunity on part of our cost optimization program to drive a whole series of efficiencies through our business and hence the targeting of 300 million by FY18, because if we have a much more limited portfolio product, we can make manufacturing easier, few levels of complexity driven by a more complex product. So we would expect margins to improve but it’s not as simple as to simply assume that those volume goes up, we would expect margins to improve because there are different markets where we’ve got different brands with different margins, you’ve got different markets in which actually the level of margin will be different, and it’s big mix issue which will influence any period-upon-period shift in margin activity across our both brands depending on what we're shifting at what particular time and what the brand is and how that effects the mix of the population as ours.
Yes, hi Chris. So we are right now based on the smart track data which in general a lot of us have subscribed to. This segment of the market is kind of the new segment that's evolving but it's pegged at about $38 million as of the end of 2014 growing to about a $107 million in 2019. But there are parts of this product because part of its injectable and part of it's a particulate as Jan said and that kind of crosses over into the Amniotic space as you know so it's kind of hard to peg an exact number but in totality it competes in that $10 million - $100 million segment of which the injectable piece is about $38 million today. Just lots of opportunities you can imagine in that market.
I think we're going to be cautious on trying to give specific directional on what our capital raising efforts, what are – I think, it is fair to say that there is roughly $575 million of debt at the General Partner and the distribution is about $600 million, so it's about a one turn. So Gabe, there is certainly leverage capacity there. Let me just stop there at that, and just say, we're certainly aware of what others have done, and we're not only looking to review what's been done but what could be done. So – but I think, you have identified a resource there.
This is John. Hi, Tao. It’s probably going to be sort of in this range. I don’t see it dramatically changing. Nothing is going cause it to do that besides just our brick-and-mortar work and trying to get contracts and then trying to move volume through the contracts that we have today.
There is no question that in many of our markets, the historically wet weather and it hasn't affected us any differently than it affected other builders. I mean, no one has a big umbrella. It clearly extended our cycle times as well as land development whether it's developed by third parties or us.
Absolutely, we put a plan in place last year and we are seeing the fruits of that. One good example of that is the supply chain efficiencies, particularly delivery and distribution. We have been able to improve our rate of sales on this lines collectively by being very proactive, negotiating better rates and doing something on the supply chain have been able to offset some of that pressure. We have also had some pricing adjustments. We have been able to flow through without any material impact to our sales as well as just all sorts of small things we are doing both internally to reduce the cost to our vendors as well as to us. And so some of those benefits don’t necessarily show up in gross profit, but they will improve our gross profit rate – or excuse me, our operating income margin rate in aggregate. So, it’s a combination of trying to improve our mix, our pricing, our supply chain and our lower product cost. We have been able to negotiate lower product cost by partnering with our vendors as we increased our top line growth north of 20% we are able to gain some concessions in better cost.
Absolutely, without a doubt when we acquired the Brink product, Five Guys was not in the forecast and to win an account of that size with that product is the tremendous accomplishment and it’s going to get a lot of attention a lot of bigger size customers, we certainly hope so.
No.
Yes. So why don’t I start on the seasonal decline. So, yes, we expect seasonal declines and in fact they are substantial. In many years we’ve had a Q2 to Q3 sequential decline in federal revenues in the 40% range plus. So we would expect that same thing again. And that doesn’t mean we feel good, better and different. It’s just the seasonality of the business. I think that we have seen stabilization out there, that’s good. I think our position – and Tom can speak to it better than I, our position continues to be very strong on the federal side of the fence.
Good morning, Dave.
Thank you.
Sure. Most of that is really a reflection of our first quarter of this year where we were challenged with some very difficult weather conditions, as well as we made some significant infrastructure investments in the second half of last year going through the first quarter of this year, which significantly compressed our margins and our EBITDA during the first quarter. And we’ve had great improvement, as you can see here in the second and third quarter and like our trends of the business but we’re still being dragged down for our 2015 overall results, including our margins by that first quarter. So, we still have some work to do in terms of growing into the infrastructure that we’ve built. We spent a significant amount of dollars increasing our capacity here, particularly in California. And we are driving more fee-for-service revenue and patients into these existing facilities where we do have a lot of operating leverage. And we’re starting to see some of that come through here later on in the year. But overall, the year I think is still going to be plagued by that very difficult first quarter. We are excited to get the first quarter of this year behind us and replace it with what we hope to be a much better first quarter here, next year. And then, we do believe we’re going to grow into the infrastructure that we’ve built.
A little.
Good morning, Steve.
Thanks Jeff.
I think in general we would rather have modest inflation and modest deflation for a bunch of reasons, not the least of which, inflation helps leverage the fix cost. I think the question you are asking maybe a little bit broader in terms of is there any environment in which deflation is helpful and obviously that would -- one might be if you could maintain fixed prices that have lower product acquisition cost.
Right. So in our fluid power from a U.S. standpoint, really flattish but our look on balance of the year and going forward, we believe we have growth opportunities there because we are expanding our value-added services. So to those OEM customers, we're really doing more work and we're doing more work around some additional products. Those solutions are getting smarter with controls. Those solutions are getting smarter with electronic interfaces and we're able to provide those capabilities.
Again, I’d like to thank everybody for participating in the call today and I look forward to closing out the year here in 2015 end we’re already starting our planning for 2016 and you should see continue much of the same trend that we've had and we look forward to showing you that in future quarters as well. Thanks everyone.
So the combination for us when we look at the year we approach for 2016 we think it’s the $100 million when we look 2015 it was probably somewhere in the $70 million - $75 million on-road. So that was the number that we had.
So, our numbers for Q3 -- our volume was higher than what you're seeing in the script, so the way you've got to think about price in the U.S. on the quarter was around a third of the overall growth, was related to price. In terms of over the LRP, look, again we've said multiple times, as we build out our LRP, we try to put in conservative and realistic assumptions. So along those lines we don't take what is currently happening in price and extrapolate that out across the LRP. In the U.S. it is -- where we do think we'll be able to maintain some degree of positive price, but what I would tell you is we're modelling a little lower than mid-single digits on that as you go out over the long range plan period. Ex-U.S., it's actually a negative pricing environment. So, when you actually look at the additive of the two across the LRP, we've got very, very, very low levels of price built in to our forecast.
And that’s really where our focus is, we are continuing to invest in the brand, we are investing in new products, we invest in showrooms and continue to invest in showrooms and displays. So all of that, we would rather be driving growth at these margins than slowing that investing down to just take the margins up high, so -- even higher than that. And a lot of those things are what's on the docket for the year is to try to drive that growth at those margins, and I expect that's what will happen.
Michael, it is Simon. The answer is no.
Yes, volumetrically, that’s correct, but down -- it would have been lower we had normal wind.
Right, David.
None. Thank you.
Well, the Permian is better on the production services side of the business. And you're right. Every market is kind of a knife fight, but I would say on the pumping side in the Permian, because so many frackers moved into the Permian late in 2014, I mean, there was 38 frac companies bidding on work in November of 2014. Today, it's probably less than 20, but it's still way over-represented on the service side. So there's just too many bidders out there. And that's probably the worst pricing we've seen on the frac side, has been on the Permian. Of course, we don't pump in the Bakken and we don't frac in the Eagle Ford. So I can't speak to those markets, but I would assume they're probably equally competitive. But the Mid-Con and the Rockies have been where we found the best pumping margins. But every single market has been competitive on the production services side. What's helped us is our cost structure and our yard coverage, where we can maximize economies of scale. That is good in every single one of our markets, but probably nowhere is it better than, say, the Permian or the Eagle Ford and the Mid-Con for us, because our yard coverage is so much better. Our SWD capacity is strong. We're probably closer to the work than most people. So our transportation cost is less. That really helps you when you have to bid these jobs out.
Sure, Ebrahim. Thanks for the question, what I am able to give you is mostly directional until we have a chance to revisit again in October, but let me try to give a little color here. So you know we’ve talked for some time few of those who have been following the company about our desire to operate closer to 70% efficiency ratio. That remains the case and in the past we've had the good fortune of some really strong tailwinds and performance from the things like Scout that have allowed us to take more measured approach to how we get to that 70% efficiency ratio. Given the current environment and the headwinds and such you know they have highlighted our in efficiencies and therefore waiting is not a strategy and we are committed to getting there you know more quickly than we have in the past. We will complete a process for working on and share that with the investor community in our October call. And that will conclude all that we will be doing on the expense side to get to 70. However, the time it takes to get the 70 will be somewhat dependent on the other side of the equation, which is revenue and mostly around how soon and how fast interest rates come up. So we will conclude and exercise on the expense side in October and share with you those conclusions in that plan in October, but how quickly we get down to 70 will depend on the other side of the equation and the impact of interest rates.
I would also say, we've started a platform of information technology tools and capabilities that are quite well done and very leverageable. So that the integration process is going to go faster, and I think also, yield and end results that we are going to be very pleased with. So we will [indiscernible] the information technology platform and tools that we are very pleased with.
Yeah, Scott. This is Rob. Taking a look at commercial programs overall, they were down year-over-year, not tremendously. We definitely saw a larger downturn on the defense side when you think about some of the programs that came off year-over-year on the defense. Let me just focus on that. I mean, you had C17, LJ85. We are also seeing the New Zealand program start to wind down a little bit because we expect to finish the deliveries of the aircraft in the third quarter. So we certainly and also part of the decline that we had year-over-year related to some of the legacy missile programs. Those tend to be lumpy, and those are targeted more towards the back half of the year. So certainly the majority of the relative decline year-over-year relates to the military side. On the commercial side, it’s pretty relatively flat, Scott. As we would anticipate and certainly we expect not to build in particular as we ramp up, as Neal alluded to, G280 some of the bearing programs really picked up in the back half of the year as well based on their orders.
Just made some general comments that pre-leasing activity is going on very well and we’re very bullish on both of them.
I think the opportunity is very significant and our competitor who bought the powers also selling already a very substantial number of units, so this market is not brand new. Secondly, some of the people who are already buying or have indicated interest in buying units are very large companies with very large fleets and as they become more comfortable after testing these, the opportunity to lay them more broadly in those companies as part of the regular replacement cycle is very significant. So that’s kind of the dynamic that we see here.  We’ve got a first class product as we expected we have. We think that the market need will be there in the sort of high utilization applications. It will be a while before it goes down into other kinds of applications in the market place. We have to get it more mature, we have to bring the cost down and so on, but there are some large companies that are very, very interested in moving now, as long as it performs the way it appears it be performing.
Sure. Terry, our plan and we talked about that all along relative to $10 billion was that we were not fearful of crossing the $10 billion we were respectful of the level. As Paul eluded to our liquidity levels for this quarter stand at about $800 million those are certainly inflated by the municipal balances that are out there. So we have plenty of room to leverage in terms of where we are today, which will further strengthen both our business and our relationship side of our platforms. And also provide additional protection and value against an interest rate environment that seems like it’s going to be lower for longer. So with the combination of those two things certainly get us ample room to expand. And then certainly as opportunities become available for us as we look to cross $10 billion that will further accelerate the earnings performance that will come from growth.
I'm going to have to look that up here real quick because I don't have it at my fingertips. But we'll come back to that and look it up.
For sure, as I'm always saying one of my pillars on the three pillars that is growth, profitability, the third is the adaptability and the more you can adapt to the market the faster you can do it, the bigger are the results. It's important to read the data and to react immediately on the data. Of course, as you know, our product lead-time is long, so we have to be able to read the data way before, but I think this is one of my skills. And I'm working with the team to make sure that we understand more the trends and the insight that we can get from a first read, but I'm a very big fan as my team also is on the test for not just the product, but on all the activities that we do so.
Right.
Right. Well, look, as I said, we're aware of our capital base, the current float and the trading levels of the stock. And we are considering this and evaluating the overall capital strategy. But I would also add and I think this just reiterates what you just heard on the call and what we said consistently over the last five years. And that is, we remain focused on building long-term value – long-term shareholder value and included in that is growing our platform. We've been, obviously, active investors in our own business and we also continue to build our ability to expand our brands around the world with a lot of additional resources. So our investment profile is very dedicated to future growth and to building value over time; that's really our focus.
Well there are groups in the Silicon Valley area. In fact a substantial number of automotive companies have set up groups to operate there in addition to the fact that a Tesla manufacturer is there. But we have customers all over the world, and one of the largest numbers are in China. And then we have big bases in Europe and in Japan. So it's a true worldwide business, but innovation in the Bay area is certainly a key part of it.
Everything grant for Lyndon has been installed, bt it is the safer side things side so far -..
Its really a function of timing, I am not Paul obviously but I want to talk about this sort of philosophy. We are comfortable with the company two-third equity, one-thirds debt right now we are closer to 70%, 71% equity today little more conservatively capitalizing that saw an attractive opportunity to executed in overnight offering at pricing that would be attractive and highly accretive to our investments and we had a use for the proceeds and we want to precision the balance sheet and a very clean and look and ready to find our anticipated acquisitions going into 2016. So this is not a level, this is not a new level that really represents the change in leverage policy for us Dan just a average of the recent launch equity offering.
Thank you.
We thank everyone for joining us and hope you have a nice holiday season. We will see you in January. Talk to you soon. Bye-bye.
Yeah. No, I think what – our plans that were already in place are underway. And as I mentioned, we are adding the professional service veterinarians. We always planned to add that in the second quarter; that's on track. Most of those are already hired and on board. And so that's an expansion that's already underway. But I think it's more that we're gaining both relationships and experience in the new model – as we have demonstrated – happens when we made the first change in 2013.
From a debt-to-EBITDA multiple I think we are little higher…
Hi, Cart.
Thank you very much. Obviously, a very strong quarter and which is we believe actually keeping in trend with our other quarters. We have been doing things that perhaps get the growth going forward I think you are going to see -- we certainly expect to see continued growth in our per share metrics. We are very confident about the fundamentals and the support that comes from the strong fundamentals in U.S. industrial economy and very confident that our pursuit of our described five point plan of showing discipline in our equity issuance, discipline in the growth in the G&A and the future growth in G&A, making sure that we understand the opportunities that exist for alternative equity should that actually not be available from the public markets, all those things are very important to us as we make sure we are going to deliver the returns to our shareholders going forward. We have a great degree of confidence that both our model and our company are going to have very good days ahead. And we thank you again for your time and that concludes the call.
I don't know it's correct.
Yes, that is linked to a potential financing around our MSRs. At this point, we’re not going to issue any corporate debt or term debt. Again, we would likely do some financing around our MSR business to access additional liquidity.
Let's see, probably was. We didn't have a real good bus quarter. I can tell you that. No big bus orders this quarter.
We see it as our go-forward tax rate for the period of our planning horizon.
One small customer has. But, you know, we have talked it through with them and we could -- they haven't canceled anything and we are working with them to see if we can move production around on a win-win basis if they really want to do it. I think there is just a lot of anxiety underlying that particular discussion. That's not to say that we won't be approached or others won't be approached. It's a risk factor that we are watching very closely, but, we've got a great backlog, a great visibility and if you'll recall, we had a very tough time with General Electric a few years ago when they attempted to cancel. We don't -- we won that. We felt we came out of it very, very well. So it's not easy to just say we're not going to take a railcar. It's a contract and people have to be accountable for their choices. But, we will work with customers if customers want to come and talk to us and we've got some flexibilities in our model, our production model in doing that.
Look again on the Easy, Fresh & Affordable remodeling. First of all, the Easy, Fresh & Affordable program as such repositioning of that business is bigger than another remodeling. So you might remember that we did a lot on labor, on Count on Me programs on the frontline, to checkout on the perishable parameter, on the private label, on reassessing the center store assortments and business this is a program where we already embarked on for a longer term for all the 1,100 stores.
Good afternoon.
Thank you.
No, that would be companies that have deteriorating credit metrics. Their EBITDA is declining.
No problem.
Sure. I think the auction is going to happen. I don't think there's any question about that. It's really going to be a question of when and how quickly the FCC can really get it together and be able to pull this thing off. It is fascinating relative to the valuations that we saw in that FCC report that, you're right, that Phoenix would be at 1 level and then Springfield, for the 2 signals in that market, would represent like $210 million. But it does speak to the congested parts of the country. So if someone is trying to create a coast-to-coast network, and you've got to go through Springfield, and you've got to go through the very congested Hartford area and Providence and Boston and so forth, it does -- it does sort of make some sense that those markets, where there are limited signals and they're in congested areas, could go for a much higher rate. At this point, we haven't -- we really haven't determined how much or how little we're going to participate in the auction because there's still so much to be seen relative to how it's going to work, and what the parameters of the auction are going to look like. But I think that report was very interesting. And honestly, even if the values were half of what they were suggested in that FCC report, it does make it a little bit interesting.
No. Samsung really has been said a lot about the OLED. The OLED TV market, they seem to be focusing at least commercially on the portable electronics business and the wearable business. But they’ve also had kept their R&D efforts up on OELD TV when they stated that.
Yes.
Thank you.
One thing I would add to that Rohit was just that when you look at agencies and brands combined they represented about 60% of spend. This is a theme we talked about in our last call, is around 55% in Q1. So combined those grew with, of course the overall growth we saw in spend for the quarter and that’s really how a lot of our brand clients are looking at it is what they do in conjunction with their agency partners.
Sure.
That’s one of the reasons we think that we’ll see continued price coming through the balance of the year?
Well, definitely as we – the Neo hits in 2016 and the MAX in the 2017 and you see the production rate going up, they're going to be transitioning as you're calling out. So, we see really some nice steady growth in the Aerospace segment between 2016 and 2018 as the lines – as the production ramps and as the lines switch over from the current version to the new versions. Same time we also believe we'll be seeing a much higher level of initial provision in spares tied to the large amount of content we have on these new programs and the launch of a brand new engine. So, as we move from 2016 as the neo gets going and into 2017 when the MAX and then to 2018, that is the future growth profile that we believe we're going to be seeing going forward and it's very healthy.
Separately.
Hey, Craig, this is Jim. I think, as we look at the asset base, we’ve got here going forward is, today which point, it will be much less in terms of disposition we are pretty much basically through the kind of legacy non-core asset sales. But I will tell you, if there is opportunity to realize significant gains at cap rates or at values way above replacement cost that our view at this point in the cycle is a better risk-adjusted return concept for the company and we are sitting on some cash to take advantage of other opportunities going forward. We will look to do that and to the extent that we’ve got to moderate some G&A as a result of maybe a smaller portfolio, we’ll obviously look at that as well too. But I think, we are trying to do what’s right for the real estate given the environment we are in.
Not from data that has been published, and Adnan as you know this is the first trial as that there is looking at the biomarker, all of the other trials have looked at the intent to treat population. So there is little to no data other than our Phase 2 randomize data that talks to what the expected overall survival for placebo arm would be. And we have said what our statistical assumptions are for that arm, which is between four and six months. So not being has changed our mind that we have seen.
Thank you really all for participating to today's call and we are really looking forward to updating you on our progress in the next coming months. Thank you again.
Definitely.
As far as one-offs, there aren’t any one-off benefits that you see coming through within the quarter. It is above the high end of our targeted range that we’ve laid out and we still - when we laid out those long term target of 10% to 11%, we said we are targeting 11% because that level of this business is a very high returns business and we are focusing on achieving 4% to 5% organic growth rate. So no big benefits from that perspective as far as your question of other one-offs related to deflation, we have seen some deflation as Anne and Dean spoke to, but it’s been offset by the pricing that we have seen primarily carryover pricing from last year.
Good morning, Tim. How are you?
Oilfield.
Mike, its Jamie here, great question. We actually had a board meeting yesterday and sought approvals to do exactly that. So we’ve locked in about half of our operating cost disclosure for the first quarter of next year. Rates consistent with current spot and we're going to look to do the same for the rest of next year as well. We might do half, we might do the whole thing, it depends on the rates and what numbers come out of our budgeting process.
Look, Todd, the Urban Attitudes percentage of the whole didn't change significantly, so that was not material. What probably the difference in the third quarter to our mix was that we are in the middle of a changeover from one of our motion sofa mechanisms to a new one. And a lot of the old mechanisms are being sold off the floor and they're waiting for the new mechanism to be delivered. And depending on when our customers made that decision, there might have been a gap here of available – and it's not our entire Motion line, it's half of it, but the changeover probably affected the amount of Motion sofas we delivered during the quarter, and that should straighten itself out in the fourth quarter. So our Upholstery sales as a mix were up slightly in the quarter compared to Motion, but we think with this new mechanism that will get back to our standard percentages.
But I think if you look back – if you look at our Q1 for the past two to three years, you will see the numbers and what the anticipation would be as to the core business would be without that, with the COORD3 contribution.
Yes it is a good question, so really as you know in adults the osteomalacia is the issue, is the histology, the lack of architecture of the bone, so the way we would simply describe this bone quality, you will be looking at really the cellular architecture of the bone and osteomalacia by histology is very easy to recognize and it can be very severe in these adult patients, so it is one of those things when you see it, you see it and by the end of this study after approximately year of treatment we will look again, so it is all about bone quality.
Okay. Thanks, Brian.
Thanks, Bill.
When you bid – first bit of Torrey reserve and then the construction was delayed due to some technicalities, which were able to overcome. What inflation adjustment did you see Jerry.
Steve, we are in the regulatory approval process right now and the process of filing for a trust approval and also shareholder approval. I think on this point we've got to stick to the script that we had at the time we did the announcement. The two companies are still operating independently of each other at this point. And so I think I’d refer you back to the slide deck that we have from the announcement in mid-September. I don’t think we can go any further than that on this call this morning.
Yeah. And our long-term outlook, just to add, for the industry, remains very positive, Ali. Our system is extremely well-positioned to take advantage of this. We're going to be a much more focused company. We're going to be building brands, leading the system, and driving new growth platforms. So, our core business will have attractive growth going forward, in terms of ROIC, free cash flow and so forth. And so we're very confident and very excited about where the company is going, from that aspect.
That's correct, John. We get leverage in a number of different ways, but it's, I think, leveraging things like depreciation and certain other expenses as we continue to do a moderate increase to our unit growth and hopefully drive a strong business trend. And again, as long as the macro cooperates and housing turnover is in a normal state, we feel good about our opportunity to drive that leverage. And that certainly is going to be a focus.
Yeah, we think, even at breakeven, we're generating cash. So we would expect to be generating cash next quarter with the guidance that we provided.
Yes, I can't really comment on any specifics in our legal proceedings, Robert, I'm sorry about that.
So the DSO is a function of, in the past we have talked about linearity of the quarter, when the items are shipped and as we talked earlier on the call in a couple of questions ago, the backlog that we reported in the 10-K, we did ship in the beginning month of the quarter. It was average 30 day collection term. It is collected and that's why we have the lower 26 days DSO this time. The other function of the DSO, going to the second part of your question, on average we would probably just tell you may be around 45 days is a normal DSO. However, I would caution that when the renewal bookings come in and these are the renewals of our mainstream, our annual multiyear support, they can dramatically also affect the DSO because you have the receivable at the end of the quarter, but with no offsetting revenue. So basically if you look at the trend of our DSO over the quarters, you would notice that it is more of a indication of the month of the quarter that we are and the renewal booking patterns and how the shipments flowed in that quarter.
Yes. KACO has been going through the process selecting their battery partner. It’s taking them a little while to get through that, simply because they don’t have a lot of in-house battery expertise. KACO here in the U.S. actually has brought some of their team from Germany over to actually join the team here to finalize that process. So I think we are going to see KACO get a little bit more active here as we get into the first half of they. We know they are actively bidding projects already. But I think if they were to win one tomorrow, I think they have a lot of scrambling to do to actually get the system itself together largely because it’s this process to select whose battery they are going to use. We think right now based on the discussions that they share with us they are leaning towards Samsung, but hopefully here by the end of the quarter they will make that selection.
Thanks Brett.
Sure, thank you, Jeff.
Thanks, Mark.
No, it was not. It was lower than that. The last actual rate case that got set in, Spencer, was 2009. And it was lower than 60%.
Great, thank you all for your continued interest, confidence and support of Safeguard and we look forward to keeping you apprised of developments here at Safeguard.
Thanks for joining us for the call. And we'll see you in April for the first quarter. Thanks.
Yeah, Anthony. It's Dave. So on CapEx, we are absolutely investing in the infrastructure and 2015 is an investment year, so we are ramping CapEx versus 2014. The guidance is $2.5 billion to $3 billion, and that's up from $1.8 billion last year. We've got a lot of infrastructure investment that we're making across data centers, servers, network. We are clearly investing for the growth of both Facebook at its core and then also the additional services that we're bringing on. So we're proud about the efficiencies that we've had. The infrastructure team has done an outstanding job in driving good efficiencies through things like the Open Compute Project, which allows us to leverage an open-source strategy to lower our costs on server and other expensive hardware. It's been a great strategy for us. But given the growth we have in the business, given the opportunity we have before us, we're very much in investment mode in terms of the infrastructure.
I mean, I think we have a diversified portfolio in the aircraft business. We have some exposure to China, but I think it's something where, given the nature of the aircraft industry and the growth in overall airline passenger miles, I think the business is still well positioned for growth and with some weakness or softness in certain economies, the question really is, is that a long-term trend or is that just a kind of short-term blip.
Sure.
Thanks Matthew.
You bet.
Okay. Good question.
If I said that, yes. Again, it is a little early to look at 2016, but I think as we look at things in 2016, what we are seeing is capacity discipline in the industry seems to be pretty good. The economy is fairly soft, but it is okay. And again, our expectation is that the markets we're going into will respond very quickly to the capacity we are putting in, so my gut feel is we are going to see a pretty good revenue environment in 2016.
Very comfortably we have cash for 2017. Astellas is funding the programs, you know, our burn rate is substantially subsidized, and as you know, we came at the very low-end range of our burn rate last year. So we know how to manage our cash, we know how to work and spend -- advance our programs and not burn a lot of cash, and that's really the goal of it.
It's a continuation of our Investor Day story, a real intensified focus on programming strategy, market research, music and listening to our audiences and what they're asking for, finding the holes in the market, building our branded services, i.e., Fresh Radio. You'll recall, Paul, it was Fresh FM. We've now rebranded it for Fresh Radio and we're adding an eighth station in the coming months, so a real focus on programming. A real focus on sales efficiencies and optimizing our local business and both of those pieces of work resulted in cost savings. So effectively, there are three elements; programming, sales and result in costs. And then investing in ongoing market research to ensure we have positioning in our clusters to grow our ratings.
So if you compare our current results or our current guidance to prior, just for the impact of foreign exchange, there was actually a slight negative impact to our Q3 results versus our prior guidance for foreign exchange, about $2 million to $3 million on the top line. If you look at our full-year guidance right now and the impact of that FX on that, there is actually slight positive impact of about $3 million. I would say that's primarily due to the strengthening yen. In the grander scheme of things in the larger context of our $800 million plus of revenue, it sort of noise.
This is Rob, and I should say this straight up for the call, we're going to refrain from 2016 guidance, but I can give you a general sense. As I mentioned in the prepared comments, we do have built into our plans the rate rise in December. Admittedly that's a close call. The revenue impact of what happens in 2015 or doesn't happen in 2015 is pretty insubstantial. In 2016 it does become substantial as you know, and if in fact rates don't rise, it will just make growing revenues that much tougher in 2016 than it would be if rates did in fact rise.
Hi, R.J.
And let me just clarify, it would be 10% of semiconductor revenue not total revenue.
Why don’t we start at the back end of that question? I think we’ve demonstrated over the last few years that this investment in enterprise sales and consulting services has really paid off. We tried to demonstrate it a little bit at investor day, where we showed you not only our customers paying more, they’re using more. This has been truly a win-win situation.  We’re going to continue to invest in it and even to our channel partners, the thing I say all the time is when we win these big enterprise accounts, it’s good for the whole ecosystem. So this is not at the expense of our channel partners. Quite the contrary. It is reinforcing business for our channel partners. So we’re going to continue to invest in it. We think we’ve barely tapped into it. We outlined that we’ve had kind of in the dozens of accounts that we’re talking to with this. And there’s probably upwards of 1,000 customers who will eventually move this way. And we’re going to keep doing it. Now, one of the things also about it, just to the timing that you talked about, we have always had a lot of these deals in Q4. Last year we made a conscious effort to move some of them into Q3. For a number of reasons, we like to spread it more fully throughout the year, but it is not fully within our control. And so I suspect it will always be a little bit back end loaded throughout the year, but just in general, the two takeaways are we’re going to continue to invest, because we think it’s really good business, and the second thing is this level of flexibility with products is something we hope to offer to a broader range of our customers, not just the top thousand accounts.
Yes, I think we will have the bulk of the system. I would say towards the end of this year and probably no later than Q1 of next year and what that system really would entail is, an SAP financial overlay that will get down into everyone of the businesses. So we can compile the information we need in three minutes rather than kind in three days which we, which is where we started. We've done a number of caseins in the process, we've implemented share point and we are using share point as our knowledge transfer system so we can move information quickly and have greater ease of access and with that, we're giving - I won’t say smarter but we’re giving smarter faster is probably the best way to put it. Middle of last year to compile the data we needed on, for our work based 7 deep dive was a three to five day all hand on that kind of exercise. Today, it's more of a one to two days and we need this thing to be kind of a couple of hours in order to function in with the ease of access and the speed that we design. So I’m looking forward to it. We are getting there everyday. We just laid in the new system. This RIET has been tested, its working, it’s still a little cozy but its significantly better than what we had and we continue to take these steps. We think middle of next year, we will have a world-class system that is comprised of four ERP system and/or instances with one financial overlay and a single knowledge transfer system and that will allow us to literally access information in minutes to hours rather than days to weeks.
Good morning, Mike.
Well, we have seen a little bit of an increase in our days sales outstanding in accounts receivable, again largely due to the mix of business and due to the sole client receivable. So we’re seeing a little bit of a working capital impact in our accounts receivable. But the only thing that you generally will see in the first quarter is the payments of taxes and the impact on our direct payments that happened in the first quarter related to 2015. So those are really going to be the impacts in our free cash flow in the first quarter. But generally, we do use cash in the first quarter versus generate cash.
Online as we’ve been may be – been very conservative on how that’s being recognized, so there is still some to be recognized.
Yes, early wins, I would say the - with continued progress and look out, as I mentioned, well, first of all, the business was profitable in the quarter, which is a change from previous quarter. And we continue to see a decline in those, as you recall the story of close Cheyenne move to Nogales, and in the course of that move pined in our orders, we discovered that it’s moving the production in a lot of malls in operators heads, that impacted quality and performance in Nogales, which resulted in the need for premium freight expedite shipments to catch up ambassadors, there’s also some quality issues, some inefficiencies. While we are seeing all of those things trend in the right direction and bringing in Don Clark to run our Operational Excellence couple with Anne and her experience, in the quarter, we’ve already conducted various pre-mapping in our distribution center and in Nogales. We are driving Kaizen in both of those sides. So we confirm we’re on the right track. We’re executing proven process improvement activities in both of those areas. And I would say it’s early win for me, although, you don’t see it in results yet, but over time, I think the streamlining of your organization, which we work through with Anne is also an important move, and we’ll create an organization that is faster, more agile and has less friction between the different silos.
Our expectations going through open enrollment, we did not give guidance on that. We going through the second time in history of the open enrollment period, it’s very difficult to predict how the market is going to react.
We would love to have more of the cash flows from the investment portfolio flow into loans. I think that there is a lot of different variables that could drive that as you know and one of them is deposit growth. And we have some seasonality with our deposits if we look at year-over-year comparisons. Second quarter of last year, deposits were down a little bit. Second quarter, this year they ended down a little bit but on average they were up. So, I guess it’s a long way of saying all things being equal, we would love to shift those cash flows into the loan portfolio but we won’t necessarily know how successful we are at that until we get there.
So I may not have the exact answer you are looking for, Ken, but I can tell you that we do focus on the market metrics, statistics which really measure qualitative aspects of our relationships with advisors and we are seeing a lot of improvement there. So that's not the hard numbers that, I think, Dick's looking at me to deliver, but it's definitely a positive trend outside the advisor channel and the supermarket channel similar success. We have currently 21 funds on the Schwab and Fidelity select list, so at the end of the first quarter, we had 19 funds, so that's improving number and good positive momentum there.
And Yassine, regarding your question on Texas, if we exclude oil well related cement and I'm talking about here specifically oil well cement meaning cement going to oil well construction and then grey cement going to projects that are related to oil well construction, if we exclude that then volumes would be flat for us. Now official data on the Texas market unfortunately is only available for the first two months of the year and that shows actually growth of 2% for the state, not necessarily for us, right. Now we do happen to have the largest exposure to the oil well market and that has already corrected significantly, so we don't expect frankly material corrections from here on. We talked about bad weather which we think - that's hopefully, I mean nobody has a crystal ball about the weather but hopefully we'll get better weather during the course of the year but I would say that probably a better - as it is for the rest of the US, I would say a very good indicator of growth is what's happening on ready-mix. I mean for the whole country, ready-mix for us was up 15% and when you were just for the swap that we did with Vulcan, it would be about 13% growth. We have a similar kind of healthy growth in Texas, Texas ready-mix volumes are up 14%. So, again, not to - I don't want to say there is a 100% correlation but clearly when you take a look at the markets where we're integrated that were not impacted by weather, the growth is very healthy, it's double digits. So, now to go back to your question on pricing, I mean Texas, we need to still remember despite all of these dynamics continue to be sold out and actually continues to be slightly net importer of cement, so even - so supply demand dynamics continue to be actually quite positive and we're quite encouraged by the reception of the pricing increase since the beginning of this month.
Well...
I think as we said, clearly the broadest market that we have, early childhood education we see a lot of those. We’re building those. Those are in the low 7s. We’re starting to see charter schools that are trading in what I would call mid to upper 7s. We traded at Imagine like I said at a 9. Now it’s had somewhat of a troubled name. So we thought it was the right thing to do for our asset management. But I think there is no doubt that these assets are trading one of our public REITs competitors get a Ski deal at 8. So I think cap rate compression is there. Now we've been able to maintain what we think are nice spreads relative to that, and our ability to access product that others are not -- not necessarily -- we’re not necessarily executing on well circulated bid processes. We’re accessing our product through our relationships and we think we’re able to be value add in that equation.
Yeah. That's an excellent observation. Jason, let me firstly say that the registration changes that are happening in China do not present a problem to us. We're in full compliance with those as of, I think, July 1. And so, for us, that's a nonissue. And my understanding is that it does not, at least at the outset, apply to products that are imported, at least not via e-commerce. So, that's my current understanding. As often is the case when these things are introduced in China, there is a little bit of uncertainty about how they will be enforced. But certainly from our perspective and we've had extensive interaction including having had input on the regulations, we don't see that as an issue for us. I think what you are saying about pricing in Europe and efforts to harmonize highlights a very interesting dynamic that we are spending a lot of time reflecting on here. And that is that the company's share of the sales in China, in many cases, differ quite substantially from their share of the profit pool in China because a lot of the sales that go into China via the e-commerce channel originate in Europe where margins are significantly lower. And much of the profitability, therefore, leaks outside of the companies (1:06:15) engaged in that practice. I think as a consequence of that, they are trying to do two things. Just like us, they are trying to bring more of this trade under their direct control, which we believe is a good thing and we believe will help both create pricing that is more reflective of value and create a greater conformance with China laws and regulations from the industry. And secondly, I suspect they are trying to take prices up in Europe in order to reduce the overall parallel trade, though I believe that the latter might be quite difficult to achieve.
We think we're going to have a good cash quarter in the fourth quarter just from normal operations as the funding of the problem projects continues to drop off. We also have the sale of the infrastructure business that we hope to close in the quarter. So we think it's going to be a relatively good cash quarter. That does not assume we do any M&A-type transaction.
Yes, I’ll just amplify with answer. This process has been in the most companies – when your agreement is ready to mature and ours expires I think in May of 2016, we get together with the bankers well and branch of that, we work through any kind of chance to may further in the line or the amendments or covenants or whatever. Well, we had a meeting with, we start to kick that off in May, early May, with our bankers, we – they were down here first in bingo the first part of May. And then we can just going through the process and as Don said at this point, maybe two-thirds of the way through it feels very much like a businesses as usual, plus as I understand the overhang that a competitors had, I understand that overhang is now over the industry. And as Don said, it’s never over, so it’s over. But our expectation at this point is – that it’s a very sort of normalized feel to the process and that’s in the hands dangerous at this point. And as Don said we expect to had wrapped up within the next month.
Yes, ASPs on Biomark, yes. ASPs on Biomark. So there was some effect there, but some of it is geographic. So, as you may recall, in first quarter of last year we had a really strong quarter in Japan and we actually had quite a few Biomarks that sold into Japan and Japan always has a much higher ASP. So on a year-on-year basis there was some decline on ASP. On a -- from a sequential basis, if you look at Q4 and then there is some effect, but ex-currency there really probably isn't any meaningful change there at all.
On an adjusted diluted EPS based per adjusted diluted EPS.
Thank you.
And what I would add, Carlo, is a few things, one, we had fewer events in the Grand Garden from the year before and at Mandalay Bay. Two, I think with our bigger convention mix, we were – the year before, we probably pump that area a lot, especially the lower end casino side, which is probably not a great margin business. So, we were – we thought about not doing that in the fourth quarter this year. And then finally, if you look at some of our competitors' numbers, they obviously pumped up some of their rooms, which they didn't – haven't had in the past, which would improve the market's growth in the – in Las Vegas.
We certainly highlighted the progress with our lead customer, but we’re working widely in other adjacent markets and we continue to have good prospects in the food industry beyond this lead project.
I will try to answer your first question, which is about dealer advertising and what is the outlook. We are very cautiously optimistic about our overall market and our business despite the current industry headwinds.  Given that we are still very relatively small in the share of wallet, we do not see what will rightly have a hit on us. In the first half of 2015, dealer advertising revenue grew 78% year-over-year. This business is very solid and with high growth. Given our high ROI brought while our customers will focus more on further creating value to the automobile ecosystem with better services, such as what we are doing with the auto group-buy with dealers for more than 100 cities across China.  And in the shorter one, to cope with changes in the market. Sometimes we are changing forms of advertising services. For example, we are moving in to more transaction based revenue and campaign based revenue than pure advertising, as it is most directly to help our customers to reach out to buyers.  And despite the current industry headwind, it is favorable for our performance based product to take off where we take credit based on transactions. Eventually I think it will be beneficial to us to crack more share of wallet as we can get better recognition from the dealers. Because nowadays as you can see, in some of the car makers, they start to shift that the invariable marketing cost has a direct price reduction at the [pencil’s] level. But we believe this is only temporary phenomenon because China is a very important market for all automakers and we have high confidence that our new products will capture further business growth as the level of vehicle ownership in China is still relatively low compared with the rest of the world.  So in short we believe the outlook is still promising and we are cautiously optimistic about the outlook.
Yeah, JoAnne this is Greg, thanks for the questions on that. We won't break it down to that level of detail yet. What we did say already is that the wireless charging revenue, while it's been quite small and is quite small for us today is starting to accelerate.
Next question please.
Thanks for the question, TJ. I would say that us thinking has not changed dramatically, and that we have time to listen to the markets. There are disparate views in the markets. Our equity in our debt are certainly dislocated in the markets. And that we don’t have additional clarity to the extent that your question suggests.
Tom, this is Steve, I’ll address that question. The algorithm and the auto rebalancing mechanism has been active in the face of this kind of market volatility, as you would expect. But it is really designed to manage the risk profile of an individual contract, and thereby, when you add up all those individual contracts, overall risk profile of the product line. It’s not designed to produce any type of change in short-term financial results and current financial results. It’s designed to effectively manage the long-term risk profile of the contract, especially as we’ve communicated in the past, especially tail risk.
No, I don't think I'm going to give any guidance on that at this point. But I'd say, it would be fair to say that it would be out of cash flow.
Hey, John.
Hi, Eric. Let me just make some general comments maybe about the business of this acquisition. So, this is a pharmacovigilance business. What this basically means is they process cases of adverse events of mainly marketed drugs. We have already been in this business before, although with more of a focus of the management and adjudication of events during clinical trials basis. But it’s a really a great fit and we are really excited about now the complete package where we are now a market leader across the board pretty much. Generally speaking, QSI is a leader in this area, widely regarded has a really blue-chip client base also of many overlaps but also additional complement – complementing our existing business. And it’s really a kind of a core activity tying both into regulatory and clinical research areas. The business will be integrated with our late-phase business pace or Peri-Approval business and will be reported as part of the CRS segment.
Hi, Ken.
Liz, it's Dave Jones. We're thinking about a tax rate of 34%, 35% for the rest of the year. Something to keep in – and that's kind of up from historical -- but something to keep in mind there as a lot of the larger gains that we had historically were at a lower tax rate because they were in the Luxco (40:41) entity. So it's really mix, and based on the current assumptions today, we're looking at 34% to 35%.
Thank you very much and thanks for joining us to review the fourth quarter as well as the year of 2015. I just want to emphasize, as we began the call that with the change in the market during the third quarter, I had requested that investors kind of look through the fourth quarter. In our view, the fourth quarter came our better than we had expected and we’re pleased, especially in comparison to other institutional asset managers or high net worth institutions, with how well we performed through that quarter as well as in 2015. The key to our strategy in this year is of course going to be a continued organic growth in the high net worth business and building out the professionals working with that group. It’s going to be additional institutional business which I’m quite optimistic about given what I’m seeing in terms of demand for our various equity strategies. And finally, with the brand that we have built and maintained and the visibility and the quality of the organization that we’ve established, I believe that we will be able to make some more prudent acquisitions to benefit shareholders and our clients with new capabilities over the course of the next year or so. We’ve also been careful about how we integrate those acquisitions and selective about who we’re going to work with, so it is not to disrupt a good course we have here and the business that we built, but I feel like our firm is very well positioned to benefit from trends in the industry going forward. Thank you very much for your time and I look forward to speaking with everyone at our next call. Thanks.
Yes to both. It is a little bit of secondary ability and yes right now I think the $370,000 is a good run rate, so we see some - Chip is helping it somewhat with the positive commercial loan volume he is putting on. However offsetting that to some degree has been our success in, helping clients with these interest rates swaps where we are basically taking a lower rate today to protecting a client with a fixed rate, but as soon as we get a move in fed funds, that portfolio will outperforming, what we otherwise would have booked. Those combinations of things right now keep me about in the $370 million space, but looking forward to higher margins.
I’ll turn that over to Nick. Sure. One of the items we had during the quarter was a $9 million expense we incurred relative to the HSART term notes, so that’s the largest item in the quarter.
This is Dan. Let me take that question. We are seeing some things in our internal surveys that are leading to greater client satisfactions, things like our hosting solutions, internally are up, a number of pieces like that that we know will impact the external surveys. We tend to do a great deal more of real time where some of the external surveys have a little bit of a lag component. And we’re spending a lot of time and effort on our quality initiatives associated with our software, made it very, very clearly, and our customers made it clear that that quality component is incredibly important. And so, we’ve got a lot of focus in energy to make sure that as we deliver new updates that those are very well received in the marketplace. So early indications on the inside are positive, but we also know this is a longer-term trend, we know that it is enterprise-level software that as in many cases customized uniquely for the client. That has great benefits for the client. And as this goes forward as they bring an updates and as those modifications are made to really add value in that environment that we will see client satisfaction go up. So yes, we understand it. We know it. We’re tracking it. It’s not where we wanted to be obviously, but absolutely we’re seeing some trends that that tell us that we’re doing the right things.
We're taking some more approach, and we've been working with the number of our customers, primarily municipalities and governmental agencies to look at our contracts. We have one that we're very cautiously optimistic that we've got a good opportunity to get some adjustments with one of our major contracts. And so they've been very positive in working with us. We've also worked with others. We have four, five key MRFs that really drives that we have been actively working on it. We've seen some success as well as controlling some of our owned behaviors in the facilities to look at the mix of materials we're making, try to look at our cost structure to manage around some of these commodity events that are occurring, but we have had cooperation, and like everybody else, we want to make sure that we're getting the returns from our recycling business regardless of the commodities markets.
The move outs we had last quarter, we have one government tenant that represented about 0.2% of rent and we had a non-government tenant that represented 0.3% of rent. So that was the big piece of it. At least that's what I mentioned in terms of Trenton and Woodlawn. When we are talking about on two vacate and at risk, that's the entire portfolio. So that is both government and non-government tenants, and we have our fair share of non-government tenants that have - that we have on the two vacate list. I would say that of the 2.4%, probably 1.8% of that would be government and the rest will be non-government.
Sure Mike from Robotti & Company.
Great. And Roger, do you want to address the 4-1BB and KEYNOTE-024 interim?
In domestic, meaning x Puerto Rico, we think that political will not have a significant impact on us in the U.S. Unfortunately, given that our networks are cable networks, they're generally not going to benefit significantly from political. So we shouldn't see significant changes in trends on either sub fee growth or advertising growth. We think they will both grow consistent with the past year.
Yes, we are starting to see a fair reorder rate now which is really encouraging for us. So obviously there are initial stocking orders as we bring new accounts on, we open new countries up but there hasn’t been any, sort of, large one time order in those numbers but we are starting to see distributors come back and make reorders. So we expect that to continue, grow steadily over the next quarters.
Both are on contracts until the end of this year. Then we have to bring them back on shore for repair and maintenance. We’ve got a scheduled period that’s required in Q1 for both of those systems anyway. But we have tenders out there. We are looking at work for both systems next year. I don't think we will see the same amount of utilization as we have seen in 2015. But both are available and both are under tender [indiscernible].
Operator, we will take one more call here.
That’s right, so we were at 9% on new organic sales and we have had these new wins that I announced the four of them in the last four weeks or so, they will all participate in the second half of the year and we’re still relatively early in the year so that they may well be some opportunities for some additional growth to come in the back half of the year from clients we yet have to sign.
Probably about one quarter of 1% of revenue, a little higher than that on the number of scripts, John. It's not something we've ever published, but certainly a little disproportion on the volume line. We'll be sure in the fourth quarter when we have zero volume versus some volume a year ago to call up the specific number scripts affected.
Well, as we came into the year this year, we actually did have some -- and do have some production planned, where some of the parts that we make in the United States that are primarily exported, we had some of that moving into places like India and Eastern Europe. And that was -- that is in process, et cetera. There's -- we don't do that for short-term currency moves. So it's a product that is exported predominantly and would stay there if currency moved in other directions. It moves us more towards a footprint that is currency neutral. And so as we look to do that, we don't look to play short-term currency moves. So they need to be things that we do long-term. There's also limitations. And obviously, there's some costs involved with that and time. That's one of the reasons why on the -- that our margin decrements got greater on the next wave of currency than what we had in our January outlook as we have less of that and then obviously, moved a little faster than what we anticipated. So it -- our offsets are a little bit behind where the currency has moved. But long-term, we certainly can do more of that. And certainly, we strategically have for several years, had that objective to largely be exposed to currency just from a translation standpoint. We've been moving down that path. And we would look to potentially accelerate some of that. And that's probably as far as I'd go with that on today's call, Steve.
Now, let me make sure I'm clear on this. I still think that, there's a price at which the finance sponsors kind of don't go. They don't want to pay and the strategics can, so there's still going to be -- it's a good strategic market. What happened in the first quarter and earlier this year was processes and transactions in development were stopped or changed by regulatory changes in the way they were going to access financing, which is very different than wanting to pay a higher price and not. So, I think you have to bifurcate that. What we thought was happening in the first part of this year is processes that we thought were heading toward completion got side-tracked by a regulatory overlay on how those deals could get financed. Now, what I sense is happening now and we see it in our processes, people learn. They are now planning. They understand the regulatory environment. Banks are forewarning them when they might have an issue. People know the leverage limits and they are structuring -- we're structuring the process, the price and the capitalization around that and so now, we feel those processes and the way they're finishing are cleaner, smoother, because they're anticipated, but that does not mean that you might see a higher financial sponsor activity level going forward forever. I do think it's a tough market for them given the prices.
Typically, there is title insurance involved in those types of transactions, typically.
Well, the only regulatory thing I can think of, there are sick pay regulations that initially were limited to Northern California, San Francisco more specifically, that have now been extended statewide. There are a few other cities slash states around the country that have also mandated sick pay benefits for temporary employees. Those put a little bit of pressure on gross margin. We're trying to pass those through. But I can't think of a regulatory requirement, a new regulatory requirement that's moving the needle in any way.
And Debra, one last thing on NFE; a little bit driven by the fact that we just actually had a lot of traffic this quarter. So we’ve had a few quarters where people are asking us why our unique visitors weren’t higher, and we’ve always talked about quality of the traffic, we did have a fair amount of traffic this quarter. So probably bumped up higher than we had expected ourselves, and that’s probably a little bit of us reaching more into higher CPM modalities in our marketing and bringing more traffic into the TrueCar branded experience.
For the six months about $1.1 million, $1.2 million about a 500,000 in the second quarter.
I’ll let Ken to comment.
And just kind of running through the guidance one more time, Bob. So we kind of took a look at the full year 2014 gross profit margin on a pro forma basis, it was 68.4%. Now when you kind of look at the exchange impact at today’s exchange rate, we think impact is roughly 200 basis points. It gets you back to a constant currency scenario. So excluding that, you get something like 66.4 as the full year rate as Marshall mentioned making improvements by quarter as the year goes on as we are implementing some of these cost reduction improvements.
We think that the total amount that we’ll ultimately get to is about $22 million, somewhere in the $20 million to $22 million range. Probably three quarters of that is based on headcount reduction. And as of today, we’ve taken steps and implemented plans to get about 18 million of that 22 million and we expect to put steps in place over the balance of the year to get the remainder.
Thanks, Jim.
I'll go back to my earlier comment that – and you hit it at the beginning. I mean, we're focused on continuing this execution and operating momentum on our asset base, because the last thing we want to do is dilute our quality of asset with something else. Like I mentioned, we're not interested in bringing in anybody else's problems or something to deal with and take away from our focus on executing the portfolio that we have. So, we'll continue to keep our eyes open on what would be attractive to us. And continue to keep a priority list of things like we had when we did Rosetta. But I just don't see anything like that in the near-term.
Thank you.
So the first quarter is seasonally, because fourth quarter is usually highest revenue quarter we have, you will see an expansion of our accounts payable seasonally and the timing of AR. So it's usually time where we use more working capital than we actually generate. So that would be the primary reason for the, again this is the accountant's definition of cash flow from operating activities being the negative 946,000, swing in working capital and that’s starts to reverse, seasonally historically that’s reversed itself the other way as the year progresses.
Yes, I am. It’s a smaller proportion. So just as a reminder, 2012 we sold about 1,000 pumps. The majority of that was sold in the month of December. So there is an assumption on our part of how many of those will actually renew in December, complete the selling process, complete the insurance verification process when we shipped out prior to December 31. So that’s a tall order to get through so we have a more modest assumption on what we expect for those pumps in December that were sold in December 2012 to be renewed in December 2016.
Well, I think that if we look at the organic pipeline what we've been seeing in terms of review, again sort of bifurcate this between pre-GDUFA Year 3 and post-GDUFA Year 3. We're seeing significant interactions with the FDA on the post GDUFA Year 3 filings and some of those are now at 12 months of review having filed them in the fourth quarter of 2014. Given the interactions that we have, we're optimistic that we would see some action on those in the coming months and in many cases -- in most cases probably before actions on the pre-GDUFA Year 3. The challenge I think that the entire industry is trying to struggle with at the moment is as we parse the interactions with the FDA, the acceptance for interviews, the information request, the labeling reviews and so on. We've not yet been able to establish how all of these pieces fit together to eventually get to the point of approval, but directionally all of these things are going the right way. So we're very optimistic about them.
Thank you very much, Heather, for the question. It's always great to have you on the call. And maybe before we get started into the Q&A, as we said during our prepared remarks, our second quarter results are solid, following a solid start to the year in Q1 and we do see – I'm glad for you question, Heather, great progress in the newer products, with license bookings now beyond standalone vSphere over 60% of total license bookings, up from just 35% just two years ago. So overall, great progress overall. And, Carl, maybe you can comment a bit more on how we see the ELA cycle affecting the new products in the rest of the year?
Yeah. Zack, this is Doug. That particular business, as you know, has had a – like six years of really fantastic performance on the top line and it's grown in good weather and bad weather, but it is affected by weather. And you'll see that seasonality across the years also. So, in addition to growing behind terrific innovation and growing share, it has also been able to grow because of a really good weather year this year that just kind of hit at really nice times. And so the whole category did well. And then we picked up some additional benefits at the expense of some of our competition given some challenges in other parts of that category again. So what's realistic for next year? We've continue to have good innovation. We're rolling AccuShot out across the broader part of the portfolio and that did really well this year and that particular business is really well managed from a cost perspective and an efficiency perspective. So I think it's – you're not going to see double digit growth out of that business for the seventh year. But you will continue to see a very strong performance. Now, while it was basically flat on the top line in Q4, we did comp a terrific Q4 last year and we delivered substantial improvement in EBITDA margin this year.
I’ll pass along his thank you. Your congratulations. Thanks.
We just increased the amount of our API 653 tank maintenance work. We've got some tanks coming on that need scheduled maintenance this year, so we increased the spending because of that.
I've already been giving this guidance around 62%, 63%. We are sticking to that guidance actually. Nothing has changed actually. We expect the mix to remain the same and we'll be able to get to 63% actually.
I don't think it was 67. Our target was –
Remember also, Bill, one of the nice things about capitation is what we call the pull-through revenue, meaning that all these capitated patients are part of HMO programs, but the physicians at these medical groups with whom we contract see all the other payer classes of patients, so they see workers comp, personal injury, private insurance, Medicare patients. And because we have overarching relationship with them on the capitated or the HMO side of the business, they tend to send us their discretionary business as well. They're already familiar with our facilities. They have the RadNet prescription pads on their desks, and presumably if we're servicing them well on the capitated side of the business, they are happy to send us their discretionary business as well.
Yes, so it was in there.
Thanks.
Yes, I’ve got a couple of things. First of all as we said, we think we are seeing signs that the Surface North America business is stabilizing, okay. Where it goes from here Bill, we don't have a good clear picture of how the back half of the year it may whether it's going to grow or stay where it is today. But again, we have seen good signs of at least stabilization and that is a positive. As far as the margin progression, we did have some FX I spoke about that impacted the Surface's margins in Q2 and the rest is really on taking cost out of the business and continue our transformation of how we run our business. So those are the two drivers of the margin increase.
Yes. Assembly that maybe coming from the memory side, so memory side and after the inventory was cleaned in Q2 and maybe after effective [indiscernible] Q3 and Q4 we expect to be lower.
Sure.
That would be 23 million. I don't have an exact count -- I want to make sure, so could you just check the K, I want to give you the right statement, 24 million and 330 [ph].
I don’t know if I just really said that was the target but for the first six months of this year we are at $60 million of EBITDA. So if you just kind of doubled it you get to $120 million from that standpoint.
Now you're getting into the sausage making. We really haven’t said that yet, I told you what I think the range of pioneer [ph] sponsor dropdown multiples are and I would expect that we probably work within that range. But you appreciate that these are the subject of both negotiations and complex committees. So we're just not that far along as yet.
Hey, Brad.
Good morning, Brandon.
Okay. Yes, you can get back to us, that would be great. Appreciate it.
Yes, I think that's probably right. And by the way, I think in some ways, they will be linked simply because certain parts of the credit book will be impacted by higher rates directly. So there's probably some correlation of those things moving at the same time.
Yes, no different really from where we are.
We’re planning to complete that. We were again as we reminded in fourth quarter we had a -- market with debt offering and tender offer we had a blackout period. So, I wouldn’t read anything into the slower pace in the fourth quarter. I think you’ll see us move back to a normalized pace and our plan will be completed over the fourth quarter period.
Yeah, I mean, that's absolutely one of the things that is an example of what The Advisory Board brings to bear in a situation like this is, this is a business – $100 million business still relatively small, not a lot of forward metrics, not a lot of sort of lead tracking type mechanisms. We bring the situation like this as we bring, let's create activity metrics, let's track those on a rigorous basis. Let's start putting in place things that tell us coming into a quarter how we feel about sales pipelines and how we feel about the number of contacts we've had, how we grade those contacts out, how we price each of those, and when you multiply all that together, what we're expecting from that pipeline. They didn't do any of that stuff, this was – how does the sales person feel? Are they feeling good? Are they feeling not good? And so, while it's understandable, it's not acceptable in our organization. And once we – now that we've started to manage those processes, I think there's just a lot of low-hanging fruit just in terms of process management. And like I said, the people are tremendously talented and the value proposition is excellent. So, if you ask our sales team supplying our sales processes and rigor have already started to yield through. And we feel very, very good about the yield that we'll have on the business. And I think the departure – the silver line in the departure is just that we are now in there and running it more closely than what it would have (52:46) been otherwise.
So when you look at the pound, we had a chart that we have here we looked at, I guess we're $1.46 today. Last March it was a $1.50. So obviously there is 2% to 3% already impact to us. But I think hopefully the Australian dollar has kind of bottomed out, it went down as low as 69, it's now at almost 72. And again, we will have some impact, because last year at the same time we were at about 77. So across the board, we got the euro, we got the Australian dollar, we got the New Zealand dollar. And I think from an overall standpoint, when we look at the euro, we're pretty much flat. We were at I think $1.08, last year we're at $1.11. So that will have some benefit of equalizing the impact of the pound.
We first not get the inventory after shelves, before we can put the inventory on the shelf.
Yes, so we’re talking about, the fourth is a little bit easier for me I think because I’m focused on that but we’re trying to reverse about $600,000 in both of third and the fourth quarter, so $1.2 million sitting in our results. And as you look at the system conversion, that certainly implies that $2.5 million, $3 million sitting in the fourth quarter. We were building up the system conversion cost as we went through the years -- excuse me through the quarters. So I am saying we’re probably about 600,000 also in the third quarter, yes. Right now I think about it, it was, and so the big numbers in the fourth quarter.
Yes, so the way to look at that I'd say is pretty relative to what the sales are relative to that number. So when you look at the year-over-year increase, you've got North America representing right about 70% and Europe the rest. So we've made some good adds in Europe. It's a model where we have to add in three sales regions because of language, so we have a sales location in Germany that covers that whole kind of region with Germany, Eastern Europe, Austria, that area. And then we have France that covers Spain, Netherlands, Italy, Portugal that area. And then we have the UK. So we have to add in each of those locations, so our cost of sales will be a little bit higher in Europe than it is in North America because of language, but we are going well with that. We’re getting some good talent in there and as I mentioned we're restructuring how we do some of our account distribution to really facilitate the wide and deep strategy that has been so successful in North America.
So an easy way to see that is slide 17 and the one that says O&M cost performance, and you can see there the dollars and how they are really happening in the next few years where from 2014 to 2018 we will take out about $100 million net, there's a lot of ups in there as well. But net down $100 million and that's worth 10%. So you can do that math and bring it down little bit and think $10 million is about 1%, if that helps a little bit. So then when you think about our self-funding model, we're looking for about two points of cost reductions, so 2%. And that, mixed with the other things we have over the next five years keeps us in a position where we could grow as high as 7% and our customer rates would still be at or below inflation which we're guessing at roughly 2%. So that gives you some of the math that you can work with. I hope that helps.
Thank you, Marni.
I think that -- so we have basically three metrics and anybody who in the company is on a bonus program, at least 60% of their bonus will be based on this three metrics. For the management team, the senior management team it is basically a 100% of their bonus and it is really about improving the margins, are really trying for 2016 is CPG obviously we believe that CPG inherently where we add more value, we should be able to make a higher margin then what we are making in our raw materials and ingredients business and that is flip-flopped in 2016, which is -- that's just basically wrong.  The second one is the EBITDA, so margin improvement and EBITDA. I believe are two that we will consistently have as we go forward. The third one because we are adamant about the fact that we do need to deliver from the current five times 1:1.5 in a 12 to 18 months period. The third one I think is more of a short-term one just to make sure that everybody is totally focused on this deleverage and so I would say that the third one has the potential to change, as we have, as we are proving that to be true so to speak.
Definitely, it will be more and more back half weighted, obviously the first quarter was slower than we would have liked it to be but as I had mentioned it's not a complete surprise to us. As we look at this new booking in the UK we’re going to look at obviously starting to recognize revenue on that project here in Q2 we have other projects in backlog that we’re going to be working off in Q3 and Q4 as well and obviously we have a pipeline that we follow very, very closely and there are 2 to 3 sizeable projects that we’re targeting here to look to book here in the near term that will have significant impact on 2015 and you will have exposure to those as we announced contracts in the future. But we’re attracting some high level projects that we expect to contribute in 2015.
If you would see a one notch downgrade across all of our securities with respect to our energy holdings, the impact on our RBC ratio will be 15 to 20 basis points. Again, we will proactively manage that to avoid that that is happening and to avoid that particular capital impact, but that will be the sensitivity. I also would like to take the opportunity to come back to the question of Yaron. The answer, Yaron, on your question is the following, the net unrealized loss of our below investment grade energy fixed income holdings is 200 million net unrealized loss by year-end ‘15.
All right. Thank you.
I'm reminded there is also the FUT web app, as we call it, which is a companion app that allows you to be able to manage your FIFA Ultimate Team via mobile, separate to the mobile game itself. But no matter where you are, 24 hours a day, you can manage that FIFA Ultimate Team mobiley.
Okay. Thanks.
Well, okay so I just want to separate out two things in the patients particularly on the IFP they will have lesions that we cannot reach with our device. They have advanced disease, but they’re getting a combination treatment so for sure we will not be reaching all of their lesions and it’s not in fact a requirement.
Mix was slightly up, probably about 130 basis points.
Hey Sam and then in addition to that is customer connectivity which these guys all of their connectivity is very localized which we are going to continue to do within the communities. You think about the opportunities through digital and social media today to be competitive in the universe, I think we all know that those are key to the success of any business, any segment. So obviously we are in that pretty good.
I can do either or both.
Well we are looking at all alternatives. Assets sales is potentially one, other alternatives will be dialing back some of our operations to reflect the economics of the current environment. For example we are doing that in our molybdenum business were prices are week. We benefit in that marketplace because of our really strong position. 80% of the market right might or the chemical business to focus on that were realization are higher but we may limit molybdenum production in some of our bio product operations in response to prices. In 2008 we curtailed production at high cost mines to reduce cost and we’re looking at that. Presently all of our mines are positive cash flow generators but if markets deteriorate further we’re prepared to take steps to be responsive to that. So Dave we’re looking across the board at opportunities, asset sales in the mining business are possibility the markets not great as you can see from recent transactions and with our long term positive view at marketplace that will be taken into account. But all things like that are on the table and under considerations.
Oh, yes. I'm sorry Brett, this is Bill. What we've highlighted on – you're speaking to Commercial Vehicle Driveline obviously, on the bridge, correct.
Thank you.
We actually have a roadmap for this that goes out into 2017. And that roadmap is what we've done as we sat down and we said we need a little money so we raised a little money. And what we’ve done is that here are issues with both up time in the equipment and yield and here is the things we have to fix. Some of them are rather long-term but some of them are immediate. And what we've done is and I can give you an example. We have the highest tool on the list. Probably the highest is about $1 million little over that $1.2 million. And when that goes down it's very old, when it goes down we end up having to substitute a tool for dual use. And that that does two things: one is it takes our throughput way down, cuts it in half and it also – every time we do this it affects the yield and makes the yield terrible. So the tool has been going down in 2015, enough is enough, so we have to replace it. But that tool is a little big not in another SNU type size tool. And it’s going to take us awhile, we've got the design, we've got the vendor, we have the roadmap to put it in, but it’s going to take us many months to get the tool built and put it in and then get it up and running. The other ones are smaller and faster. And there’s one other one that I don’t want to talk about because I don’t want to give any listeners in France or China any ideas, but the other one will take a little longer.
Not really. I think that – it's again what we are facing is reality that a lot of the improvements that we begin to capture in our operating metrics out of the Colonial portfolio really began to show up in the back half of last year as well as some lift that we got from some scale benefits and we are working a lot of contracts. So, we will be comparing against those comps. All that improvement, all that lift of course, is permitted if you will, but just on a year-over-year basis the comps get little bit more challenging. And to be honest with you too, I think that we are carrying fairly strong occupancy at this point and we were carrying fairly strong occupancy in the back half of last year. And so, lift on a year-over-year basis and effective occupancy becomes pretty challenged. And there is some assumptions that if the economy continues to improve and we begin to see that employment markets continue to show recovery, I think it's also reasonable to assume, there may be a little pick up and turnover that begins to take place. So, those are all the various variables that I think one has to think through over the back half of this year. We don't certainly see anything materially weakening and you are right, all the trends that we are seeing right now are pretty encouraging but we still got long way to go and that's really gets us to where we feel pretty automate that we already hold tight at this point and then readdress it as we get to the end of the summer.
Yes, I think on both products we mentioned, I think, the answer is yes for both products. So as we mentioned earlier on in different conversations we’ve had over the past several quarters that we’ve implemented whole new process around both the convenience check solicitations, as well as what we do in the branches, terms of getting loan matrices in the architecture of clear programs. And I think initially we probably did tightened somewhat and I think as from the fourth quarter of 2014 through today we’ve continue to make changes to all of those programs as data fragment in the team have given us better and better refined data on which of our customers going better and I think as we move forward we’ll even get better because we’ve – Don mentioned in his comments about some expense money that we spent in the quarter on some credit projects and processes which includes working with some outside consultants to help organize or data better archived project those kind of things too. I definitely think they are moving forward we would be able to expand the universe of people that we went to because of these projects. And so I think the opportunity will expand on both.
Well, they also might very well be in breach of their own network affiliation agreements, which they wouldn't want to do. So, this is a case-by-case basis, Rich. I mean, we're not going to conduct a legal seminar on this call. But we oppose this and we oppose the rule change. We don't like it. But we'll be in fine shape, regardless.
Yes. So the development of certification cost for the 125 are one of the two main drivers for our increase in R&D this quarter, the other was been the engagement of the second fab on the B-TRAN. We had said that that number is expected to be about $0.5 million roughly for about three quarters of the B-TRAN effort. As we introduce new products, it's less than that. It's probably a couple of hundred thousand dollars that you will see hit the R&D line depending on the size of the product. It's more expensive to rollout a 125 versus a 30 kilowatt product, for instance. In terms of what actually hit the gross margin numbers, when we initially purchase units in very small volumes, there is a lack of economy of scale in purchasing and production, labor etcetera. So the first, probably couple of quarters really that we introduced a new product and till we get to a more normalized run rate, we will see downward pressures on margin. The one thing I would add to that is going forward is our revenue line in general grows and our margin in general grows. The impact of those new product introductions will not be as readily apparent in the numbers just because we will have more scale.
We don't have a tremendous amount of detail yet. I don't have full March results, unfortunately. But we've seen very good demand in North America. China, when you combine the first two months of the year, because remember the movement of the lunar holiday was January last year and this year it was in February has been good, large sizes have been good. The place where we're expecting some weakness at retail is around the comparisons on the World Cup last year, which will affect Europe and Latin America primarily. I'd say the one place that we might be seeing slight weakness is Europe so far this year, and that's a slight disappointment to us, but clearly the economies over there have seen some turbulence. So good in the United States, good in China through the lunar holiday, weak in Europe and average size continuing to grow.
I'll do it. Go ahead David.
First let me emphasize two things, one that we had always expected to write-off the goodwill. All the - 100% of the goodwill is associated with the financial guarantee insurance closed block and so therefore at some point in time we would have to write-off that goodwill. And secondly, the goodwill impairment as I mentioned in my prepared remarks had no impact on our adjusted book value, operating earnings or statutory net income or statutory surplus or tax. So with that said, there is really just two factors that mathematically contributed to the impairment of the goodwill and effectively those two factors were the fair value of the financial guarantee business which is mostly driven by our stock market value, excuse me, and the fair value – estimated fair value of our net assets. And unfortunately through the year, we experienced rather significant decline in the fair value of the reporting unit due mostly to a drop in the stock price. So throughout the year, the fair value of the financial guarantee unit dropped by about $750 million, while at the same time the fair value of our financial guarantee net assets improved by about $1.7 billion. So the result of that is that the fair value, the financial guaranty net assets are now greater than the fair value of the reporting unit. So in the sense the valuations have flipped from the time line, the value of the unit as mostly reflected by the stock market valuation was greater than that of the net assets. So that flip resulted in the impairment of the goodwill and besides the drop in the stock price, the other factors that contributed to the flip if you will is the change in liabilities at the insurance company which have declined in value mostly due to improvements in the incurred losses as well as some wider credit spreads on our Ambac insured positions.
And John, not only did retain the people we wanted to retain, they brought in some exceptional people as well. This is really a terrific company.
No, we have not. And again, our primary purpose for year-end – our primary goal was to make sure that it was modest at the operating company because it will build organically. And then as we think about cushions and managing cushions on an ongoing basis, we will be maintaining that approximate $300 million at the HoldCo, which is really the cushion if you will that we manage too.
Small equipment is just the opposite. We over shipped last year, so we build inventory again as planned, relative both to the strength of the market, as well as our strategy around some market share gains and so on. And in 2016 you'll see some further, you'll see some reduction off of those levels as we go through 2016 and get those shifted around a bit. So that's distorting when you look at the reported numbers, distorting a bit of – of I think what most are focusing on in terms of what's going on with large Ag. So…
The guidance is the acquisition of Trade Street's only, not another acquisition.
We are. And you're right that the rate expected in the fourth quarter would be north of 20%. And the tax rate obviously can have some lumpy results quarter to quarter, and this is really driven by the mechanics of U.S. GAAP quarterly reporting, which can result in volatility due to profit mix and known discrete items in each quarter. We're not surprised by where we are year to date. We obviously don't provide quarterly tax guidance, but our expectation for the full year remains unchanged at 15% to 17%.
Yes, it’s basically insignificant. No more than I think $40 million, $50 million total is associated with railcar.
No, but I guess that was…
This is Joe. From the north-east property standpoint with us anniversarying last competitor over a year-ago, our competitors have been fairly rational in their promotional spending and we’ve been taking a good hard look at how we spend our promotional dollars not only in the north-east, but throughout our portfolio.
We got James Edgemond on the phone and he knows those numbers in and out.
Yeah, very little of it really got into the fourth quarter. So, the (1:04:36) pricing a little bit of it got in there because we started that in August and September. The Zone pricing did not hit at all in that quarter. The vendor allowance negotiation did not hit at all in that quarter. The benefit from Germany hits next year. And global sourcing will continue to build throughout the year. So very little of it got into the fourth quarter, it's pretty much all going to be in fiscal 2016.
Thank you.
And Dmitry, the other piece of that, the other half of that was the impact of destocking in the same-year quarter – sorry, the prior-year quarter rather. And if you – I think, if you looked at international business over the course of time, mid to high single-digit growth has been delivered pretty consistently in Valvoline's international business.
Yes. We don’t really break it out, but if you look at it as a percentage of our overall new sales growth, that’s a percentage number that keeps going up each year. Part of the challenge we have is, many times when we’re talking to an employer about one product, when they work with us with another product, that can be different parts of the organization, so many times we’re signing up new clients, and even though they may have a relationship with us in either the healthcare or commuter side, it really doesn’t play a big role in selecting us for the new product that we’re selling them. But we still have a segment of our sales force that does nothing but sell new products to existing clients. Our relationship management team is becoming more well versed and skilled in being able to identify and close cross-sell opportunities. So I think that will pick up and begin to generate more momentum going forward. So I think between the outstanding job that our sales force has done this year, along with our relationship management team, who has done a great job in not only keeping our customers happy, but identifying new opportunities out there, that the cross-sell will continue to be a strong part of what we do.
Good morning, Akshay.
John no it's -- the structure is the same. I think the rules are fairly consistent what they have been. I think it's kind of what you're saying to a certain extent you get a new set of eyes looking at it, they haven’t changed auditors or anything like that, but you look at it [indiscernible] people look at things different ways and so some good points have been raised and that's what we're going to spend the next couple of weeks addressing.
So far we've only signed up one and that's BPI and when we started that discussion with them probably last October and took us about three or four months to iron out the details regarding the sign-up for that program but that was the first official rollout of our program. Since we launched that program a couple of months ago we’ve been in several discussions with other companies as well to evaluate implementing that type of a program with those companies; each company is slightly different in terms of their complications, in terms of how we are going to plug those programs in. So it does take a little while to get new ones but we expect to have new companies like BPI out there and right now we’re slow-moving some of them because we really want to get that relationship with BPI fleshed out and really let them build some visibility for the program before we start pushing a lot of the other ones. But again it's a little bit of a long developmental cycle but we expect other ones to come on as well.
Great. Well, thank you. And I appreciate your questions. You guys are asking all the relevant questions that we internally are asking. And the good news is again, the lightweight is continuing to grow and continuing to be a greater and greater share of the category. It surpassed the course, the traditional in the most recent period which we sort of predicted given the trajectory that we predicted the last time. And it happened – it's the coarse grain segment is now under 15% and lightweight is over 18%. And so it's blowing away the alternative and all the stuff that is made from the organic materials that wheat and corn and all that kind of stuff. And that represents less than 5% of the category. So it is growing. The traditional scoop is in decline. It [Technical Difficulty] another 4%, 4.5% and it haven't declined in 20 some odd years. So, clearly that the tipping point is coming and it's there as I said it is more than doubling year-over-year each period. So we will report on that again in three months and its all good for Oil-Dri in the sense that we really on the heavy side, we are the odd man out. Our minerals are naturally more pores, which makes them more absorbent, which makes them lighter and bulk density, which makes them a better cat litter. And so as the consumer is looking at running lighter weight and more performance, its right and we are realizing. And I think it was John, who made the point, he is right on. We have to do a better job of getting that word out. We are going to continue to work on that and we are extremely confident about the future of our participation in this segment, which is great. So thank you. In three months, Dr. Ron Cravens will be with us and we will have some more market detail for you as well. Thanks very much everybody.
Peter, what I would add is if you look at the last recession that we went through in 2008 and 2009, our unsecured book performed, it’s performed very consistently over the last two or three recessions. The unsecured book we’re referring to is roughly half credit cards, half revolving credit lines that are unsecured, 50/50. They’ve performed very consistently with around 50% volatility factor to 60% volatility factor through a cycle. So I think that points to a consistent credit profile, the fact that we lend through a cycle on that portfolio and we certainly stress and think through that full cycle when we make an origination decision. So it’s the predictability and stability of that performance. And the other, when you look at the margins we ended on unsecured credit, they are some of the healthiest margins we have, particularly on the credit card side obviously. So when you factor in margins, expected loss, volatility, this is good business for us and one that we monitor through a number of cycles.
The first roughly 75 basis points would be – there would be a negative consequence of many of our loans have floors in them and because LIBOR rates are so low, as LIBOR increases until it clears the floor of all of the existing loans, there would be an increase in interest expense relative to the interest income. The total amount of that exposure is relatively modest. I think the order of magnitude I think the number is something around $0.5 million of exposure. After the LIBOR increases beyond that, it would be one for one.
Yeah. And what I would say is, first of all, relative to the NPIs, I think we've talked about that we've exceeded the $35 million that we laid out early in 2015 from the new product. I think it was probably closer to $40 million actually when you look at the results. And I would say, as we go here in early 2016, we think we'll do at least that amount, if not more. So I would say the new products are doing well and we're getting them out into the marketplace. I think the thing to consider though is, and I've sort of mentioned this in the prepared remarks, is we set some goals together – put some goals out there in January that talked about 3% to 5% EPS growth margin expansion. And despite some of the challenges from an economic perspective, we met or exceeded all of those. So I would say the NPIs are doing well, but of course some of the things where some of the other end markets have been a little bit more challenging from a macroeconomic perspective is offsetting the progress we're making on the NPIs.
We've not done the exact calculation regarding the FX but it's totally marginal. I would say -- if I were to bet I would say about €20 million perhaps overall. So as we're €40 million above the objective at the end of the quarter this has not been significant.  In terms of Dalkia, the figure you're looking for may be perhaps €10 million. But, as you know, we've changed the perimeter. The initial perimeter did include Dalkia France and of course we do not -- and it included both Dalkia France and Dalkia International in the original €750 million. So we're actually short the Dalkia France savings which I'm sure continue but which we do not record anymore. This certainly does offset the favorable FX.
Sure. I think when we talk about the macro, it's probably easiest to articulate that Julian on a geographic basis. And some of the changes that we've seen have clearly been in Latin America for one where we have seen some significant weakening in that market. Clearly Russia again a much smaller position fortunately for us, but a challenging market there. China while still a very good market we are performing quite well in that market. You've obviously read the headlines about a little bit of softening there from GDP growth rates of the past. So we see those shift, on the other side, we've seen some geographic markets improve. India being one, again, teams performing quite well there. So I think that's one way to look at it. Europe is still steady, but again, we think we are outperforming in that market. So I think those would be a few of the things that we would point to. On the short cycle industrial side, really Dan – Daniels teams a number of those businesses automation we talked to a little while ago really are performing very well. And that's really just a function again of I think a combination of new product innovation in a number of places as well as is good day today go-to-market execution.
Yeah. No, I would just add, Ron, that if I think about the Crane business on three dimensions; volume, margin and mix, volume is challenging. But as you stated and went through with the improvement initiatives, there's a lot of opportunity that remains in the Crane business for continued margin improvement. And frankly, from a mix standpoint, I see improving opportunities for us as we bring our Jinan China factory onboard, as well as some of the cost activities that you referenced in your comments earlier. So the volume is tough, but there is margin expansion opportunities for us both on what we do, both on product development and from a mix standpoint as we move forward.
Yeah.
Perhaps I think – best I could think about EBITDA margin, as a way to get to that. I believe that over the last few years we have moved our EBITDA margin in the business from below 10% to 16% in 2014. At this stage, I believe in the first two quarters of the year 2015, fiscal year 2015, we have dropped our EBITDA margins to somewhere around 13%, 14%. And if I look forward, I believe this is a business that certainly for us should be able to operate in that 15% or so range of EBITDA margin.
Yeah. Let's keep in mind the meth ER story is far from over. While we were disappointed with the current ruling, as I mentioned, we're planning to appeal this. And we believe that, if we can have a discussion on the scientific merits, that there's a very compelling story here for meth ER to support its original rating of AB. Be that as it may, we'll continue to keep the drug on the market at BX rating, and we stand staunchly behind the safety and the quality of this product. And we think that having a discussion on the scientific merits with the FDA is essentially what we want to do, and we'll continue to exercise every avenue to make that happen.
Yeah.
Yeah thanks Jose. This is Tom. So I’ll ask Dennis to answer the second part of the question on the powering and then I’ll maybe make some comments about our process. Dennis?
Operator? Operator, [audio difficulties] (23:29 – 23:41).
Awesome.
Thank you.
Yes, definitely Mark, a lot of the Denver stuff, so all of the travel costs associated with bringing in trainers, train our new employees those are included in restaurant operating expenses.
We still see that, of course that's one of the most exciting parts of the market growing very rapidly. We do see a lot of potential new applications for BAW. We've talked about diversity receive modules for example, the Wi-Fi integrated fusion modules in which we'll be really anchored around our BAW filter capability. Again, working with the mobile operators, and looking out further and further we see a lot of bands that were conditionally done in SAW or TC-SAW and that may require BAW going forward because we're trying to get more throughput out of the frequency range. So all this adds up to kind of more of the same. It's one of the fastest, maybe the fastest growing part of the RF TAM for the next few years. And in terms of supply, I mean, we're just keeping up with demand. I mean, it's a very rational market right now. We have pretty good visibility into the requirements and we're keeping up, just keeping pace.
Yes.
That's right.
[Interpreted] The soft guidance is mainly because of the decline in the mobile game. And the second, we do not include the result from 7Road.
Okay. Why don't we wait one more minute and just make sure everybody has had a chance and…
Yes, we are pushing rates pretty hard in Houston.
Yes. I think one of the things that we get so excited about Xtend is because, to your point, Bob, it fits across the entire soybean business in the U.S., as well as cotton and canola and corn. And as we look at the value creation, it's relatively consistent across -- there's two things that drive that range of $5 to $10. One is the variety that it's being delivered in and how new that variety is and it also is driven by the value of that product as we look at a specific marketplace that we are going to be in. But I remind you that, this time around, we have 70 varieties that we are introducing this product in, so we are going to have a really, really broad product launch that really opens up the door for farmers to improve their overall weed control. When you look at the crops that we are looking at, we already introduced this year this product in cotton and we gave a -- we put a price on it this year of $6 an acre, but I remind you that we rebated that back because we didn't have the label for the dicamba over the top, but the seed itself was approved as an indicator to the cotton farmers that that product was coming, but it's a three-way herbicide, so they could use glufosinate along with their Roundup Ready, which really helped them in the cotton market. So that gives you a range of how we are thinking about cotton. And corn I would put in the bucket of too early to call. We've been doing work on corn and we clearly have made progress and Robb's team, bringing those products forward. We'll be looking at that and evaluating that as we get closer to the market.
No, nothing out of the ordinary.
Great. Yeah. I mean as far as the products, really in Q4, there wasn't - they really wasn't a much of a mix change. We saw - I would say that the product mix across our portfolio was very consistent with previous quarters. We did see a dip in wireless in our fiscal Q3, and so we saw wireless rebound and come back. We are expecting to see a lot more wireless in the future and adoption of our solutions based strategy, it was going to take some time to kick in and we really didn't see that in our fourth quarter. So I would just say, mix was very consistent. The other question that you asked as it relates to K-12 schools. Obviously E-Rate is helping that customer group. And so we're expecting that to continue to be an important part of our sales efforts in this year and through next year.
We sell premium products and people pay for them and I think that one of the benefits we really have is a great brand and that brand will get people to continue to block the things like HERO4 black and silver. Realistically look at -- we've now shipped over $1 billion worth of black and silver since it was launched. It's a lot of product and it’s a lot of product that comes with very good margin. So I think there is other credits the Ops teams deserves a lot of credit for getting supply chain efficiencies. The engineering team is constantly looking for way to pull the cost out of the products and we continue to optimize over the year. But we get a good mix of products and we sell at decent price points. One of things you don’t see is ASP erosion. One of the things we didn’t point out in the script for example is that if you take into account the impact of the NDF on what the economy refer to as the street ASP the revenue divided by the units. It's not the true reflection of our ASPs but it's what you guys see. But if you take that into account, there was a $10 reduction to get down to flat ASPs the last quarter. So that’s taking into account the entire impact of the session price protection and NBF. So I think what we've learned over the years is that we designed products really well. We've got much better at manufacturing them and fortunately our marketing and our brand is what helps us sell these premium products at very good margins.
Hi, Jeremy.
You bet. I mean, we absolutely are determined to lower our operating ratio. I think we have the ability to do so. And let me just reiterate, our strategy here, it's a three parts strategy. The first thing we're going to do is grow the top line. Now, that'll obviously be easier if coal volume stabilize. But we're determined to grow volume and pricing. And secondly, we are going to push on return on capital by prioritizing capital spending around revenue growth, recognizing that it is in capital turnover where we have lagged in the past few years. And third, service is the key to all of this. And I'm really pleased to report that we saw service and network improvements in the second quarter. We expect those to continue in the second half. So, the way we look at it, there's been progress evident on all fronts in terms of the top line growth with the exception of coal which faces clear near-term headwinds. We did see growth in merchandise and intermodal revenue ex-fuel surcharges. So that's very positive. Secondly, in terms of return on capital, longer-term story, but we demonstrated our willingness to take a look at our capital spending plan in the second quarter, and we will continue to do so in line with our previous comments. And third, service is the key of it all, and we saw service improvements in the second quarter, which we expect to persist in the second half.
Yes, I have to like double check the math and make sure. But I think the answer is, yes, right? I think that’s fair. The thing that we – what we are thinking about it as, but there’s nothing in here that says, hey, we think we’re adequate and more in good shape if you take, you adjust for all those moving pieces. And really the three big pieces or levers that we’re going to try and pull. One is sort of the operations we think we’re spending money or paying out money, we shouldn’t be paying out if we tighten those up. I think that closes some of the gap. We talked about some pricing segmentation changes especially on the sort of bodily injury higher limits business. So every – I talked about all the filings and reviews that we’re doing. Everyone of those has an increase in the higher limits factors. We’ll close some of the gap there. And then even on top of that we have the inadequate base rates that we have to sort of address. So I think if you make your adjustments, you’re probably on the right ballpark of the gap and those are the three levers we’re going to pull to close that gap, if that’s where you were looking for.
I think it’s in scale and obviously the activity that we see, the scale of Atlanta is different than the scale of the other markets that we’re in. But cities like Nashville and Raleigh and Pittsburg are all very vibrant now. And the others aren’t far behind. We’ve continued to pursue the long-talked about wish-list.
I don’t think you are wrong and your analysis is certainly not fundamentally incorrect, we saw that the margin increase for our European operations was not as severely high in the second half of the first half versus the first quarter. So I think the blended numbers are what's you are going to see for the remainder of the year but a lot of that also does depend on what happens in those countries where we did see some weakness this particular period.  The China market the Eastern European market, these are areas where for our European operations we do generate a lot of sales that are in U.S. dollars denominated and those are what give it that extra pop if you will from a gross margin standpoint. I remember the sales for our European operations if we are in a strong dollar environment your sales are down but your margin is up and your margin is up because those dollars denominated sales are giving you that extra pop because of the gross margin. So it depends on what happens in front of those areas for the second half of the year.
Thanks, Mary.
Yes, that’s fair. Back of the envelope number which we have given in the number of printers which are included in the Q, you are right it’s about €500,000.
Other than our people based services business, we haven’t. We’ve seen some softness there, we’ve highlighted that starting mid-way through last year, but really in our product led sales, we continue to see good strong momentum.
So for the U.S. business, on the gross margin line, we have had success driving gross margin through AUC. We believe going forward, our margin success would be driven by better inventory management, higher acceptance of the product by the customer, certainly higher sales at reg price and better management of promotional activity will be a bigger driver in the U.S. business. And as it relates to operating margins, continued rationalization of our fleet in the U.S. market will also contribute. And, again, we continue to focus on expense reductions and making productivity a way of life and driving more efficiency in the business. On international markets, we are focused on stabilizing the business through comp sales trend stabilization, we made investments in price. We have seen some returns on those investments in the second quarter and we continue to evaluate and drive more productivity, and as we do in those boxes, we expect to stabilize those margins, which are already elevated versus our U.S. margins.
Thank you again for joining us. We look forward to reporting our yearend results in the fall. I believe the next three or four months are going to be exciting ones for the company and one that I am optimistic. We will have some very material value to share with you at the next call. Thank you.
9 for the…
It's somewhere in the 6% to 8% range.
I think we have purposely not out a percentage range on it Michael, simply because of the currency. Where we sit today is unlikely we will get back to that double-digit range, simply because of the downward pressure on the currency. We are expecting continued growth in both CRINONE and Service business. We are certainly hopeful that Merck will surprise us later in the year with the increased volume, but based on where we sit today, I think we are pretty comfortable with that modest growth outlook.
Yes. I think the – a couple of points I would make about Torrance. Obviously, it’s got a 14.9 Nelson complexity index. It is a powerful machine that is an advantage. Its crude processing, I mean it runs at 16 degree API crude, which gives an advantage versus rest of the competition out there. There are a lot of machines out there that can run and queue-up every crude. But frankly the coking capacity that exists and the hydro-treating capacity that exists in Torrance is very strong. The other thing that we see is beneficial. Torrance is a gasoline machine. And we do believe that there is going to have – this rebound in gasoline is going to have some strength. We have seen growth [indiscernible] or others 3% to 4% year-over-year growth, we are seeing that in California. Obviously, that is being spurred somewhat by the – to a large extent by the lower flat price gasoline. But we are very comfortable with the numbers that we have and what we put together the whole key to talks. It has to run reliably. And California markets as you all know when we look at it large variance. If you have an event like Torrance had, frankly the whole industry probably benefited from that shutdown in terms of improvements in cracks as the supply chain moved around to spot, moving components in barrels into California. That’s going to happen in California we think [Technical Difficulty] probably improve other liability when we own it so that it – we are not the ones that are creating the problem, but we are taking advantage of the opportunities.
Yes it does.
Yeah, no, cash interest we project will come in around the same around $35 million; that additional $2 million that's shown in our projections for 2016 is the non-cash amortization of deferred financing cost and whatnot. Cash taxes will be low. I mean, we're not a federal payer. Obviously, our position on the losses more recently and we've got NOL carry-forwards to utilize on a federal basis. So, we're really a state and local payer, if you will. We project those taxes to be in the neighborhood of, say, between 5% and 6% and typically, I guess our cash tax is very, very low – under $1 million (18:26).
Hi Todd, thank you. The discussions we’re having with the Board right now are to find my replacement and to execute on a search as efficiently as possible as I mentioned without rushing to judgment and making sure we do the right thing. So we are all very committed to finding a permanent CEO, which is not me, and we have retained Kron Ferry as I mentioned they have commenced their work in the market. The timeframe is a little tough to pin down because as you know this is a large company, it’s an important company in the sector and we’re going to be highly selective. And the applicant pool out there has been impressive so far the reverse inquiry into this company has been impressive. But if I were a betting man I would tell you it’s going to be hard to execute this inside of three months and it will be probably closer to six months I would think to do it properly by the time we identify a series of candidates to go through the interview process and then you have a proper transition for that person to come in and assume the leadership role. So I would say between three and six months would be my guess and we are going to work real hard to get it done within that time frame.
Well let's put it this way it's not helping, because obviously now it's becoming very complicated to even have access to it the government does and has not allocated much money to that so basically it's fairly much disappearing it is now at 10% rate versus 6% which you know last year and they finance about 5% to 70% whereas they used to finance the full 100% of trucks so it's not certainly not as much an incentive any more. It's not happening I think we clearly will suffer in that part of the work again this year. We’re kind of thinking that the situation would at least stabilize I think this political issue that we all know that we started earlier this year is having a very significant impact on an economic situation that is already extremely weak and that brought the GDP expectation down to minus 1% which is really, really unusual for this part of the world. So but at the end of the day for me that means that we have an area of the world that is important that has very nice content per vehicle that will down the road comeback very strongly as well. So, that's the way I look at it.
So to your - to your first question, in our Phase I study, we will be evaluating two formulations using Aricept as a comparer, a PK study. We will only look at one dose in that study, which is 10 milligrams. And - and to your question using initial dose and maintenance dose, the patches are generally dose- proportional. But this is a matrix style patch design. It's able to show bioequivalence to 10 milligram with a certain patch size, then we can easily to half for the lower dose or make it larger for the higher dose.  The - the second question was the attrition versus the NCEs. In our experience, once we get the Phase I results in humans, a PK profile, we believe that's a good surrogate for us in terms of predicting the success of Phase II or Phase III. Our barrier is primarily Phase I. But having said that, we have very good models, in-vitro skin models and predictive animal models, where we de-risk the program, even in the early feasibility stage. And they're all 505b2 regulatory programs, where the molecules are already approved, well-characterized, and - and their safety is - is known.
It’s a good question there is a lot of people out there. I would expect probably you’ll see and two to four is probably my best guess at this point in time, but it really depends.
Really not defined at this point as Dave, mentioned a bit ago we’re evaluating whether a purchase of a third-party property or our existing gas assets make sense for that Cost Of Service Gas program, and working through that with regulators.
Oh, I'm sorry. I apologize.
Well, we are not able to really comment much on it. The only thing I can say is, we have spent the amount of this investigation was going on, obviously a lot of emphasis, a lot of time and management attention was directed to that. We will certainly continue to be focused on strong compliance, but we have certainly a clear situation and we have the chance and we want not just to continue business as usual but step back and see and be fully focused on the business and what are potential opportunities for us and that is what the Board has asked us to do and that's what we're doing. And once we reach some conclusions, we will certainly share this in the appropriate way with investor community.
But it is all in.
Literally 26% admission growth and this goes back to I think what we are seeing in this quarter, what the team demonstrated was kind of the efforts that’s been underway and we finally got into the spot and kind of hit the level where I would frame it we are kind of – our production now, admit production is about one per care center per day. So that’s about 400 a week thereabouts that they are achieving. And I will tell you we are very optimistic if that’s a sustainable level.  And so with the comparison that we have that level of admit volume gave us a nice comparison this quarter and then if you look at our history here, that should be some nice comparisons if we maintained this level that we feel very good about for the next three quarters and so we will see some – if we achieve that it will be some robust numbers again diminishing as we kind of catch ourselves and lap ourselves next year in this third quarter, but it’s just great activity level, great energy, great focus that’s achieving this kind of level of production in the hospice segment.
This is something that we actually released this quarter integrated those two, so we had two products. And what it does as it allows us to walk into an operator at the time of activation. And while we’re activating the device potentially and transferring that important data, it immediately sets up and provisions the cloud account. And the significance of that is when you have more mature markets like here in the United States for example, Verizon where there is a lot more control over the OEMs, there is a lot - it’s not as relevant. And so it takes longer in some of these emerging markets. And we think of some of our Vodafone properties where we’re trying to get better adoption rates today, we believe that the integration of the two allows the consumer who wants to have that experience in the store, they immediately become a registered cloud user. That’s helpful to us because it puts the adoption a little bit more in the control of us and the operator than before being more contingent upon either the OEM or the software vendor.
Right, and Sofya to you – the more specific part of what you asked on the promotional spending and the profitability of Indonesia, it’s a very good ROI business for us and as you know around the world we spend promotionally in all of our businesses, this is more a matter of emphasis than what it is that we are going to spend on. So I wouldn’t expect this program to be visibly disruptive to the probability of Indonesia. And in terms of our algorithm for growth we were in the midpoint of our range in the first quarter, we confirmed our full year 4% to 6% and have in our slide today the 6% to 8% longer term value that we would hope to confirm for next year later we get into the year. We were up 8% in the emerging markets this quarter and the first quarter even with Indonesia being down middle single. So we continue to have places where we can improve and stay with where we were.
You know, that is a great point. We – I will say, the original development thesis for this compound was for treatment of refractory hypertension and there is no question it’s a vasodilator, there is no question that it may, there are people who basically refractory hypertension is essentially failure of three or more chronic therapies, and there is potential for benefit. Under expert care of hypertension sub specialist, I think that is a potential application of the drug whether or not it’s a registrational focus I think remains to be seen.
Yes I think I’ve called out 33.5% for the full year, if you back out that 1.7 [ph].
I think that that’s fair to say Jeff and thanks a lot for your comments. I think that on the cost of goods sold category obviously that will start to write off in the beginning of the year. Our investments as we are targeting right now moving again through 2016, we would also expect to be doing that in reinvestment pretty much consistently throughout the year.
Yes. And I mean the most profitable growth we can ever have as a company is organic growth where we’re driving additional patient volume and revenue into existing facilities. Our business is as you’re well aware, is very fixed cost in nature. So that as we drive incremental dollars, we have seen in the past that almost 50% of that falls down to the EBITDA and to the profitability level. So, if we can drive organic same center volume and revenue increases, which hopefully will be a little easier next year than it was this year, because next year we’re not going to be facing the type of reimbursement headwinds on the Medicare front that we faced in 2015 and 2014 and in the past. We hope to see some of the operating leverage show up in our business with increased margins.
Well, actually it won't that big. It won't be the 1,000 units that you talked about. There will be some uplift over the next two to three years. It could be 300, 400, 500 units somewhere, in that neighborhood, but we certainly would not have gone about diversifying and bringing trailers in-house if we did not think that it was going to return our investment very quickly and be accretive to Malibu.
Hi, Nick it is Mike Schall and John Eudy is also here. He may have a comment. We continue to be interested in development and as I noted we have three, possibly four starts this year. We did not believe that the parcels that we sold for future development sites met our criteria in terms of going in yield or expected yields. And there was some complications in terms of the entitlement process and so we decided to sell them. So I wouldn't view that as indicative of our overall appetite for development. I've commented on previous calls that as we go through the cycle, and now our view is we're mid cycle plus. We will de-emphasize development at some point and obviously we don't know when the end of the cycle will occur. So we'll never exit development, but we will slow it down as we perceive that we're closer to the top of the cycle.
[Foreign Language] (29:26-29:34)
Yeah, so that graph that we have in there is just primary production, absolutely there will be secondary supplies, but of course one thing about the nature of secondary supplies is they are finite, they only come to the market once and what we have actually seen over the years is a drawdown of those big volume. So for example, we no longer have the [ATU] [ph] material in the market that when we think about it in mine terms, mine life was up in 2013. We do have material we know coming out of strategic inventories, for example the US Department of Energy, but they are working through what are their more fungible materials that come to the market and they are secondary supplies beyond that really require them to either down blend some highly enriched uranium, so additional processing or to re-enrich tail so additional reprocessing. So we see some challenges to those secondary supplies, they really come down to at what price you think they will be in the market. So certainly, we model secondary supplies going forward, you’ve seen that in our investor presentations, but we still have a gap. There is still a gap there beyond primary production and in some secondary supplies that we think will be there. You still have a gap that we just don’t see being filled today because of today’s price environment.
601, the only block that we will have at 601 will be in the low rise building, that is 145,000 feet. And we're working on a repositioning of that. If it works out the way we want it to, I think that will be a very unique offering in the market in terms of the location, in terms of the outside amenities and what we want to do there. But more on that later. The block at 399 I already spoke about, we already have some interest on.
Yeah, Deane, that's a good question and it's always difficult to determine how much of the lost sales will be recovered. Once the weather normalizes, for instance, any sales – add-on sales we would get for somebody being in a branch, working on their normal shift, that sale is going to be lost. However, some of the project works, the direct-ship work, we will recapture some of that as our customers are able to catch-up, but there's always so much they can work in a day. So, some of it will be caught up and some of it will be lost.
Yes, I’ll bite my tongue at this point.
Thank you, Amanda. We have obviously had a robust discussion this morning, and we appreciate everybody's time and your continued support and interest in ARLP and AHGP. As we discussed, following the close of the White Oak acquisition, we plan to issue a press release and host a call, to discuss the transaction and update our guidance. Our next quarterly earnings release and call are currently scheduled for late October, and we look forward to addressing our third quarter results with you at that time. Thank you, everybody.
Working on some things, but nothing in escrow.
It does add some asphalt volume. Again, it tends to be an aggregates led business. You're looking at probably about 340,000 tons in that southern Front Range marketplace that came with these transactions.
And it's also that one is mostly name by name.
Jed, so our total international revenue as we said in the remarks, our total core international revenue is up 5% Q1 this year versus Q1 last year. And international as a percentage of the total was 23% this quarter.
And typically, John, as you know, the industry has typically grown in low single-digits. And so nothing substantial has changed in that standpoint.
All right.
Michael, we have not changed our guidance. I think that is the last guidance we gave and that is really still where we are. We did sell some PLA [ph] in the past couple of years. We have not done so this year. Whether we do or we do not, it is not really something that we can sit around and think a lot about. It is just we may if we need to or we have it, we will sell some. If we do not, then we won't. We have not sold any similar to what we did in the past couple of years so far in 2015.
Yep.
Yes. Jeffrey, the Duvernay, what's interesting right now is we repeated our $10 million per well – a well costs now twice. So we're really confident about that number and, of course, as we're thinking about 2016, we're going to try to drive that even farther down. But what controls the near-term growth in the Duvernay is gas plant capacity. We're building another gas plant as we speak. It will come on late 1Q. We've actually got four rigs at the moment running in the Duvernay, which is designed to fill up that capacity as it comes online. We have taken a decision to defer the start of the next gas plant until we see the results of the Alberta government's reviews there going on. But that won't affect 2016, but it will mean the growth will be a little slower because we'll take that decision after we see the outcome of their current reviews, but we'll have growth in the next year as we fill up this new capacity we're currently building.
What I would tell you that I think we have a disagreement on where we are headed with the company. But our cash is spoken for and we have requirements for it and it's just not something we sit around and it's not idle cash that we can buy back our own stock.
Certainly Zarak. So, some of it is macroeconomic. I think one of our business, our employer services business, you can even regard it a little bit of a lead indicator on how things are going in the economy. We actually saw really good growth, double-digit growth in employer services, which we think is a great sign. And as I said, some supportive contract wins. So it's not something that we see slowing down. And equally in our reagents business, we've had great success with that business for a period of time and we are working hard on 510(k) approvals. We talked about two real innovations in that business, one hospital tox panel, and that is essentially oxycodone-based and then a listed drug-based panel also. And we've seen a number of 510(k) clearances, three in Q1. We really need to couple more to make that a very pervasive offering to market. But that I think will help us again accelerate in the back half of the year once we do get the other anticipated clearances that we are striving for. But both of those businesses are in good shape and really pleased with how they’ve gone.
Jim, just to add one more statement here. You know, this is looking at it from our side from the customer side, you know with gas being at 1.8, 1.9 top two it's economics of where they want to invest may be today not very attractive. So as the commodity price, the gas price starts recovering, I think more demand might just come in just because it becomes more economic for the customers.
Sure.
Thank you.
Mike, I wouldn’t comment specifically on any country or any import. I would tell you that we don’t have any exposure with respect to the question you just asked. So we’re very comfortable with our import inventory. And it is going down as we mentioned as we ship more to domestic and we don’t have any exposure to such trade cases.
Yeah, so Corinne would you mind…
Yeah, Bob, just given the strength of our contribution margins, that run generally around 30% of incremental volume, and some of the improvements we're seeing across our business, I would expect that cash flow or – operating profit growth would run ahead of the CapEx investment – the increased CapEx that we're forecasting at this stage of the year. So, I would overall expect free cash flow growth as we go from 2015 to 2016. The end markets are looking good, we're feeling good about the productivity improvements and the efficiencies in our business, so right now – feel good about that right now.
But again down the road.
We’re currently mining from stopes 9 through 11 which is up on the 625 level in the mine, and we’re basically -- although the production from the mine is from those three stopes 9 is almost completed and being backfilled. There is about 15% to 20% that's coming out of [indiscernible] and that’s off of the 550 and the 655 level. We've shutdown the 625 and 675 level right now because we’re doing some drilling to look at for the extension of that. So I'd say 80% to 85% of our tonnage is coming out of stopes 9, 10 and 11 of that level and then the rest is coming from [indiscernible]. The grade reconciliation we’re still working on, I'm seeing numbers still 10% to 20% better about the same volumes as we had expected.
Thanks, Jay. Take care.
Yeah, once we get our days down. Yeah, we put, on the first couple wells, we assume a little higher, $5 million, in terms of just getting up a learning curve and understanding the area. We assume those will take about 20 days, and we quickly get down to 15 days, which there you would be at that sub $4 million level.
Really, it's the request of our customers in this area, and by the way, while we acknowledge a multiyear or during the quarter we have several multiyear orders in our backlog, not only the one this quarter but several others in previous quarter of which, again, we believe is a show of conviction of our customer base, as well as ourselves that there is a lot of strength left in the cycle. Indeed, our backlog as a whole goes into 20 -- on certain production lines even goes beyond 2016, all the way into 2019 as a result of, obviously, the multi-year orders overall. So at the request of our customer we did not break out the detail on that particular multi-year order. It's fair to say that it was significant. It's also fair to say that excluding the multi-year order that we still had a good run rate of orders for this past quarter.
Brett, yeah, I think, that’s a fair statement. I mean, we obviously have fairly high hurdle rates on what we expect out of the acquisitions, we’re typically looking at our average performing stores if you recall, because for us to hit our hurdle rates, 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 excepted by a seller. So it’s a little bit different candidates and we are looking for them 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 a little easier for us to still stay in the game on buying stores.
And with respect to the inventory, it was roughly $20 million at the end of the quarter which I'd say is all safety stock because we weren't servicing any stores out of that DC at that point in time, right. We started subsequent to quarter-end, so I would say we expect that to be kind of the high watermark on a per door basis for fiscal 2015. We expect to see some moderation now the second half of the year, and should stay roughly in that zone as we cycle through next year with another DC stacked on top. So once we get through 2016, again with all of the systems we're putting in place: the DC, forecasting, replenishment, other floor planning kinds of tools; we expect all of those to help contribute to improved inventory flows and improved turns.
Well, it’s a -- we’re engaged through a related company in the direct sale of products to consumers, container products. And that business has grown at a nice pace. And in fact, the first quarter of this year sales were over seven hundred and some thousand dollars for the quarter, up significantly and that operation is profitable. It has enjoyed some fairly rapid growth and we are looking forward to it to being a growing and significant part of our business.
Thanks, Su.
Sure. Tim, unfortunately the market itself was down greatly in January, and started to recover a little bit in February; we've seen versus December, it was down about 9%, and even more so within Tennessee, where a large part of our business comes from. This is actually something we saw last year as well within the marketplace. I think it's important to note there still is a nice increase year-over-year January to January. So we think that will start straightening out here in the coming months, just the market itself growing once again. And then with all of the different efforts and some of the things Mark highlighted, I think Q2 should be a time when we would see some acceleration within our growth, a little more consistent in our growth pattern there.
Yes, I will start off by answering the second question first. Very concretely, the file system design that we have, I would say, we are one of the few file systems that underneath a single umbrella has designed a layout that’s optimized for flash and the layout that’s optimized for disc. As you peel the onion and say what are the attributes that a flash-only array needs to have you will find that with many of those attributes are part of our file system, whether it’s lock structuring, whether it’s scale-out, whether it’s data reduction, all of those are things we can accommodate. So, I will start by saying the architecture itself is broad enough to enable us to go towards the flash-only array while sort of doing what we are currently doing as well. The more sort of difficult question to answer is when or whether do we think it will become necessary and without going into too much detail, that question entirely revolves around will the endurance of flash coupled with the price of flash, so will the price of flash go down without compromising endurance to a point where the economic start to favor An all flash array. At this junction, not even the semiconductor industry will give you a clear answer that says endurance will stay roughly where we need it to be for enterprise flash arrays and price will go down. So that’s the big unknown what I am sure of is it is not happening in the next three to five years, the cross over point is certainly not there at least for that time frame beyond that it maybe. So that’s sort of the way we think about it. We watch this carefully, we make sure all of the ingredients are in place should we need to react, but I will leave it at that.
They had an option to extend the lease out for a period of time on their own and they decided to do that with the idea that they’re in the process of negotiating a downsizing and long-term extension at the building, but this gave them more time to have the ability to flexibly do that. So that’s why they chose to take that interim step as a tenant to extend out for a year while we’re finishing off the negotiation of the extension on the majority of the space.
Hi, Matt.
Yes, I mean, we are still – I guess, Mike, we are still targeting the middle of 2016 for positive cash. So, how much gets taken out over the next two or three quarters for calendar ‘15. There is obviously some key contributors to Jerry’s question earlier from around the contributions from Cummins Westport. That’s obviously going to have a big impact on cash. You have also got some product improvements, some new products getting into the market. So, we have got some things that are helping us, but still it’s a path, it’s not necessarily a incredible drop, Mike.
Yes. Again, I think the comps were better than we had anticipated. So, we got some leverage on the three comp. The merchandise margin was better than we had – again we also had than we had planned internally. We have mitigated more than we have thought in terms of the FX impact on the mark-on. So, that was favorable and we had some favorable cost savings and some benefit of some timing of expenses that did benefit us in the second quarter that were planned in the second half, but they are baked into our second half guidance at this point.
That’s based on just having those inferred.
Thanks, Chris. So we're not -- we can't give out the specifics yet of the data. The one thing I can say is that we're not seeing any new types of adverse events than we've reported in the past. We've had a poster in the past at AACR describing adverse events. So, we're not seeing anything, any types of events other than those. We do think, I mean in any kind of therapeutic program and I know this sounds like too much of a generality, but as Bob said, we like to push the dose as high as we can. We do have a dose we could move forward with, but we'd like to push a little bit higher than what we've since that dose and so, that's why we're pushing on this. And, so I have to leave it at that and we're pleased with the progress, overall of this program. We and BMS are. So, I'll just leave it with that. This is a refinement of the dose. It's not a big leap above or below where we've given you guidance before. It's a refinement.
Sure. So just to provide some color on the modular offerings and the capabilities we had insight of that set of products. If you look at the front end activities of the rate cycle, we've got a full suite of products around the entire continuing among financial clearance. So to say a grouping of offerings that covers that suite of services. In addition to that, all of the activities on finding funding sources for the uninsured. Whether that's a Medicaid funding sources or non Medicaid funding sources. And then if you look at the payer component of cash, a full set of services on the pay or cash as well as on the patient engagement as it relates to the financial responsibility. Customer service related services as well as the mechanics on pre collect activities in terms of resolving those financial responsibilities the patients have on a residual basis. So it is a pretty comprehensive set of capabilities we have. We have the capability to deliver those on standalone basis and in all of those areas that I mentioned. We've got demonstrated engagements where we've delivered that and received payments for those services on a standalone basis. So generally as we look to scale that we feel good about our operational readiness there.
35%.
Yeah, John, with respect to ertugliflozin, what I've said from the very beginning is when we partnered with Pfizer on the drug, this is a drug that has extremely good pharmaceutical properties, and hence, it can be paired easily. It plays nicely with others. And so the most important attribute of the drug is our ability to formulate it together with JANUVIA and develop it in that context. With respect to the outcome studies, the data that are available from EMPA-REG obviously influence the way we think about those outcome studies. And so we're looking at that carefully to ask the question, what do we need to do to ensure the outcome study provides a satisfactory test of whether ertugliflozin also reduces cardiovascular mortality in the way that was seen in EMPA-REG.
We're going into the other room quickly.
Peter, you want to add.
Sure. Capital spend first half of the year $3.4 billion which was relatively consistent with last year first half. We've got pretty significant launches as you think about the rest of the year, Astra, Cruze, Malibu. We certainly expect capital spending and the cash associated with that to increase in the second half of the year. We're not moving off of our $9 billion guidance for the year yet, Itay. We will continue to monitor that as we go through the year. As I talked about free cash flow before, I said flat to slightly up. Based on the performance we've seen so far, I wouldn't necessarily change that perspective, but I might underline or emphasize slightly up on a year-over-year basis. Our performances on cash flow is a bit ahead of plan, so we're optimistic that we will be able to do better than we anticipated, but we're not changing the overall guidance yet.
Thank you.
Morning, Ali.
Yeah. We have changed division presidents. In Florida, we've added two new people in addition to the division president. We run everything. I mean, we don't run. I mean, this division presidents work. We have CEOs in all the markets. We have in a number of markets in Florida where they've got larger markets, we'll have a market manager there. So, it's very similar to the stuff that we've been doing for a long, long time except for the fact that we probably didn't respond quick enough and fast enough. HMA went for a period that they did not recruit any physicians and we've not only had to fill the slots that they didn't recruit; we also had a number of physicians that we had worked through issues with and some of those worked out and some of those didn't work out. So, I think we're on the right track now, and I think our success record has been very strong through the years in terms of doing this, and I think we're doing all the right things. And the biggest thing that we have changed in terms of practice management is consolidating it here now and putting all these standards in and making sure that we're doing all the right things in the practice to grow the practices now, and to reduce the expenses as you might expect.
Okay, thanks Matt.
Well, it's -- you know, I think with the delivery of SP1 -- SP1 was very focused on making it easier to upgrade and to really deploy our suite. So that was -- the biggest input that we got was, try to take the cost, upgrades are for all enterprise customers very expensive. We're not alone in that. And can you take the expense out and maybe professional services out of the equation as much as you can. So, our one learning from that program was can we get capabilities to make it easier for customers to upgrade and not just upgrade, but deploy into production. So SP1 which we delivered fully by the end of the quarter has those capabilities in its package. So let's keep watching it and I think SP1 will be helpful.
Yes. We have certainly thought about it periodically when we do strategic reviews. What I would say is that we don't have any ambitions at the moment to fly sectors uniquely within the lower 48. I think if we look kind of more into the future there's a question about whether the business model that we have centered on Hawaii which is we think has been very, very successful over the years is one that we could replicate elsewhere. I think that is a different strategic question, but at the moment we don't have any plans to operate sectors between two points on the continental United States.
Yes. Some of their sales go to the drilling industry, so obviously if there is less drilling going on it does impact their business. It is not the majority part of their business however. The majority of the business is around pipeline maintenance and other maintenance items that regardless of the price of oil or gas that still continues, but having said that there is some impact based on oil well drilling, so we have taken that into account, when we looked at the guidance going forward, we do not see it as a margin impact, we see it as a top-line potential impact and then obviously impact as it flows down to the EBITDA level.
Well, I mentioned the geographical areas where we’re focused on and there is a reasons for that, we think those are again at the tip of the leading edge of the change in the energy business and that’s why we want to get established, focused and build momentum and then we will go from there.
Andre it's Linda and Mark and I are going to tag team on this because I'm managing Copal Amba and he will comment on some other factors. As you saw in the earnings release and then also on the script we had exited part of the business for Copal Amba and that leads us revenue deficit of about $8 million $9 million that we’re looking to catch up from which makes it little harder to have growth on that line. Maybe Mark wants to talk little bit more about the other components of professional services.
The logic has not changed over the years. We look at our business plans, we look at what we want to accomplish from product perspective. We look at the capital needs that we have to run the business and to grow the business. And then we see that we’re in this great position that we can return cash to shareholders. We know Apple very well. We are very excited by the level of customer response that we’ve got for our current portfolio. We’re super confident about the pipeline of products and services that we have, and therefore, we believe that there is great value in our stock. And that is the reason why, again this year, we’re allocating the majority of the increase, which is the largest increase that we’ve ever done, we’re increasing the program by $70 billion. And the vast majority of that we’re allocating to the share repurchase, because again, we believe there’s great value in the stock. We also know, and understand, that we have several investors that value income. And so that’s important for us to increase the dividend. And as we’ve said in the past, we plan to continue to increase the dividend every year. And as we’ve said in the past, we will come back at about this time next year and give you another update to the program, because we will have better information, and we’ll be able to be very thoughtful about the size and the mix and the pace of the program. From a funding standpoint, of course we have a very strong balance sheet. We do have some cash in the U.S. We will continue to generate cash in the U.S., but definitely a good portion of the program will be funded through debt. We will raise debt both in the U.S. and outside of the United States. And you know, of course we’ve got a very, very strong balance sheet. We’ve got a very open dialog with the rating agencies. And so we feel we have a lot of room for us to fund the program. So from a balance sheet standpoint, we feel very, very comfortable with the program that we’ve announced today.
I'm sorry, Brad, fourth quarter, what was lower?
I would say that it should be a strong end market for a number of years ahead.
Thanks, Alex.
You pretty well hit on it there, Rob. Look, we still want to do acquisitions. And this year we'll do about $1 billion of acquisitions, some smaller things that are mostly on the commercial side of the portfolio. But there remains an opportunity both on the Aerospace Systems side as well as on the building side of the business. We have not seen or found an asset of the quality that we like quite yet, but we continue to look. And it ultimately comes down to, can we buy a business and create real value for the shareowners without having to give all of that value to their shareowners in the form of a very high takeover premium. So we're going to be disciplined, we're going to keep looking. And quite frankly, I think the slowdown that we've seen in the stock market over the last six months gives us the opportunity going forward to be selective and to find targets that are out there. I think what's off the table today is the bigger deal. We'll do deals in that $1 billion to $5 billion range, things that we can finance with existing cash or cash flows or what we have on the balance sheet. But any type of deal that will require us to use UTC stock, in my mind, is off the table simply because of the disconnect. I don't want to use a devalued currency to do a deal. So over time, as the UTC share price recovers back to towards where intrinsic value is, we may think of a bigger deal. But right now, we're thinking about that $1 billion to $5 billion range, and we'll continue to look. And I give the team credit. We've been close on a couple of deals and we've walked away because the value wasn't there at the end of the day after we did due diligence and we did the right thing. And we'll continue to have that kind of discipline going forward.
Right. And this is the second time we’ve been through Obamacare open enrollment. The first time we went through it, we had strong growth during open enrollment due to the problems that the government had with their sites, et cetera. This time around, the government did a much better job during the open enrollment period, and so that was not favorable to our short-term medical sales from that standpoint. Also, if you look at the folks that are on our segment that were focused on the individual major medical and being a competitor to dot-gov, we have outperformed our segment and we feel that that will lead to less competition going forward. So we’re very excited about our future but it was unfavorable for us doing the open enrollment period this year.
We’ll see some cost impact from that but we’re also trying to continue to improve our efficiency operations, things to make the company more efficient. So, I also expect we would see additional revenue that we’re expecting from that as well. So I wouldn’t expect that there would be material increases in cost there, but we are investing in that ink to green in terms of additional resources. And so we will see some of that but I won’t expect it to have a material impact in the back half of the year.
First of all that initial growth rate wasn’t predicated on any backlog. It’s a high turns business and sustaining 50% over multiple years is really presumes penetration in a wide variety of market. Now in electronics test area, one of the things we described there is that, the sales cycle for our customers, for these large deployments tends to be longer than the typical Universal Robots sales cycle to a small to medium size enterprise. A sale cycle there could be on the order of a handful of weeks or as with these large OEMs, it could be six to nine months because they're just looking at different scales and evaluated at different levels. So, we are in the middle of several evaluations that our customers those started in the third quarter and we would expect to see results coming there sometime early next year.  And at the same time, Universal Robots as I mentioned the example of Wistron, Wistron is a large ODM. They manufacture a variety of things, laptops, computers. They have electronics assembly. They’ve put 60 robots into a variety of tests around that piece. So Universal Robot on their own has been penetrating electronic assembly and what we would expect to see is around test some incremental business in early next year.
Good morning.
Obviously, the huge move in well costs last year, going from $10.6 million to what we see as currently as $6.5 million on slick water wells, and from where we stand we still think there's room to move and it'll still be a combination of efficiency, so getting more efficiency on the drilling and completion side. And then also a bit on the service side as well. The service side's certainly not going to move as much as it did last year. They just don't have as much room to move but we think it's reasonable that we could get it down another 5% to 10% by the end of the year.
I think several factors Sharon. We love to see the commodity market respond. That would be nice and rebound. But I think it is multiple factors that we think that will be included in there. I think maybe in Enbridge Partners look support towards MEP would be a consideration. Obviously, EEP is consideration for their cash need for to fund their capital program, is always that the first leg of the stool and has been since we formed MEP. And just the general market the equity market side equation for sure we will be considering that.
Yes. You heard the second part of my commentary was that really the base had reduced. And the base probably had reduced a little bit more than the $2.60 you described. The $2.60 has already probably between $0.20 and $0.30 of that $1.00 to $1.50 of the new strategy that's bringing. So maybe the base is more like $2.30, $2.40, something in that range. We feel good, as I described before in my comments and I think Ray just mentioned, about the progression towards this $1.00, $1.50. We have a little bit less visibility on when the bases will recover because it's more impacted by macro factors that we really don't control. We control many more of the factors in the strategy.
Hey, Paula. This is Brent. Yes, within the U.K. operations, as we've added bolt-on acquisitions, those were very strategically added to meet the continuum where the NHS likes to keep the patient within the same organization throughout the state. And so as we roll forward, we fully expect that revenue per day is going to be mix impacted and will have a slight decline, but again it's more oriented towards the different levels of care than just decreasing rates overall.
Yes, I would say, Rob, we have talked about this for a while, but before, Mexico has recovered nicely. They are kind of a virgin only market, because they are a 12 month a year market, raw materials work through quicker and we think our margins are going to be better there. On a 12 month basis, the margins should be relatively similar.
Yes. All the logistics. So, base support, things like that.
So PJ, thanks for the question. What we’re assuming and the way we are thinking about the fourth quarter right now is we are assuming that the timing of the deliveries in the U.S. will allow for lower returns, so whatever moves from Q3 to Q4, depending on the returns, we are assuming there will be more in Q3 this year. Last year, as you remember, we had unusually high returns in Q4, and we are not expecting that. I mean, we could plan one way or the other, but at this point in time we are planning for lesser returns and potentially lesser sales in Q3 to add up to those returns, so that’s a big variable there in the equation. The second variable is we are expecting a strong start in South America based on what we are seeing right now in Safrinha. I mean, the dynamics in South America are turning towards corn a little more favorable, and we are expecting a strong start of the season in South America, so that would be nice upside versus last year where you remember, this was the beginning of the decline. So right now, we are expecting a level of rebound in South America in the quarter, obviously continued very strong performance of soybeans--I mean, as Brett was saying when we were talking about Intacta, we talked about the U.S. as well, so strong soybeans. The last point I want to make is obviously, and we talked about that in the prepared remarks, is also Q4 is our largest opportunity for spend management, and that’s where we spend our discretionary dollars. Most of our discretionary dollars are spent in the fourth quarter, and the reduction in spend we’re looking at right now, a big part of that will happen in Q4. So for all those reasons, that’s why we have--and we’ve ranged it, obviously. We have not given precise guidance for the quarters, but that’s the way we are thinking about the quarters and the timing and the cadence of the earnings to come.
Yes. So, the answer is yes, it’s both. So, one is it’s a negotiation, and many of the plan, not all of them, will use time on the fact that they have their six months decision window to basically ask for very large rebates at the beginning. And then over time you reach in a place where both sides are happy. I actually feel that we did a good job. I won’t give you exact numbers, but actually the rebate request came down over time rather than going up over time. We also have two plans. And I won’t name the specific plans that have agreed to do outcomes planned with us in the way that works pretty straightforward. We agreed to a base rebate for the product actually fairly modest and then depending upon whether or not we achieved specific goals around reduced hospitalization and savings to the plan, the rebate would either go up or go down. And we think that’s going to become something that becomes more and more popular in the U.S. and around the world. For Gleevec, we have assumed that you pointed out at February entry of the first generic. We believe they will be exclusive for that first six months and our working assumption is there will be multiple entrants after that six months.
But…
And George, this is Mike. I just wanted to underline that point because for you and the other guys who are so thoughtful about our business, we've been asked that question before, just how does the media and how the transactional opportunities co-exist. And GigMasters is a very good example. You pay for transactional capabilities through a commission fee or commission structure and you buy advantage in their marketplace by purchasing media. So you're able to deliver different needs to different segments of your vendor population, and those revenue streams co-exists together quite well.
CFP2 is higher than the corporate average.
That's correct.
Well I don’t know that it is different Justin, as what I Jeff is communication which is consistent with what I said is that from a variable cost side most of the significant changes will have occurred by the time we enter the second half. When I say there is more work to be done and driving top line growth, obviously we’re not, our fixed overhead structure should still absorbing a loss in revenue of $200 million annual. So that element of it in terms of overhead absorption will continue through 2015 and then into 2016 but the variable said - Jeff correct, and I hope it was consistent with what I said that majority of those changes will have occurred by the end of Q2.
Scott, I'm not -- I read that and I hear that, we don't see that on the ground where we are. We have a healthy pipeline of project opportunities in each of the sectors we operate in. So, I'm just not seeing, I hear it, I read it but I'm not seeing it in the projects we're bidding.
It depends on where our share price is. I mean every time we get ready to deploy capital out we have to ask ourselves is this the best use for that money. And if instead of acquiring an existing lease-up or something could be built and looking at that as an investment alternative versus buying our own portfolio, what sort of return expectations do we have out of our existing portfolio. So it’s – we’ve done share buyback in the past, we know what we understand the concept, we have a program in place and something we look at all the time.
I don't have that kind of an analysis at my fingertips. And then I frankly don't think we do break it down that way. I will say that on the quarters – the growth for this quarter, the disappointment for us was Europe which was weaker than we had anticipated. And as I stated in my opening comments, it was more Northern Europe than Southern Europe this time that kind of disappointed us. The other thing that's holding our growth rate back, of course, is those discontinued products in the lab sector. But as far as quantifying the amount coming from new products, I don't have anything that would allow me to give you that at this point. Chris, you have anything...
Well, I guess, Duffy, I would first say that it’s a difficult question to answer given that there is not a lot of industry data that you can rely on. So, I would say it’s conceivable that in the U.S. stores business, we might have ticked down a fraction. But certainly, I don’t feel that way in Canada. And we are gaining share in other places like Mexico. We are gaining share in Europe. We are gaining share – so I would tell you that since we run a global architectural business overall, net-net, we are doing pretty well.
Yeah. I would say, Chad, that I think most of the rebalancing has been done. I think it took pretty much up through Q2 in order for it to happen, but I think they've moved the fleet to where they want it, and they're waiting to see where they can get the rates and where they need fleet, so they've been a little bit cautious. But I expect there may be a little bit more that tails into the back half of this year, but for the most part I would estimate that that's been done.
Thanks, Frank.
Yes, Middle East, I mean, it’s a more difficult to get market data because we don't really measure sort of mere region market number. We always look at - we always assume sort of the running rates for that region, sort of mid-single-digit. So clearly we’ve done a lot better than that. But then you’ve got to look at places like India, where mix impact, the growth as a percentage is very high although, the volumes are not very big. So in India we saw 64% growth in the quarter year-on-year. But that doesn't really mean much in the context of wider EMEA. I think to try and present more clearly. I think if you look at the Middle East in particular, I suspect difficult to get numbers, we are seeing a similar sort of effect you might think around in the quarter in the last couple of weeks. It obviously is slowing down in some countries in the Middle East.
I'm going to take those in reverse order Chris. On the Coty transaction and the impacts, there's obviously some accounting changes that move things between continued operations and discontinued operations, but until the day that deal closes, all of the cash that those businesses generates goes into our bank account. So in terms of real economic impact next year is, all the cash is ours. And then in the following year, which is what we committed to when we had the call a couple weeks ago, we said post close there would be no dilution going forward, and that's still our plan. So that's kind of Coty. The tax rate at 24%, I think certainly the rate that we've been at is lower than we're going to have going forward just because we've been, as we've been successfully concluding RS(76:51) releasing reserves, and those are down to pretty low balances. So the 20%, I would call it 23% to 25% as being a normalized rate going forward. On Mexico and Japan, we saw a sequential improvement in Mexico, and are really getting to a point where that will be behind us. But in the quarter that had a 20 basis point impact in terms of top line growth. And then Japan obviously went the other way, and was a help to the quarter versus the year-ago softness.
There is not really an issue and again it's a small movement. So you know what you're looking at you know the difference now between what we forecast at the beginning of the year is essentially up $10 million of movement on a $370 million business. So on this nothing structural going on its a couple of programs.
Yes. So there are – it looks like, I don’t know a couple of hundred million – couple of hundred thousand of incremental expense coming on. It’s not really a huge number.
Hi Juan, it is Howard. I don’t think we have any particular dollar amount as a target. I think really we were continuing to look at the asset we own and make those decisions on an asset-by-asset basis. That said, we have a property right now that's on the market for sale. We have several others that we're finishing some underwriting with brokers and intend to bring to the market.
You bet.
I think it varies quite a bit John. I don’t really have a metric that I think I can give you that's a reliable at this point, it depends on so many different factors, including the type of account it is, obviously large academic centers tend to be slower in both their value analysis committee and their review process. So while you may use some products during that time they aren't even technically fully approved to be used broadly and so that process alone can sometimes take 12 months and then to factor that relying on the surgeon process to adopt and change of treatment algorithm. So it is highly variable, so I don't really have a guidance I can give you.
Let me put it to you this way, the cases that are filed, not they are only not complex to put together but they are a one important time saddle that takes place against a certain country or certain company. What we have done though in the bigger strategy, we have proposed trade language that we hope will be a part of the ongoing debate on PPA. That language very much clarifies the true definition of injury, it is engrained into X where we can implement and enforce that law and that is the ultimately solution to this situation. In reality I think the debate around PPA has provided us with a window of opportunity where we can implement what I consider to be the ultimate solution to dump in a country. That is the most critical part of that.  So it’s an ongoing affair, but now I think we have a better moment to try to do something at this point in time that may become the ultimate solution.
They are taking Home Phone but won’t be able to -- won’t choose to take it at whole price you are saying.
Hi Eric.
Not that I know of.
Well I think Gary has given our view on the housing starts for the year, which is new construction in the US expected to be up in that 8% to 12% range with the R&R side being in that 3% to 4%. We do expect that continued dampening in the Canadian markets with Eastern Canada being flattish and Western Canada expected to be down, because it’s more of an energy based economy.  So that’s the overall market side, and as we said, the July demand was up in the US, about call it in that 10% to 11% range in the month, and we would expect kind of a similar as we carry through the third quarter. I know those were built in to our assumption. We do expect operating margins to continue, that favorability that we continued to demonstrate in the second quarter. We would expect those to continue in the third quarter. The price increases that we put in place Rob in our US window business, we expect to hold on to those as we go through the third quarter. In terms of commodity costs, they are expected to be in the third quarter about where they are at on PVC resin side, with some potential downward movement on the aluminum side as we move through the third and fourth quarter. And I would say SG&A expense would be of a similar nature as we move to the third quarter as it was to the second quarter. Does that help you in that respect?
Well, our investors and how they get paid overtime is an incredibly central and important question always. Since our founding days, we've been very focused on building a company that can generate superior sustainable financial performance. And to do this, we need three things. Core earnings power that has the octane to deliver attractive current returns and fund investment in the future. There are a bunch of businesses in banking that, in our opinion, don't sort of have enough earnings power to do that. That's one reason we've tried to focus on the places that do. Secondly, we need a strategic positioning in the marketplace that allows us to capitalize on opportunities. And third, we need the credit discipline to be able to respond to the windows that open and close in the marketplace. And we focus on these three things throughout our two decades as a public company. Right now is a critical time in the marketplace. We are generating above hurdle returns, but are also investing to capitalize on two very significant opportunities.  The card growth window, which is itself the reward of years of investment and a sweeping digital transformation of our industry. Both investments are going incredibly well at Capital One. And we expect the benefits will increasingly show over time in our financial performance through growth, operating leverage, bottom-line return and capital return.
I think if you look back historically which we've gone public, I think we're always at least 50%. I think the range is kind of 50% to 90% sale leasebacks. It's obviously, our business model is financing the middle market company across to over 13 different industries mostly retail and it's very consistent with what we've done since the IPO in 2012.
No, David. Let me clarify a couple of things there real quick. It's actually in the cost of sales, so that impacted the gross margin. And it was $2.3 million total, $1.8 million for the kits themselves. That was the cost of the kits, and administrating the program, mailing them out and what not. So we were going to bear the cost on behalf of the customer, customers working with the lab. Then there is an additional $500,000 that relates to potential steps that follow the air quality testing procedure. So $2.3 million in total; two components, $1.8 million and $500,000, both in cost of sales.
Okay, very good. As we end the call, we would like to recognize all 471 NeoGenomics teams' members around the country for their dedication and commitment to building a world-class cancer genetics testing program. On behalf of all of our NeoGenomics team, I want to thank you for your time in joining us this morning for our quarter three 2015 earnings call and let you know that our fourth quarter and year-end 2015 earnings call will be held on or around February 25, 2016. The exact date of that will be driven by when we are finishing the audit and able to conclude the 2015 audit results of Clarient. For those of you who are listening, who are investors, or are considering an investment in NeoGenomics, we thank you for your interest in our Company. Goodbye.
Yes. We use each other’s platform sometimes to co-promote. So, we encourage people to use WeChat to contact each other around the classified space and vice-versa, but they are in the separate space to the one we are in.
That one is not as seasonal I mean it doesn’t mean that there are some advances here and there I mean the nature of contract manufacturing you are seeing in our first quarter. So are there going to be occasions like that, I mean they are engaged with defense kind, but it’s a different animal than the ECP products were evolved with predominantly today. And when I say that I mean sonobuoys and Aydin Displays they performed very similarly. There are similar margins and very similar engagements with defense contractors particularly directly with the DOD and they are going to have seasonality as it appears in their buying patterns. That’s not the case with EMT, but again I am only cautious on that there is some lumpiness on time from contracts time-to-time. And we have seen that in our Q1 on contract services work.
Yes, Darren, yes, I am glad, Randy in here, I'm glad I can't see him because he'd laugh at what I am going to say. I've spent a lot of time at Dow Chemical and I've been on both sides of that table. I've been in situations where we paid $0.40 a gallon fixed price five years for ethane in a $0.12 market, so I know what it's like from that side of the table. We look at these things and we say, their problems can be our opportunity and a lot of the kind of things you said is exactly what we'll look at doing. We've got a whole menu of things that we try to implement. We believe that if you help your customer win, ultimately you win big time. Frankly, it's Dan's model. There was a time when I asked him for price relief, and despite of the fact Al Martinez didn't want to give it, Dan did, so you nailed it. Some people's problems create opportunities. We do not and we don't wait for them to call us.
Yes, absolutely.
I can’t speak to other people’s business, but I can tell you that I can see the trends in automated advertising are positive. I think we’re certainly seeing growth in the automated portion of the market. If you look at the larger dynamics, I think there is money that is shifting from manual spends into automated spend in a very rapid way. So, I think those that don’t have strong automation or programmatic capabilities, I think they run the risk of losing to competitors who do or to solutions that are automated. I think second is larger dynamic which is -- if you look at the buying habits in the past, so if you are a major sports advertiser as an example, you’re used to buying from companies like FOX Sports and CBS Sports and ESPN et cetera, right? In TV they have been doing this for many, many years and I have strong relationships there. If you translate that to the -- to buying in digital, for them to -- for an advertiser to add one publisher to a buy, it might be 40 hours of time for each individual publisher. So, if you take that and say, hey, I am going to go buy across 20 publishers, that’s a lot of manual effort, cost and time for them to be able to go do that or instead they can go to a large portal and buy the sports section of that portal. Well, that’s what they have done before automation came into the market because it was more efficient for them to buy that even if it may not necessarily be as ideal for them. So, I think now it’s shifted because now you can add five, or 10, or 20, or 30 different publishers to a buy, simply by clicking a check box in an automated world instead of going through all that manual effort. So I think that’s the larger dynamics that’s happening in the market and of course we’re benefitting from that because we’re enabling the portion of the market that is automated.
Hey George, it's Chris. So we had experimented a bit with that concept; CubeSmart direct was the brand. What we learned was that, it tends to move fairly quickly into the moving and storage business. So the idea that the customer is interested in putting shoes in a toke and having that taken away. Moves pretty quickly into, can you move my entire one bedroom apartment, which is just back to the traditional moving storage business. So we haven't felt a impact from that business anywhere, and not in the boroughs. But we shall see. Maybe that's, again on a cost basis, that might be a little bit more appealing in Manhattan. Although again, Manhattan is where we were testing CubeSmart Direct. So I think in direct response to your question -- haven't seen it as a competitor. In terms of, do folks use our stores? Yeah, the moving and storage companies use us -- I am sure, if somewhere, there is a valet business that does as well. I couldn't point to specific stores or specific customers.
Yes. In terms of the growth discussions we had on the Analyst Day, the area that continues to resonate in a very positive way continues to be China. In spite of the fact, that there are current concerns about some growth slowdown, but what I would reinforce is that our positions that we have there both, in metalcastings and in some of the personal home care area, home products area, are very strong and we expect to benefit from fabric care is the area that I was trying to articulate. We do expect those areas to continue to grow, even if China slows down and right now it is a question mark in terms of the impact that that may have on us, but it comes from having strong positions but also having new products, modifications to products that are going to enable us to grow in that region off of a pretty strong base. The same goes for PCC. PCC is in a very strong position with regard to the satellites not only coming up, but the things we have in the harper [ph] that also relate to the new products that we have, like NewYield. We expect to see in the course of the coming months, but primarily in 2016, you can expect to see some announcements of additional satellites and facilities around those products as well.
It’s pretty much sure for DKL.
That ratio actually is a bit surprising in the first quarter. It's encouraging quite frankly. So I don't have specific expectations right now about what percentage that will be and in the fourth quarter or the second quarter of full sales and the effect on pull through really depends on the scale of the projects. If they're very large projects then it would tend to trended upwards. If they're not then it would probably continue to have it be flat. But I can say but will says that we will advise you and other folks about changes and pull through on the C1 as they occur, and we won't change our pull through numbers until we see that happening from multiple quarters and for reasons that we really understand. But the net is that we're very encouraged by the initial response to you in purchase of that [indiscernible] chip.
Yes. What I would say is I believe we have partially derisked our LBS revenue line in 2016. We still have to make things happen. Those two renewals aren't the entirety of the business. But so far so good and we're making progress.
So let's just take the growth outlook, Aaron. One is, it's we still believe that we will get into historical like growth rate by the end of the fiscal year. What Brian was saying is the question is timing it could be early, it could be Q3, it could be late Q3, it could be early Q4. We're just being a little cautious at the moment in terms of our perspective but all the elements that are in place. We have enough sale capacity to do this, we have funnel growth to do it, we had new products coming into market, we are in a piece distribution leverage. So the elements are there we will just have to see how the play out. So that's one. And secondly we are recruiting engineers in full gear as you've seen on our stats and we combine that with a potential challenge in Q2. So we think Brian comment on 200 to 300 basis point negative impact operating margins is appropriate. But let me emphasize we are really confident about the business and we are investing to succeed and increase our growth rate and we're not going to horse around. I'm not going to try to connect this to hit street EBIT margin numbers, it's just not going to happen. The market is there, we've got the products, we've the distribution, and when I get this company back on a long-term sustained path and we're committed to do it. And we may take some heat in the near-term to do it, but we're not going to horse around with that Aaron.
Well, that depends. I mean, it depends on what you saw. So, why didn’t it pass? So, there is the analysis of why didn’t it pass, what are the shortcomings, what are the things that need to be fixed. And especially as it relates to some of these furnishing layers, it’s been working with that supplier to say okay, here is what we need to do different and then we need to set it up and do it, but it’s hard to answer that question, Jon, because unless we know exactly what problem is, I cannot know what the problem might be ahead of time, I can’t say how long it would take to solve it. It may take weeks though.
Thanks.
Hey, Tom.
Probably a little less than that, Adam.
Yeah. I don’t think -- we’ve sounded out some of the reimbursement people we are getting plans. We are in the process of engaging people in Europe and the United Kingdom to do the work for us. By they advised -- they said was, at least get the first few CE marks and have a timetable, a final timetable before the end of the rest, before you very strongly engaged the actual regulatory organizations. So, we are in the process now of doing all the background work so we can hit the ground running.
Great.
Because a vendor and us, we’re all trying to work towards a target price and we’re willing to work with our margins on those large opportunities.
Our spray equipment sales are extremely strong, very strong.
And it is also worth mentioning that the consolidation of Family Security did add about $850,000 for the total operating expense excluding losses just talking about how the acquisition costs operating underwriting and general administrative that create a little bit of their ability challenge with the prior year.
What I said earlier, it’s a portfolio of opportunities and it doesn’t hinge on one particular opportunity.
Good morning Ken.
Well when you look at the TCB market, whether there is really two distant markets. There is a memory market which has picked up and which will be involved for probably more than 18 months and that's part of the development of the product and that will continue to grow and be used in this application because these are the of technology that you need to build the and so on and definitely will see some growth. And then there is the logic piece of it. We have always said that the logic piece of it will be the beginning of smaller market because the guys are going to try as much as possible to postpone the technology for probably two, three years as the cost of this technology is quite expensive. However, there are multiple that you can get the way we have designed where you can actually use them in many different applications than purely compression. One example is package which are picking up strength as you know very quickly and another one is high of high end applications. And these are applications that could actually boost this segment of advanced packaging market in FY '16.
I believe that if we give them wire that meets their needs and helps them grow their business faster that we'll be in a good position to get some orders.
I'll let Kelly answer that, Timna. Please, Kelly.
That's a good question. It's a combination of things because the answer for Debbie was really versus our expectation. So, if you go back a step and talk about our portfolio rebalancing efforts that we've been doing in the last couple of years, I think that's a – maybe a better answer for your question. So we have left certain pieces of business back to the market, because of the profitability of that business. So part of our year-to-year comparison is that we've rebalanced our portfolio. Another part is market softness in certain markets, and then, obviously by giving circulars back to customers, they've got out and secured that business elsewhere. So it is a combination of kind of those three attributes.
Yes. I think that’s a great question, Barry. So we have some specific things on the fourth quarter that are driving that up. One is we are doing a restack at our headquarters in Mclean and we are doing a significant project around that. So there is quite a bit, probably, I think in the plan about $7 million associated with that. There is also a couple of big systems integration projects going on that are one time projects where we are aligning systems and upgrading things. That’s taken up a piece of that. I think on a run rate basis, on a normal year, we are looking at 50, maybe $60 million. That does not include though, what I would call, ROI real estate projects where we are investing in selling real estate and doing upgrade on moving into leased space with some capital associated with that. But overall we have a profitable return and we will be kind of talking about those projects separately going forward. So I think 50 to 60 is a good run rate for '16.
Yeah. And, Shawn, maybe if you also add to Bob's comments, Q3 was an extremely difficult comp for us in the Wire & Cable business. We had the highest quarter of revenue in Q3 of last year, I believe, in about two years. And so I think if you look at where we are both in the quarter and year-to-date, you'd see ECS was about 4% organic growth in the quarter, which was pretty much in line with the year-to-date number, but you see our Wire & Cable organic growth that was the lowest since going back to the 2009 recessionary period with being down almost 6%. I would expect both of those businesses to have organic growth more in line with the year-to-date number at the end of the quarter, especially with a little easier comparison for Q4 last year for Wire & Cable.
Well, yeah, we would expect it to be up sequential. I'd have to take a look at Industrial/Commercial. You're right that it can show that sort of pattern. But we also usually see Healthcare/Life Sciences strengthen in that quarter because it's the fiscal year-end for some of our bigger Healthcare customers. They tend to have a stronger performance in that quarter. At the moment, we probably suspect that there would be a little bit of softening and that sort of normal pattern would unfold.
Absolutely. We have had internal and external legal take a hard look at -- I mean, KB is not an MSA anyway. So that is a joint venture, as you know. So that is not even on the MSA radar screen, if you will. We don't have any other MSAs. We don't plan to have any in the future. I think CFPB has made it pretty clear on how they feel about it. So it is not an issue for us today and it is not going to be an issue in the future, because we're not going to do them.
Yes. I mean, we haven't given specific guidance on that. I mean, you can see what we're doing and obviously imply something there. But I haven't given specifics to what's SG&A and what's COGS so I'd rather not go there.
It's very wide Suji, we don't break that up, but it's across all the four sectors that we talked about, the scientific and HPC sector, the networking sector, the hyperscale sector and the enterprise.
Well the main difference is in G&A timing. We took the penny in sales B, but we kept the G&A in the balance of the year because that's actually how we planned our year. We typically backlogged G&A so that we know where we sit in the marketplace and performance results. So the first quarter was a great sales quarter. I might suggest we got a little more leverage than we anticipated on G&A, but the timing remains that most of our investments are in the back half of the year.
Thanks.
Let me just add a comment there just a clarification. Just when you look at our 10-K you’re actually going to see that our inventory went down by about $650,000 in the fourth quarter. That’s not including the write-down of the inventory because our intent was actually to carry down our inventory. But to what Andrew is speaking to as we sort of optimize the formula between longer production runs and better yields in one hand, versus higher working capital on the other, those benefits you likely start seeing in the first and second quarters.
Okay.
Well, first, thank you for your condolences. It will be deeply immersed by everybody in this organization. On Puerto Rico a center that when he was down there, he said was physically and from a planning perspective the best thing that we’d ever done is 65 years, he loved the center On Puerto Rico, as we said, the center opened to really thousands of thousands of people. There’s really been a void in the market for this kind of a product and sales have been good as we talked about. On the hotel, our partner is very focused on trying to make the hotel casino come to life. That parcel is entitled for a 200-room plus hotel. If they are able to get it to fully financed, then it’s about a 16-month to 18-month construction schedule. It’s their project, we’re not a partner in the hotel at all. There are other - there are two other parcels as well that are slated and entitled as office parcels, but they’re focused on the hotel and the casino initially.
Good morning, Scott.
Good morning, David.
Yes absolutely, we're working on approval in the Chlamydia test in many different jurisdictions. I think that it's likely to get in the market first, the European Union where the approval times are much-much faster and then into China, and we expect those approvals to happen really in the first quarter next in those areas. In the United States, the FDA is little bit more unpredictable. We don't really exactly where we are in terms of timing with that but certainly first quarter approval is possible next year, no later than the end of first half.
Yes. Our plan is to get them recognized in the current period. But is it possible to one to slip or couple slip? Yes, possible.
Our development of the CD is very analogous to our development of the glabellar lines where we started with an open label, we learned about the behavior of the drug. So we'll be looking at increasing doses in cervical dystonia, we'll be looking for efficacy on these twister scales, but the adverse events that we'll also be trying to look at is muscle weakness and dysphagia, this difficulty in swallowing. So these are usually inherent from the diffusion of a drug away from the site of injection. So we'll not only be carrying the efficacy analysis but we really want to look at potential opportunities to address the spread of toxin. Now it's relatively small trial, but we think that much like the earlier predicated Phase 1, Phase 2 trial that was done in Mexico, that this could be very informative for the next trial on CD which will be in a larger patient population.
Jason on the 40 milligrams, actually we've seen a little bit of fluctuation in the, in Rx, like you said. With the health plans, in answer to your question, remain very supportive of the 40 milligrams, three times a week. They see it as a really good value both in terms of the real benefit that it delivers to patients and we have not seen any change in access for patients there, being very high at 95% of patients having access to this product through payers. So, we continue to monitor it obviously but so far really see no reaction from the payers from the health plans.
Well, the nice thing of our model is we can generally move with demand. So, we have research business that every year is understanding what members need, what their problems are, how they need to address those problems and that can evolve year-over-year-over-year, and it can help us shift our business to meet members' needs, so we do have a very member-driven aspect to what we do. If I had to answer your question specifically, I think we're more in the former categories. I understand that we don't necessarily think about it that way, but our work is all about understanding best practice and then finding ways to take that insight and install it in members. So, what's the best way to manage a physician network, what's the best way to care for a chronic disease patient, what's the best way to ensure that you're being reimbursed appropriately for the care you provide, and then creating tools and research results and even consulting services to help members leverage that insight to drive manageable improvement. That can help a hospital that's struggling a lot, as well as it can help a hospital that wants to go from good to great. I'd say most of our members aspire to go from good to great, and so that's probably more where our stuff is centered.
I’m well.
I think you can. I think you clearly can. I don't think - I think if you were going to ever have to - if you look at - if you had a crystal ball and you wanted to do a deal like putting together WMS, Bally, Shuffle Master, Scientific Games, to do it in an environment where there isn't a lot of growth in the market is probably a good time to do it. I think if we can show that our products drive incremental revenue and our products are innovative and future facing, then I think there is opportunities to capture some revenue in the future.
That’s absolutely right. And so it’s really the entire transaction, the $204 million, which we get at the higher I would say higher bulk sales basis. And then we are going to split with them, the difference between the retail cap rates and the higher bulk cap rate on the next $400 million.
Sure.
Yes. So first of all, I won’t provide any numbers. It’s not something that we are going to do at this point. We will be releasing our earnings in May for the first quarter. But what we saw was a little bit of softening in December already, in particular in some of the industrial manufacturing customer base. And we saw that carry into January. And so we saw a relatively soft January, which was unlike January of last year. However, having said that, last year we did as this question was asked to me last year how do we see the quarter play out. And the last year the quarter played out was stronger in January and February and then started to soften in March. And we are seeing the reversal of that this year. So there was a slower start early in the year and we are beginning to see that trend more positively.
Yes.
It very well may but remember they will be running - next year we would expect them to be running at a 50% rate close to 90 million and so what we would add on to that is speculative next year but it’s probably in the first year in order of a handful of 5 to 10 million kind of number.
Yes.
We’re not going to guide fiscal ’16 at this point in time Mark. I think we anticipate stronger bookings quarter in Q3 but as Gerry said because we have some deals move during the second quarter that moved in to the third. But the year as a whole we do anticipate, as Gerry mentioned a normalizing with a book-to-bill up or above one for fiscal ’15 in total.
You bet.
Hey Mitch.
Good morning Noelle.  Good morning. How are you? Good.  My first question, you obviously had a lot of success so far with your restructuring effort. If you do in fact see a significant deterioration in the -- what say Fyfe Canada and some of the upstream related businesses in the back half of the year, how are you thinking about taking additional actions and your just thoughts on additional restructuring actions at this point? We always look at our business on an ongoing basis. As an example in Q1 we had to make some adjustments to the Corrpro business. And we just do that, we look at that as just a matter of routine business and by the way the adjustments in Corrpro in the U.S. that's just routine for us. I don’t anticipate any big restructuring actions or anything like we announced in October of last year, but on an ongoing basis we are constantly adjusting these businesses to match what we think the current outlook is for the market.  Okay, that's helpful. And then just going back to Fyfe, again some nice improvements there in the quarter, do you think that largely is reflective of the improvements that you have made to rehabilitate your sales force or do you think you are starting to see kind of a turn in the market willingness to adopt this product? That's a great question. It is hard to separate those two things. I will be honest with you, we certainly are seeing a wider acceptance of the technology in the marketplace but it is very difficult to say if that is because we have better sales coverage or because why the engineering companies are becoming more aware and comfortable with the technology. That's a hard one for me to assess. But we certainly are seeing wider acceptance.  Great. Thanks appreciate it.
And John some of that also includes system upgrades that we would be doing anyway in foundation projects and that’s just capital spend or operating SG&A spend that we would need to be doing as part of our business regardless.
Yeah, I've been through – I guess I've been here 30-some years so I've seen a lot. I will tell you, we just had our European sales meeting and our Americas sales meeting and the attitude was that there's a lot of work out there. And that's sort of validated by our pipeline. We have a project pipeline about what's coming in the next 30 days, 60 days, 90 days, and the good thing is we're not seeing projects cancelled. But they are being delayed, and that's that renovation cycle. If you remember, 80% of our business is renovation. And so there is this ability to delay the projects, but they feel pretty good, our sales force, around the activity that they're seeing. And the Architecture Billings Index, it's still hanging around 50% which is a good sign.
And as you look at the segment of International, I would think of that as being a pretty standalone segment. One of the things we were trying to accomplish with the delineation of earnings here in the base period, just to give you a sense of what cash flows and what earnings come from that business. So, I think that's a good starting point for you.
Yeah, it’s become – it’s more conversation than it’s worth at this point. The bottom line is we try to fix the thing finally. Maybe I waited too long, but I raised my hand and said, that’s enough. It doesn’t do me any good, but when I watch the other companies out there, finding themselves falling into the same problems in writing commercial auto, I am glad I will be adequate by this time next year, let’s put it that way.  But I don’t think I had a material effect on the change in the pattern. I think what you’re seeing for the premiums earned is the fact that the return premium we received last July, when cutting back on the quota share from 75% to 55%, those premiums are earned through really at a little bit different rate than a normal premium would be earned. It still takes 12 months, but because we are taking in mid-term premiums, keep in mind, when we do the cut off, the carriers returning to us the percentage of unearned premium that they’re no longer entitled to, but some of those policies could have been written 11 months before, to some five months before and what not, and it has to do with a month’s old [ph] or month’s growth rate that makes – it makes the computation hard to follow. And really a question like this is one of the reasons I think that getting our story clarified, getting rid of the quota share, making this totally transparent will let the investing public see the true value of our book of business.
Thank you.
The only thing that we – we talked about this a little bit, we got an updated version of Nellix planned for around the end of this year. It will either be – we will start doing some limited market stuff at the end of this year, but we will probably do a more full scale roll out in the beginning of next year. Rick, I think we've talked about this a little bit, we've improved the angiography capability of the system for inter-procedural leak detection. We've changed slightly the endobag configuration distally which is also going to be a nice enhancement, we've improved the contour. It's a lot of fit and finish procedural ease of use and effectiveness enhancements. But they are all primarily related to the delivery system, so we don't expect it to be a rigorous regulatory approval process and that is these enhancements will go into the PMA. So this enhanced version will be the device we expect to launch in the US by the end of 2016.
Good morning, Shaun.
Yeah. This is John. We pertain to talk to face-to-face and/or video with our sales management in Latin America as well as in EMEA and really drill down on it. EMEA is – to actually give you a number is difficult. It really is, because if you think of some of the things that we see when you get these currency issues, especially when they are fluctuating quite significantly, your VAR channel [ph] who could make the mistake of taking an order and lose money almost for the time that that order is being paid for by the end-user customer. So that tends to make them shy and we definitely got that feedback from South America. We definitely got that. We expect that similar things happened in EMEA, but it's a little bit too early to actually give you a number, but we do -- given what we saw as Andy mentioned at the end of the quarter in terms of the slip, which we don't really see that often at all from those regions, we're pretty sure that's got to linked to the foreign currency, the exchange rate I should say.
Yes, just in addition to Ravi's comment, in general but more eyeballs on the deal structure but also again using that deal structure and our strategic use of our capital in that and so if it embellishes our ability to get that package of equipment by presenting a guarantee deal or inventory deal an inventory deal where we're putting our capital up front before the auction, we will do that but again more eyeballs on it, more focus on that is strategic tool that we have in our tool box is to apply that capital and there is a cost to using that capital. So, if it gets us the deal we'll do it all day long but we want to make sure we're doing it strategically.
Great question, Bryan. First of all, we're very pleased with our performance, obviously we are really executing on the markets. Again another quarter, solid quarter, and I believe also our digital strategy and our portfolio expansion is working, core business delivering. And that's great. Build on that strength, we are always looking for acquisition opportunities to enhance our cross-border money movement capabilities our platform and also expanding our portfolio, we're always looking at that, but we've been - we are pleased with our, we're focused on our performance, we are pleased with our performance. If you look at acquisition, we'd need to have a strong cash-on-cash returns, and we believe also the acquisition candidate should be really has to fit within our strategy, has to really help to us to execute good in the market and long-term has to benefit for us. So, we're always looking at the acquisition possible, it is but, it has to fit, and we're going to continue to execute with our business.
Hi, thank you.
Great. Thanks.
Okay. Great.
Thank you.
So there is a couple of dynamics we're already observing. The pricing overseas is not as competitive, so the average price for a similar installation is typically priced in terms of U.S. dollar, in terms on the order of 25% to 30% higher overseas. We do also pay a portion of our revenues back to our country partner who is selling through a country partner network, that's not present if we're selling directly, and there are some markets where we go directly, so others where we go through country partner. So the net back to us is actually reasonably comparable to what we're seeing in the U.S. for similarly sized installations. However, what we are seeing is a significant interest from larger companies overseas. So it turns out that the overseas markets are a little bit less mature in terms of the adoption of marketing automation, which means that larger companies tend to be the first movers, the average account size tends to be larger, and that tends to be larger revenues for us per user, significantly higher overseas. So that's a positive trend. In the U.S., certainly the market has migrated down to smaller business that had historically been buying our SharpSpring product. Again, even in the U.S., we want to migrate up market to some larger customers now that we have that capability as well. So does that answer your question?
Yes, Jon, we’ve given some guidance in the past, we are still there that we think 25 basis point bonds will do somewhere between 1.5% to 2.5% increase in net interest income and that converts about 4% to 7% in net income and EPS. We still think we are good with that as we talked about before, we are not burdened by floors much at all, most of our floors are built into our spread to the index and so, we think with this first bump that we will see kind of immediate net interest income increase particularly considering we think we do have some room on our deposit pricing did not have to pump immediately there as well. So, we feel pretty good about it. We know that the next cycle should be a very gradual increase. We are just waiting for that first increase to really come flow through and see – confirm the numbers that we’ve been coming around.
Actually I think it's the opposite I think the well-heeled companies with strong balance sheet and the ability to stay the course make the decision quicker to lower production than the other parts of the industry that aren’t consolidated into these players though it's run longer waiting to see if and hoping that the results will improve. And if you look at history, they are the last ones to slow down versus the big guys. So, the disciplined producer as we say we’ve already slowed down a little bit. I don't know what others have done, we obviously don’t talk about that with them but I think the disciplined producer is the one that makes those decisions. So it takes a long lot longer for - so if 40% is owned by five of the top producers of the industry today, it takes a lot longer for the other 60% to make the decision to slow down. And they continue to run through. Now, the difference is, this time around if you’re you know they distributed a lot of cash from ‘14 and ‘15 back out and if you continue to run and burn cash, burn even small amounts at these farmer owned plants, the question is how much cash do they have on the balance sheet and will they need to go back to the well and get money from the farmer. At that point is when they start to make decisions to slow. So that that might happen quicker than we think in past years because I believe that there has been a lot of money distributed out to their owners. So we'll have to wait and see on that but I do believe we will see run rates at some point here. Have to make the decision unless we can get out of this - get out of this winter doldrums into a very high robust demand for ethanol starting in kind of March, April.
Yes. So we have done fairly well on the services side in federal. We have maintained all of our clients. We have full implementations of all of our clients are all referenceable, and we have a very nice federal client base. But as you know, we have not sold much new in federal over the last couple of years. FedRAMP definitely opens the door for us. We got authorization last week. And we are the only ones in this space that are now FedRAMP certified and that is a big deal to federal agencies. So that puts us in the driver seat now going into this year. And I am hopeful that we will see a change in trajectory now in federal government sales. We have changed out the leadership of that team and we think we are well positioned now going into this year.
So this is Mark. We do believe that the rate, the effective rate, in the UK should come down by potentially a point come 2016. So that would add to the, from a balance or weighting perspective, that should add to some good news in 2016. And I think we'll try to provide you a little bit guidance as we get closer to 2016 with what our expectations are. So a little bit down, but still we're pretty much a U.S. taxpayer with a lot of footprint in New York, New Jersey, California and Massachusetts. So the U.S. operations kind of come with high state tax rates.
Jeff, we are primarily speaking about New York and Boston and that team is now, we are focused on going to get other business and letting all the concierges, all the meeting planners know that we will have room at 9:00, 9:30 and that’s when European guests usually come in. They love red wine. They love steaks. We just have to replace them with another demographic.
The indications there are pretty strong, just maybe some assimilation and getting to know each other is partially what has slowed some of that down. The other thing on the factoring side particularly that business has been largely dependent on the transportation sector and Mike was mentioning fuel prices for the card business, that fuel prices also impact the transportation industry and the clients in that business with lower fuel prices have been doing better themselves and using more of their cash and borrowing less. So, that's driven a little bit of the activity on that front.
Yes, to the energy business we have not changed the really for several years, our strategy for which projects to pick, even though we're pursuing a YieldCo we still have a disciplined approach to assume that we'd be selling the project into the market instead and we have to generate a good return both on the money we invest and on an absolute gross margin level. So that’s the way we evaluate projects and we tend to stick to markets where we are pretty sure that financing and op-takers for the projects are available necessary and if we do do something like recently that we won some options in Brazil. We tend to focus on maybe one new market and try and build expertise who kind of beachhead into that market and make sure we understand how that market works and how we can generate profitability from that. So we're quite careful and disciplined in our approach to projects and although we have a lot of opportunities coming our way we're not chasing lot of them very aggressively.
So, David, I'll outline some of the key initiatives for 2016. We mentioned the 60 new Sephora locations, which we're very excited about. We also talked about implementing the center core within one-third of our stores. This has been very thoroughly piloted and we've been very pleased with the results and eager to get it in the stores. We're excited about the full rollout of BOPUS, which will happen before the back-to-school selling season. And as I mentioned in my comments, we had in the pilot stores roughly 35% attach rate, which is something that we're very excited about. We also are going to have a first half of the year benefit from the Footwear expansion strategy. We're not going to comp against that until back-to-school. We are excited about expanding the Michael Strahan collection and the introduction later this year of his athleisure brand, which he is excited about and we're equally excited about. Online is a big deal for us, and we are working aggressively to expand the SKU count online while working through improving site experience and maintaining our conversion rates as we continue to drive more traffic. So as you can see, these are real initiatives that we have put a lot of pen to paper, so to speak, to understand when they are being implemented and better understanding the benefits relative to the pilots and some of the other results that we've seen. We are a very fundamental leadership team where we're not going to over-promise and under-deliver, but we felt it was important to be very transparent around where we see the business and our confidence in the business coming out of 2015. I'll let Ed add any additional commentary that may be warranted.
The way I would answer it is obviously we will look at the market and the stock price. We are definitely way ahead of the ratable portion. I would view in general being ratable over the 4 years. And at the same time we do have to take into account the debt repayments we have through all time that might moderate or increase the timing during the specific quarters.
Say it again.
Yeah.
I think the biggest impact is this, probably this first quarter, Jim. Now, to be fair, in the fourth quarter of this year, we’ll be – we’ll have a fewer number of days in the fourth quarter than we had last year, but those days are largely at the beginning of the quarter and in early October or maybe late September, and so they won't matter quite as much as those days during the Christmas week. So I don't think as you look ahead, you will see any quarters where it's nearly as impactful as it is this quarter.
Well we have to go through the analysis every year as you know, we’ll undertake that process this quarter, that doesn’t mean that we’ll see some changes on the information because obviously some of it was based on the strategies we had analyzed on revenue streams and how things change overtime. We feel comfortable that the analysis we had done to recognize the DTA last year, included situations on the market and included sensitivities on charge-offs that would reflect adequately what we have seen in 2015. To be able to say that the recognition of the remaining amount, I would have to say that it’s, I don’t think it is something that is ‘15 event.
That’s some of the years over 10, so it will be less next year, I think for first full calendar year, it’s about – just over $1 million.
So we're really at the low end of a real estate market in terms of the overall volume. If – we don't need much to get up to that midpoint range. We had a $1.6 trillion to $1.7 trillion market. We would – it would be there because our company is structured right now to operate very, very efficiently. A little blip because of the implementation of TILA-RESPA in the fourth quarter, but we'll get through that in the fourth quarter. So we just need a little – a small increase in the purchase market to really hit these numbers. It doesn't take much. A few years ago, we were – it was $2.5 trillion, it was $3 trillion, $4 trillion. If we have those kind of numbers again, it would be – I don't know, what our margin would be? It might be 25% or 30%.
Chase, primarily a little slowdown in the Middle-East where most of these revenue and related receivables coming out, we’re working through that with our clients.
No, I think you’ve covered it very well. I think, Kevin, if you look at our Year 1 and 2 products, we’re at about 40%, and plus-minus that’s a reasonable number to think of. Essentially every year, that’s been our experience, is around that 40%. This year we got a little bit more of Year 2 than we have in Year 1, and here’s my take-away from it, is farmers are clearly voting for our newest hybrids, and that’s why I’m so confident in the strategy for pricing our germplasm, is they are voting for the best. What they’re doing with their sharp pencil is saying, well, maybe 2 versus 1, but they’re not going backwards down the portfolio and that’s why the pricing curve is still intact.
Yes, pretty steady sequentially.
Okay, well thank you. We appreciate everyone joining us for the call this morning. Again be on to lookout 10-Q later on this week and we will be back with you in early December with our annual results. Everyone have a good day.
Correct.
And so – I can’t split that out to each segment. What I can say is you can see what our core Toxicology’s done in the last two quarters, which has been really solid growth, and we’re going to add to that solid growth with a couple of the account wins which I’ve signaled and the new products that have come into play. So I’d say really a good contribution coming from just great growth that we’re seeing in the core business, and I’d also say that the majority of those businesses we’re talking about contracted business, so it’s stable and multi-year in a lot of cases. So when we do get back to growth, it’s not that it’s going to be erratic, we’ll have, I think, good solid growth and stability. And that’s what we’re really seeking to do. I think our dashboard for growth is split out internally by geography and major business unit, and we’re really pleased with the progress that we’ve made in terms of our goals. Thanks.
No, no. So what we decided to do this quarter was rather than prepaying user cash, we financed our insurance obligations which are due in the first quarter. And those costs will be applied through the programs in the coming quarters of being reimbursed through the course of the year. So it’s a little bit of a timing, so we see pressure in the first quarter and then that comes back in the second and third quarter.
So, we have $100 million allocated to Constitution and $50 million allocated to Atlantic Sunrise for 2016.
Thank you, operator and thanks everyone for joining our first quarter 2015 earnings conference call. I was pleased with the first quarter results. We remained focused on our leasing efforts. We continue to review acquisition and disposition opportunities that are consistent with our strategy of purchasing U.S. industrial assets and selling non-core assets.
Thank you.
Yes, thanks. Just to make sure I'm clear on the question, is the question are we continuing to evolve the brand or is it are we continuing to spend money on consults?
More than welcome.
So that will help our ROV utilization without increased number of the drilling rigs.
Correct.
And to that point, Meyer, there is – Andy called out in the deck, that the impact of the couple of those programs this quarter was just under 200 basis points.
I think there will be opportunities, I think part of getting to a tighter range and getting – getting rates for technology to place its carrier’s feel they have comfort and visibility into should open up working more with them. But it is always be Hamed a very hard thing to predict, because it’s lumpy and by its nature. It really depends on what the carriers needs are what else is going on and can we do it in a cost effective way, so that it makes economic sense for both parties, but I do think these changes should open up those conversations more.
Yes, sure Paul, I can, please recognize I've only been for a couple of weeks and certainly would give some opinion on that. First off let me say that my opinion after being here for a couple of weeks on the core of the operations so that's the leach SX electrowinning or cellhouse, it's a solid core of the operation here. There is no fundamental flaws; there is nothing that I see as being impossible to resolve here. We certainly just need to improve some of the deficiencies that we are experiencing but there is absolutely nothing that we should not be able to resolve here and it's a very solid core of the operation. There certain pieces of equipment that we need to upgrade in order to improve the reliability and we touched on some of them already. As far as your question on startup and ramp up rates, I've been involved in at least six or seven startups over the years and there is a wide range in the time, it can take to get up to full capacity. For a site like this, which I've been involved in, in a couple of different operations this typically can take as much as a couple or more years before you get up to design capacity. This is a Greenfield operation with different feet at the front end. But again I don't see anything that is preventing us from getting to the design rates as expected and it's just going to take a little bit of time to resolve the deficiencies and some capital to invest in whatever those deficiencies are.
I think that’s appropriate because we know that a large of that increase to 90-day accounts will ultimately charge-off. So I don’t think that by making this change we’ve created a fundamental decrease in that charge-off ratio. This is a timing of charge-offs and as a result our allowance went up, because we reserve all these 90s and that charge-offs artificially were down because of the delay in charging them all. So that is creating as you say a 11-month coverage, and I can’t verify if that’s correct right this second, but I’m assuming that you’re correct. And that is not what you would anticipate going forward.
It sure hasn't so far. I was real pleased with those nine months numbers, but these are not huge investments. Our CapEx budget is disclosed in our Q and we've spend in the neighborhood of almost $2 million for the year. That's unusual for us, that's a big spend, but that gets our First Defense production up to, again, basically a double. So that First Defense continues to generate a healthy margin that does pay for those investments.
It is really good question and impossible one to answer.
Yes. So, there is a few things. So looking at this market versus the same market a year ago, same terminal, there's two things that really stick out. One is that this market offered a lot of opportunities for customers to store barrels under the contango play. So last year when customers had space to work with, you know, they were doing volumes, daily volumes out of the terminal, they were offering market prices and through putting. In today's market a lot of those customers are sitting on the product, waiting for the value of that product to continue to increase month-over-month. So I think what you see there is an impact whereby our customers are utilizing the assets to their strategy. We're still generating similar revenue from them. But what you see is, is a slight increase in some terminals, its a decent decrease in volumes. And the other thing is and to a much lesser amount, what we saw was an impact to the heating oil market. So looking last year in the weather that we had and the winter we had last year versus the winter we had this year is dramatically different and heating oil volumes were down as a result of that.
Well, localization for sure is in its infancy. We really haven’t got much benefit from that at all. We really have just been testing. We’ll start to see more benefit from the fall. Of the bold moves that we talked about on the Analyst Day last fall, the biggest benefit we’ve gotten thus far has obviously been from Active. We’ve been talking about it for a number of years now. It continues to be very strong led by Nike.  Our digital business is very strong as well, and we’re seeing a lot of lift out, out of loyalty obviously. The two things that probably haven’t kicked in as much in the three-year plan yet and we’re not behind or anything, it just takes a little longer to build our personalization and localization. So localization is not only going to provide sales benefit, but should provide our ability to reduce our inventories pretty significantly, because we won’t be buying mark downs just to fill fixture fill on the initial set. So that’s something you know as a CFO I’m very excited about, is trying to get more sales with a lot less inventory.
Sure. Thanks for the question, Geoff. This is Andy. So SteadyMed, which has a, I think, patch pump technology in development for treprostinil, filed an IPR or inter partes review petition with the USPTO Patent Trial and Appeal Board on October 1 against what we call the 393 patent. 393 patent is one of our Orange Book listed patents for really all of our treprostinil-based products and is also at issue in the other ongoing cases including Teva and Watson. The 393 patent covers a process of making treprostinil. We have several months before our first substantive response is due. And we'll be vigorously defending that patent.
No, actually, nothing since May. And to reiterate something that I think Dave said, but I’ll put a finer point on it. The client losses are not losses to the departed. The client losses I believe are losses said in motion by transitional disruption, and causing clients to evaluate alternatives outside the company. And we are tracking it with a micrometer. I think we have a pretty good feel for the clients at risk, and we are working very hard to surround those clients with our new team and the strength of our new model. I am committed to what we are doing. I think we are doing all the right things there. And I wish I had a better answer for it. I know this is the central theme of the call. I believe we had to tough it out and work through this redemption trough.  It’s like I said earlier, our analysis suggest we are more than halfway through it. But I am reluctant to give guidance because even though we are measuring a heck out of it in managing the heck out of it, it remains inherently hard to quantify from a predictive standpoint. So we are not being evasive, but we are trying to be honest with you about where we think we are in this transition trough.
Thanks Chip.
Yes, hi Rosemarie. The growth contributed for lightweight in 2015 was about 15% or so of the pet care growth that Doug cited before, 15% was on the lightweight. So it was a start-up year. The promise certainly in terms of look forwards, it looks to be double-digit type growth market situation given the uptake in the market as we speak today about 15%. Again 15% of the total category is lightweight on a dollar basis and we foresee that to be a growing end of the category here in the U.S. So it certainly seems that the momentum that’s started early on the year has continued in terms where lightweight products will be positioned and our technology has been accepted by a couple of key mass retailers where we're supplying now and we foresee that in the upcoming year we’ve opportunities to expand the special and the private label and control brand space.
Okay. Tim, are there questions?
Thank you, Mikael. Next question, please?
All right.
Yes, so 700 million it's consistent over the new energy solution segment and also the technology and project department and other corporate staff. So the main part of the 700 million is from the new energy solution and TPD segment. And it's around the trend that you’ve seen that is normal level for that area.
No. I'm going to preface this – what my response, again, by telling you, give me – give us the opportunity to spend some more time on this between now and our investor dinner in December. And I think that this time allows us to come to grips with a little bit of what we're going to be expecting and planning for in the second half. Now, to your question about margin expansion. As we sit here today, we actually see the opportunity in all four of our segments, to see margin expansion. It will be varied. But I think we can – in our core business, if you exclude the acquisition activity and aside from JK, the other two acquisitions we've announced do have – do bring with them, much lower margins than what we have as a Dover average. But in our core business for Dover, we do clearly see the opportunity for margin expansion in 2016. Do you want to add more color to that, Brad?
The amounts that I gave you or the amounts that I mentioned, the $360 million is net of that pension stuff. We actually do have some on the balance sheet, but we're not including in...
Sure. Cai, on the commercial – the commercial health business, we're still seeing that as being a relatively flat business and while we're – we know we continue to be optimistic about that. We're still not seeing that kind of turning the corner. The bookings momentum though as we've said earlier, we're encouraged by the fact that we're seeing an uptick in the book-to-bill. The things that we've done in business development in terms of retooling processes, adding people where they're going to add some immediate value. And everything from – just changing people, but changing tools that we use and the rigor we put in the capture process. We're starting to see some of those bear fruit as we're pushing toward a one-to-one book-to-bill excluding of course the big bookings that we've talked about.
Cash tax rate, we're running around 37%, tax rate.
For contracts per community was up 4%, correct in February of '15.
Hey Ron.
Do the math in whatever I missed, 20%?
I would just add that the professional services that we’re talking about are part of the overall basket of the government services captured on the TCS, the others are the satellite managed services, the ground station support, the specific that doesn’t huge but which is growing as well as cyber training. And then to last part of your question, until the commercial stuff gets big it’s going to manage by same people that are managing the government cyber, so that I’ll expect to reshuffle the company P&Ls in that regard.
We do not hedge our natural gas.
Yeah, you know, I'm not going to talk about any specific deal that we're working on. But yeah, there's part of our budget that was allocated toward things like that, and that's a really powerful tool to improve our economics.
$0.06 to $0.07, yes I apologize which would be offset by some of the newer investments that we have put in place in the quarter which is why on a quarter-over-quarter basis the net is not down that much.
And our number one goal during the recall was one and I’m thankful that no one was impacted from a health standpoint from any of our products. That has been validated. But how do we get the business – how do we get it back up and running as fast as possible, how do we get our plant back up and running and put it in a position to be a state-of-the-art premier quality plan. And so we used a lot of co-packers and to be honest, we’re shipping vegetables in a lot of places and the freights hurting us and cost to co-packing. But that will improve third quarter and it will improve again fourth quarter.
We could wave the account if we knew it was stable deposits over time, but we don't want to have somebody come in with very large swings and deposits [indiscernible].
Well, I certainly think composite cans domestically are mature product. We wouldn't argue with that. We are looking at innovation. We are looking at ways to make the product more robust, maybe use some warm fill applications. And those types of situations, we are looking at different markets for the can. But at that there is continued erosion in concentrated orange juice, so domestically we are looking at it and try to grow it to offset that erosion and develop new applications as we can. The real growth is in the emerging market and that's where our focus has been. That's where our investment has been. Now having said that, that's the round composite can. Weidenhammer, when we bought Weidenhammer, they are bringing new technologies, reset membrane, they are bringing non round containers, so we are just about the front end of bringing those technologies into the US and beginning to show them in certain applications. And I recall maybe three or four years ago we were doing a study of something. It was one of those deals and every time we show the package, we show the multiplicity of package as plastic, flexibles et cetera. The number one was non round paper container was always viewed as the most positive container by the consumers. So I think our upside is going to be domestically not so much in round containers but in the new technology of non round as well as perhaps recessed membrane and some other things that we will be able to introduce from Weidenhammer.
Welcome, Kyle.
And then you mentioned about funding a study for the U.S. As we look at the U.S. path forward, we’re still evaluating the feedback that we got. As we mentioned, our priority was to get the European filing moving. And with the recent Celgene approval with VIDAZA, it’s clear that the European regulators are looking at the totality of the data in these areas of unmet. The FDA may still look at the data in the same way. We have to size whether that’s a potential task. Clearly doing additional clinical work, whether it’s to gain initial approval or just to gain extended approval in the various regions of the world will also be part of our lifecycle plan. Since I’ve got Par here and he hasn’t previously been on some of these calls, he has been doing a lot of work, running a lot of miles with a small team in both Europe and the U.S. on the Medical Affairs and Market Access. So, Par, you could just say a couple of words to the initiatives that have been underway this year?
Yes. Laura, as I think as Katie said upfront, we are really not – because of the pendency of the litigation in the SEC matter, we are really not able to comment on it at this time.
Yes, at this stage, we see both North America and international revenue coming down further in Q2 [indiscernible]. But I would say more so in North America than in international.
Florida’s direct written was 103.3 that is how you get to the 162.8.
I think what, and I don't know, that the products company was talking about particularly, but I think what we have seen is, with low day rate. Independence have plenty access to rigs and they are doing single well drillings and you know and those have always been right in the middle of – of our fairway, because our vessels can [indiscernible] short umbilicals and we can do the installation. And the lead time is very quick turnaround from the time they decide to – that they have a discovery, they need a umbilical. So usually, we see quicker turnaround and quicker from delivery, but I can't say that we've seen enough of a pickup, that we put that in our second half thinking.
That's correct.
Yes.
Yes. Just the more we can get going through to our system to our disposal wells, the better.
It will – the effective tax rate will jump up to the 25%. So it will be the same starting the first quarter. And good question on the partnership, I actually put some guidance out on that. I believe in the third quarter earnings call and unfortunately I don’t have that in front of me. But I did put something out on that, probably not the last earnings call, but the one before and where I did – give some expectations on the partnership loss in 2016 which would be lower than what we experienced for the full year 2015.
Well Monterrey, the markets growing 4% per year. We have a significant number of units under contract in the Monterrey region that we currently supply from Mexico City, so we offer a great savings in freight savings and service to the customer by being in Monterrey and we take advantage of the growing market. Thailand, the market is growing. It’s a market that’s moving entirely to sleep for soft drink and we just need more capacity in the region.
I did.
So, John, I think that's a correct assumption. And in our plan for this, you always have contingencies for challenges and difficulties that you can't foresee. In this case, though, we saw the opportunity to move faster, and so we did, and I'm not going to quantify how much money that is, but we made additional investments in the second quarter. Also, as I laid out years ago that we would reduce our dependency on third parties and there would be a vetting process to determine who we could partner with in the long-term on third parties, but that we expect to ultimately be in the high single-digits. We came to a fork in the road with TrueCar which was 3% of our business in the second quarter, and that money will be reinvested in the AutoNation brand and AutoNation Express going forward. So it's strategically all good news. I think we are on the right path for our company. I'm absolutely convinced of it, but we need the flexibility and freedom depending on circumstances to either speed up or slow down depending what we're confronted with. But we are very pleased and I have to congratulate Bill and his team for fully implementing AutoNation Express first phase six months ahead of time, quite an effort.
Well, as you know that the wireless business in our total revenue contribution right now is relatively small. I mean although it's still there, but I would not expect it to – I mean we didn't enjoy the write up. So I do expect it to hit us that hard. I mean, but then of course, as the world economy, we probably got hit more because of the raw material slump. Pricing of gallium is coming down; we are very diversified by the way. So the wireless itself has hurt us as much.
Yeah, and that revenue recognition delay that we talked about was – had a very large operating profit margin on it. So that also impacted their operating profit. So it's just really a delay in the timing of revenue recognition from their – from our projection to what they actually filed for their year-end statement.
Good morning.
Okay, thanks for the question. I think it’s actually a mixed picture. You have some very large senses. So for example, in Brazil, there are some senses, which are extremely large and very well organized. But there are also a lot of patients out in other parts of Brazil in very small and less sophisticated senses. So part of our job is to work with the community to ensure appropriate genotyping and identification of patients is underway. Certainly, we refer to in Europe there is some countries which have extremely well organized, reference sense of networks like France. So we get the whole spectrum depending on which country in the world we’re looking at.
Provisioning didn't have that much impact on us that I'm aware of. And yes, airlines have been pretty consistent. And I actually think aerospace improves during the course of the year because of the timing on some of the shipments that didn't happen in the first quarter.
We -- its just kind of -- it varies. We obviously need cash to fund our operations and we are comfortable where we are now. We will look to building a little bit more cash over the next few months, number of months. But we don't need to sit on a $500 million cash balance, or $100 million cash balance, I think. I tend to try to run as lean as possible and depending on the opportunity set we will look to raise cash by opportunity. But we will look to raise a little bit of cash over the next three, four, five, six months and are kind of looking at a different -- couple of different things and couple of different alternatives. But we also have to make sure that the subs have adequate cash. So it's a delicate balance between extracting cash and making sure that they can run their businesses and don't forego on opportunity because we need to raise -- we need to have cash to be something else. It's accretive for us to think that we could make an acquisition in steel versus going to do something else. It's -- we balance -- that's a constant balance for us because a very important part of our business is going to be bolting-on acquisitions, because that's where -- once you get the platforms then you can steamroll ahead. And we are very focused on that. So the cash is not quite fungible in that sense but it is in a certain -- to a certain extent it is. So it's a little bit of a delicate balancing. We are constantly monitoring it. But it's not like we need cash to go out and make acquisition like the second. Some of the acquisitions, some of the things that we are doing are not small and looking at are not small, so whether we have an extra $20 million or $50 million in cash on the balance sheet is I think for me is kind of irrelevant and doesn't get me where I want to go anyhow.
Hey Mike, how are you?
Yes, I think, you should use the guidance that we gave you for the first quarter, and then, we’ll refresh that for the second quarter, but we’ve always kind of give guidance longer term. If you look at our investor presentations, there is stable gross margins and we’ve stated what we think the gross – what that margin is.
This is Ron, Andrew. We are the strongest player in the Texas market and specifically the west Texas market. That's where we are seeing it. It goes way beyond oil. I mean there is support industries that support it, the trucking companies that bring in the water, so all that is starting to be effective. We talk to our manager about an hour ago and the smaller – the drilling is stopped. And with the drilling stopped that affects the guys hauling pipe in the water and so forth. So we are starting to see that slow down, how long the slowdown is, your guess is good as mine. But it's just that the oil it's the supporting industry that support it.
Let me just grab it. In the $4 million number as I said there is probably about $1.5 million, $1.7 million of salaries and wages and as I said I think that’s coming down, coming a little better than expected, the transition from where we are today to what that target G&A is really scheduled in terms of personnel departures. Legal costs are still a number that we’re getting a better handle of there’s been a lot of legal costs involved in the transition and some of the related capital rise. So we’re really trying to holding on a specific number we’re forecasting roughly 300,000 on legal. Auditing and accounting and you go with it our last 10-K and its also the line-item that can go in the transition between our tax accounting and our KPMG work that’s upwards of $500,000 to $600,000 in insurance between VNL and some property level insurance is in the $300,000 to $400,000 range.
Hey, Debbie, this is Brad Whitmarsh. I have us a couple of minutes past our hour time limit. I don't show we have any other questions. So, with that, I think Noble's call, we'd would like to thank you for joining us today. I know there is a competitor call here joining right after us. We'll be around all day to answer questions, so look forward to talking to many of you and thank you again for joining us.
Yes.
Without…
Yeah Colin, the Architectural Services business which is our installation arm known as Harmon, had a very strong quarter. They did not disappoint me in any way. They also had a strong backlog growth. I think we improved our operating margins 250 basis points year-over-year. They had, what I would call better than entitlement profit conversion on the incremental growth, which is an indication of the better projects they book. So we will see further growth in our backlog, in the second quarter from the services business, and its always going to be a lumpy business with regards to backlog, and particularly year-over-year because we -- that's a business where we can book a $30 million project in a quarter. So it can really move the needle. But as Jim mentioned, all of our indicators, the projects we are bidding on that we are aware of, make us feel confident and say that business will continue to show growth in backlog in the coming quarter or quarters. But they delivered on plan, frankly, slightly better than planned margin for that business. I am just happy with the performance of the Harmon business.
Sure. Any earn-out associated with the Synta transaction is now finished, and it’s been a very challenging – both Kirker and Synta had extraordinary growth in fiscal '14 and there were a number of dynamics in their underlying markets as well as just comparing kind of explosive expansion years. For Synta, we have a number of new product placements and expect a nice recovery both in the top and bottom line for those product lines. You’ll see a lot of that in the spring and early summer of next year, a little bit of that this fall. Kirker, we’ve been talking about building out capacity in the bottling area and we’ve had expansion in Europe and through the acquisition of some assets as well as some internal investment in assets, have finally accomplished what we want there. So you’re going to see a nice recovery in both Synta but also in Kirker throughout fiscal '16. And both of those are good product lines in terms of sales and on a leverage basis, how it leverages their bottom line.
When we submitted the [indiscernible] once we get finalized acceptance we will let you know exactly what will be at which conference.
Few reasons that it has been done.
Yes, we've defined numerically it’s not exact, we’d like to have approximately a $1.5 billion of liquidity, part of that’s associated with the working capital peaks and troughs the cash that might be in joint ventures that’s not available for daily use in countries that we can’t easily access, and then a buffer to take advantage of market opportunities, so all in that’s roughly a $1.5 billion in cash.  We also want to make sure that we maintain investment grade credit metrics which for us means gross leverage at 1.5 times. Given where we’re at with current gross leverage, we think we have about $500 million to $600 million of additional debt capacity to take and still fall within that 1.5 times gross leverage.
Hey, Brandon.
On the third quarter profitability was mainly impacted by the increase of depreciation. And secondly the utility fee for the summer season and also the lower loading especially in the high-end technology nodes.
Yes, I appreciate that question. We’ve talked about this in previous calls. There are some cases, particularly on the low revenue awarded basis that have some inefficiencies associated with short runs, prototyping, design and manufacturing types of opportunities those do have while a better opportunity over the intermediate longer term, they do have some dilutive effects in terms of their ramp up. But some don’t and some are simply a run that has been well established and pre-engineered elsewhere and those are things that plug and play at our standard gross margin, but we’ve maintained that pricing discipline on those things. So, I don’t effect those, but I do think it’s fair to say that some of those and I don’t have an order of magnitude to the percentage of the most recent wins, some of them are smaller than others in the last quarter. So, there are certainly, certain inefficiencies associated with those small runs.
Thank you, Josh.
Well, I guess, Luke, I'm not sure we – I don't perceive a negative signal, I think frankly what we're saying is, we own the better part of half of the company. Whatever we do with the company, impacts the people at KKR to a much greater extent than anyone else and what we're saying is that we think, over time, we can create more value with this capital management policy as opposed to our previous one. And as I said in the prepared remarks, we're investors. We showed you on page 9 of the deck how we've been doing with the balance sheet investments. We think we can continue to make good investments and if the world dislocates, that tends to be – to Henry's point, when we make our best investments and we like that opportunity. And we think all of us, as shareholders, will benefit by controlling or reducing our share count if the stock continues to trade at levels we find compelling. So you put those two things together. I'm trying to follow this cynical train, but, from my standpoint, we're saying we just want to invest more in everything we do including our stock and the reduction in the dividend and the shift to a fixed dividend impacts the people at KKR just like it does to all of the shareholders and we're betting on the long-term and we're betting on ourselves.
Good morning, Andy.
Thank you.
Good morning.
And when we look at the DCs that we put in the -- area it's more to support growth and expand our reach so we can continue our growth. 70% of our products are going to be coming from California potentially Mexico still you are in bound tasks are going to go up, you're going -- some of that will reduce transportation costs. So it's going to be somewhat of a net neutral but it's really going to give us the opportunity to have a fresher product, do a much better job with the local programs and in the local markets.
Well, I think it has to do with just what the adoptions are. I mean, in 2014 you had very large adoptions in Florida, Texas, and California math. And so this year there wasn’t as big of an adoption market, although it’s slightly larger than we had anticipated. And then next year in 2016, you don’t have as many adoptions and then they come back in 2017. Again, this is all public information which we track. What we do believe for next year is California reading is a two year adoption. So we’re not assuming that they will do a larger buy in ’16 and ’17. We’ve kind of looked at that as a 50-50 split over the two years. And if you go back historically and look at what Texas did, their adoption was for ’14 and ’15 and they did the majority of that math adoption in ’14. So that impacted this year’s market versus last year, made last year larger than we anticipated and the same thing could possibly happen next year, if California buys more in ’16. Now having said that, there is a tremendous amount of pent-up demand in California and the money is there, they have the opportunities to spend it on educational and structural materials. Whether they do that or not, its -- that can be up to the districts and we’ve been surveying them, but don’t have a good read on it as of yet. But then again you can’t budget to that. You have to budget to a split over the two years.
So that's a very good question. And as Andres's mentioned, we are very happy to have gone through that migration with Etihad this past quarter. So essentially what's going to happen with transactions such as this is a customer will, such as Etihad, comes to us and acknowledges the benefits that we've been talking about from a cloud perspective and wants to make that transition. So we're beginning that transition with them now for their family of airlines. And so you will start to see our subscription line item starting to benefit from that. And our license revenue that we would have seen from them actually start to decline because we will be doing most of our transactions in the cloud. And as you might expect, the long-term value associated with this business now is going to go up because we're providing a greater service and greater value to Etihad than we had before.
We are working through that John. And we -- we’ve been taking a very thorough and thoughtful approach to the various businesses that we have in the portfolio right now. And clearly, we’ve had some business that have taken a significant amount of management time and attention and have occurred -- have incurred some significant losses. And obviously my objective and my priorities are around getting the portfolio shaped properly and getting -- getting the financial profile, the business back to where we think it can be.
Well, I think this is the kind of diversification that we want to push you. I think yesterday I was at major carmakers and say that our sensors is introduction and this is differentiated, of course it’s not a commodity camera module, it’s a differentiated imaging device and that is integral part of our system around advanced safety. And as you know, you need sensors on the car to monitor. So it’s certainly is an important area. We also have image signal processing solutions for automotive applications. So it is a massive effort, this one around advanced safety. It’s close to our corporation with Mobileye but it’s also this special image-sensor for automotive is our ISP for automotive applications is very much centered on our FD SOI technology. And I think is certainly one area of priority for ST. But to be specific on the camera, we had introduction already.
So, Steve, I think as we sit here today, based on the dock configuration, we're able to export approximately 50% of the D'ville production. We have enough dock space down there where if that looks like something that we want to increase for a, not that dramatic cost, we can dredge the channel a little bit, do some infrastructure improvements and increase our export capacity. So we've got a fair bit of flexibility in terms of export capability there. I would say, initially we're going to kind of continue to ramp-up versus where we are, but a lot of it just has to do with what is the net kind of – we're not really thinking about it from a netback margin perspective anymore, we're thinking about it from a netback after-tax cash flow perspective. And what we're going to be maximizing is a little bit of a different calculus than what we've done in the past, which was focused on EBITDA and margin. We're going to look at what's the best possible after-tax cash position. And that might, on the margin, lead us to tapping into international opportunities, if they look attractive. But it's really going to be an at-the-moment decision based on the different global market conditions and where we can maximize our cash returns.
Yes, so we actually will recognize revenue in the first quarter. So the way that will – the way that this will happen is the sales force that’s promoting this product. We get reimbursed on a quarterly basis for their time. And so you’ll see that show up in the licensing revenue line on a quarterly basis. And it’s about $8 million a year, so a couple million a quarter.
Yes. Hi Ross, generally we had good RFP flow in the quarter. Both RFP flow and bookings were tilted more towards the strategic partners and to large companies and a little less towards the smaller companies. Of course, it remains to be seen exactly what transpires in the future. But certainly, so far that seems to be the pattern this calendar year. In Consulting we had, as I pointed out, we had good bookings and also good opportunities and high win rates. So, that’s very healthy environment for us. And the informatics area roughly reflects what’s going on in the markets for CRS.
Sure. So, from a corporate side we’re going to look at oncology first and then we’ll certainly will look at autoimmune diseases. From the oncology side [indiscernible] in terms of sort of the natural place to look at an IRAK4 inhibitor, MYD88 the mutation that is sort of driving through IRAK4 is up regulated in very large proportion 85%, 90% plus of patients with [indiscernible] MYD88 mutation. So, it’s a really good experimental model to see if this job would work, it really works well I think it’s probably the key. We don’t want to rule out that the pathway is important to growth and survival of tumors independent MYD88, so I think outside of [indiscernible] in terms of we’re having broader program looking at all commerce style Phase 1, 2 in NHL and CLL. We do believe that there is about 20% of the CLL patients harder than MYD88 mutation and somewhere on the order of 30% of the ABC sub type Diffuse Large B-cell indication as well. So I think, again we’ll try to get a broader population in NHL and CLL and return whether this works only in MYD88 or in all cases of Diffuse Large B-cell [indiscernible] or it doesn’t work at all, and we’ll obviously figure out a lot moving [indiscernible] we’re not going to say that it’s only for the MYD88 mutation, although the experiment was as long as little bit as a big sense of activity through MYD88 because, like I said most of those patients are MYD88 mutations.
Yes.
Yes.
Yes, I will turn to Fabienne Dulac who's heading our French activities in a second, but I would just want to highlight that despite this highly competitive environment. You can see that the performance is very good. So, we have seen some [indiscernible] on prices, on fixed, on mobile and despite this we're doing very well. We have record sales in mobile and fiber. And we did not follow this kind of rush to the bottom of some of our peers. So, it's a very competitive environment but saying that we have the best network is clearly you know and this is, the basic of our strategy to invest and build on the quality of the network. This is convincing our clients because they're coming to us even if on some aspects they have to pay from time-to-time a bit more than with others. So I will now give the floor to Fabienne.
Thanks very much, Kristine.
Sure. I'm really proud of our CRM business. We clearly want to grow faster, but we're in a position now where we can see as we go forward in 2016 and 2017 and beyond, really the strength of the portfolio and I'll give answers to your specific MRI questions in a second here, but we've got these product launches coming second half of 2016. The S-ICD is really gaining excellent momentum globally, we're expanding that and we're going to be moving beyond the replacement cycle headwind. In terms of the product launches, we feel comfortable with a second quarter launch of both the Quad system and MRI pacer. The MRI pacer likely slipped a little bit out of first quarter into second quarter. We'll also have EMBLEM MRI approval likely in the third quarter of 2016. So, big approvals in second quarter and third quarter. And then as we go forward with the ICD MRI capability, we'll start that trial very quickly here and we anticipate approval of that product likely in second quarter or third quarter of 2017. So, we've got a really strong cadence of product approvals coming, MRI capabilities. But I think what's most unique about our offering is this S-ICD momentum that we're seeing around the world. We just received approval in Japan. We have a 5% premium – reimbursement premium in Japan, continued strong acceptance of the product in training and a multi-year head start. So, as you look to our business going forward, this product cadence will come through, S-ICDs continuing to grow, and our replacement cycle headwind will reverse itself. So as you look forward to CRM, I really believe that you're going to see this business strengthen in the second half of 2016 and 2017 and 2018.
You're welcome.
Yes, so that -- haven’t seen quarter over quarter but it’s larger than it historically has been. There are a number of operators in that grouping that have either strong credits or strong credits work behind it, that we feel have absolutely no risk of a non-payment situation. But to that end, we are still working with those folks to call out perhaps one bad building that drives the coverage down or one bad market, so we are pro-active about trying to clean up those operators despite an otherwise strong credit background. And then we also have a couple of three – half a dozen facilities are just with 1Zs [ph] that we are looking to quite frankly call one way shape or form or another, whether it be to move that facility to another operator, or sell it or whatever and we’ve been very pro-active about that, we’re in the process of doing that as we speak. So we do expect that percentage to ultimately go down.  As far as those that are not current, that is a very very small, less than $0.5 of our current operators and as I said those are the operators that – and we are looking to very likely to move that asset.
Thanks, Ryan.
The business model is it’s a software licensing company. So they have software engineer they’re developing software and the software they’re providing to the banks who are using it for running their back end for many of the mobile payment schemes. So it’s not a pure patent licensing business. It’s not what we call a technology licensing business. So it’s slightly different than what we’ve done before, but we do have software and we do recognize -- we have some software recognition in our revenue, but this would be additive to that. So to answer your question it’s not patent licensing, it’s not technology licensing, but it is software revenue recognition.
That’s right. Any provision and reversal of yield goes against the interest income line and then the provision for bad debt is purely for principal balance.
Kevin, do you want to...
It's probably one of the hardest ones to answer. But fields that are already under development, I think we're the beneficiary of that because, first of all, there's not quite as many design elements yet to figure out. Most of the time, once you've gone from field discovery to field delineation, you have pretty good idea of what type of production facilities that you need, what types of interfaces that we're looking at, what type of subsea -- and is it rigid risers, flexible risers, free-standing? Those field design elements are somewhat in the rearview mirror and a lot of interfaces. So, again, that's why I feel better about subsea production infrastructure. What you're really talking about in my view and all these -- you can call them JVs, you can call them alliances, but to my view they're largely designed at the early stage, to get on the front end engineering and design phase, work through interfaces between service delivery customers optimize the vessels that are going to be used so that you get it right the first time. There isn't anybody that operates in this equipment space that doesn't understand that once you get into development and manufacturing, when you have to re-engineer and redesign, because of the installation issues you face, the interface issues, that's where cost overruns come into play. And so all these are geared towards -- you know, you've got multiple service providers offering unique different technology. How can we work together at the front end to improve the cost delivery to our customer base? But that's, to me, is a very long-term focus proposition.
I think Collin its Rick . just couple of things, one is the size of the relative block so I think the cash flow is coming that block that reduce significantly as that block has run down particularly as you look back seven years. So the cash that comes off that we generally is part of the securitizations what you are really securitizing is roughly half of what it was back then. So that’s a biggest thing. So there is no change in the rules, no change in the views around that. The second piece is the opportunity around is a much lower interest rate environment, so you think you have much better debt ability to much lower financing cost. It was done on a floating rate basis and so that was matched up early with floating rate assets. So you don’t have that juice if you will as well. So there is benefit and I think there would be some benefits to relooking at that but it’s more what is the magnitude of the those sides that we have out there.
Thank you, operator, and also thank you to all the participants for being with us today. As I said, while I am pleased with what our Oil & Gas group has done from a performance standpoint, I'm disappointed in the current end market realities of the non-oil and gas markets that we serve. The challenges these groups are experiencing, especially in mining and metals as an example, is a reflection of the commodity pricing and the related capital spending in those markets. In prior calls, we mentioned the actions that we took last year to strengthen our competitiveness, and I am really pleased with that because this include reducing our overhead, refining the business model we provide to our customers, providing a much more capital efficient solution for our customers, and strengthening our cash discipline throughout the company. We've made those changes proactively last year and I think they positioned us extremely well for future growth. With that, I greatly appreciate your interest in our company and your confidence that you show in Fluor. So, thank you very much and good day.
I just want to add a little bit, I think Ian, this has been clearly a long-term strategy both as Jackie points out that have very fundamental research in the space of biology. That leads to the B-cell malignancies and all the proteinomia stages area it gives us confidence that. As the technologies is increase in our abilities to sub-segmentation populations into specific biological responders in targeted areas. We will have the products from our own internal portfolio and through collaborators that will allow us have a greater and greater impact on diseases, where REVLIMID exist today in a general way. So we're very optimistic that our own internal research pipelines are going to do that. And at the same time, we have built a portfolio in pipeline approach that we believe we’ll have regardless what happens a very strong growth trajectory in addition to that. So we are not just looking to deal with replacing REVLIMID. We’re going to continue to go through it and we’re going to provide better alternatives and therapies to the patients in those specific areas over the next decade.
Hey, Ebrahim.
So, when we look at some of our revenue growth, it is coming from U.S., UK markets, those tend to be – are some of our stronger CPC markets. So you're probably seeing something in there. Yeah, I'd say the auction is heating up. I don't want to misstate anything, so I'm trying to remember back in Q2. But you can take it as our mobile pricing over the course of the first half of the year has gotten stronger. We're seeing the nice trends there. I'm not sure it's anything frankly that we're doing on that subject versus consumers are getting more used to booking on their phone and therefore our downstream conversion rate is doing better and therefore our clients are naturally able to pay more for the lead. So we're riding that trend which helps us obviously a lot as a lot of our traffic is already on the phone and we know we lose a lot of attribution as that phone traffic makes it over and actually consummates the transaction on the desktop, i.e., the less that happens, the more credit we actually get, the more deserved credit that we get for the booking on the phone. In terms of the auction heating up, there hasn't been any big new players come into the auction in the last quarter. And they're bidding in various markets on various properties. We see the results, but the rationale behind it is always quite opaque to us.
It’s Todd Owens, I think what we have done with this reduction in the dividend is we have gotten to the point now where we are closer to fully ramped. And fully enough ramped that we have a good sense for what we would describe as a steady state or run rate profitability of the enterprise. And as consequence of that we have revisited the dividend and decided to lower it to a level that we would expect to meet or exceed from steady state earnings. And so in many ways consistent with what we did at FSC, so to with FSFR is setting it at a little level that reflects what we now know to be within the ball part of our steady state earnings number.
Jon, go ahead.
The decline, yeah. That's almost entirely – it's entirely related to gas price declines.
On the adjustments, we were in line with expectations. Certainly, on a GAAP basis, we were off of where our expectations were.
That certainly one we’re pushing towards absolutely, so with control of that process we’ll be able to look at yields a little bit differently and look that the product that goes across some of that equipment, a little differently. So that I think is going to help us. In addition, they have a tolling business that is something that we’re excited to add to our portfolio. So that we feel will be in accretive earnings per share and operating cash flow this year, and certainly into the future.
Yes, I'm not sure I understand the second part of your question. We're not seeing a core financial weakness among our hospitals right now. It's certainly, the climate has been much worse as many points in our history. A reluctance to buy systems right now, generally speaking isn't because they want and they don't have the money. It's because everybody has invested anywhere from a $200 million to $2 million in their EHR within the last three years to five years and there is a weariness to continue to spend at IT at this point. Unless there severe physician satisfaction as Boyd alluded to in his earlier comments. So I think that's more of it right now. Certainly, there is, where I thought you were going is our solace is really is in the fact that, we're not seeing deals out there, that we are losing or that we are not involved in at all that are going to other people and certainly there's some occasionally, but that of the deals that are going down out there, are win percentages that are normalized rate and higher than normalized rate and so that's what really gives us solace. And we're also aware of other vendor that focus on the community and hospital market place and where their numbers are shaking up and the systems sales standpoint as well. And our numbers are very similar if not maybe a little bit better on our end. So that definitely gives us comfort that is not you problem or an us problem, if you will, it's an environment problem. But I do think that it's we never described the financial condition of the rural hospital market is strong, but we certainly don't care for as it is, weak right now.
I think the remainder of the year would be probably as an industry significantly better than January and February, January and February were atypically weak, our March business was significantly profitable and because the market settled down, the pull ahead to last year settled down, people got back to work after the carnival and you know we think we can make headway and certainly our sales won't be down in 9.5% in the quarters ahead in Brazil.
Yes we see them really evolving fairly rapidly, because most of their clients today see that is not the general commodity PBM service, 1% of the network or half a point up of the network price that makes the difference. They could save far more by combining these and focusing in on the Specialty Medical Pharmacy Management.  We just recently held one of the largest Specialty Management Pharmacy Symposiums in New York a month or two ago where we had more attendees than we’ve ever had before that came from not only the pharma community, our client community, both MCO and employer clients, but also the whole consultant community. So we are see a much greater interest in this space, because it’s what really drives the cost and the quality of care.
Good morning, Mike.
We feel excellent about our overall inventory levels, I mean short of certain items that we’re still effectively, it feels revolving around the port strike that port issues that we’re trying to work through. We feel great about our inventories and we came out of the winter selling season with our winter carryover at meaningfully lower levels than they were last year and from an inventory standpoint we feel very prepared.
Thank you.
Sure. First of all, the cost reductions do come through. Unfortunately, they're on a lower business base than when we originally presented their projections. But we expect to, over time, get the inventory back into the 100 day, 110 day range, over the fourth and first quarter. I think we'll probably still be modestly reducing the costs next year, simply because a component of the build ahead were parts related to the factory close-down, and we allowed ourselves about a four-quarter runway for those. But they also tend to be parts that are made externally, so they wouldn't have the kind of income statement leverage that you would normally think of, when a company reduces inventory.
This is Paula Farrell. Actually, as you're probably aware, that is unique to every single investor based on the time they actually purchase their units.
ACAM distributed 31 million which I think was at 28 or 27, Mark, was dividend.
And the other thing we mentioned – Jason, it's Mike. The other thing we mentioned is growth in China, that's definitely been helpful. And over the last couple of years, we've talked about the sales force continuing to stabilize and take hold and that's definitely been the case and that's what we've been seeing. So, there's a combination of new products to stabilizing sales force growth in China. And then, we also were helped out a little bit by OEM probes as well.
Yeah. Sure. One month is not a trend and specific to January, we are selling down Cruze, we're selling down Malibu, we're selling down SRX, we're selling down LaCrosse. This is natural as you transition from one product to another. And I would expect to see incentive spend moderate as we go through this quarter. I think the other important thing is we've got a six-year track record of incentive discipline and I think that carries more weight than a one-month, very specific sell-downs associated with a new model launch cadence.
Gene, this is Pete, I would just said as you know we are focused on building a business that's many multiples the size that we are today. In order to do that, we're seeing the opportunity to extend very deeply into some of the core categories that we've mentioned. As you think about the investments we're making in our sales and client engagement organizations, we're focused on bringing people, deep expertise in those categories. I can tell you we're having a lot of success working with and recruiting people that have quite a bit of experience. So while we are making that investment we think it is the right thing to do and we're starting to see some of it already pay off in early client conversations and wins.
Sure. We would expect at present and of course our expectations can change that the March quarter will be the [low points] [ph] for the year. So at this point for the June quarter, we think that we could see either a flat or maybe slightly up TAM in the June quarter; more obviously update our expectations for that as we move through the quarter. And then obviously as we move through the back half of the calendar year where we get help from the seasonality perspective, we would expect to see the TAM increase from there.
That's exactly right. And that's one of the things that has to go into your considerations as you evaluate what you do. Absolutely. Good point.
Todd, I'm going to take part of that question, then David can jump in. Everyone focuses on incremental margin and we've given a range of 15% to 20% assuming that the macro is behaving, pricing is somewhat disciplined in the sector and we still have density improvements. And I want to make a comment on all this focus on incremental margin. The incremental margin, in other words, mathematically, the less percent that you grow, less improvement in OR it takes to get an incremental margin of, say, 30%. In other words, if you cut your growth in half, it takes half of the incremental improvement in OR to get that same OR incremental margin. So if someone reports an incremental margin of 30%, like we did in the second quarter, and our growth was 8%, if we grew at 16%, it would take a 200 basis point improvement in OR to get that same incremental margin. So going forward you need to consider that. And therefore, as we get larger and the percent of growth may drop, then it influences how much of that improvement in OR that you get to get to that incremental margin. So we still maintain 15% to 20%, given those three qualifications. And it's been stronger than that. But keep in mind, with those three things, more or less, we are confident we'll certainly get up to the 20%. Obviously that implies an 80% OR. So I think that's good. And of course, we are at 81.5% for the second quarter which typically is best, with the close second being the third quarter. But we've still got the full year and how we look at that. Anything to add, David, on that?
It’s a great question, but I think Mark you know I can’t answer the question. Again, we continue to look; there are a number of interesting things out there. The valuations are actually crazy right now, so it’s possible that we could come to terms on something that we would really like to have, but other than that I can’t really – I can’t add too much more color beyond that.
I don’t think we have seen anything significant, I mean we are obviously conscious of the macro environment. There is none really that are very concerning at this point as far as exposure to a downturn in China. I think they are all cognizant of where the market is and are cutting back where they need to just to make sure their spend isn’t exceeding their revenue growth. But for the most part it’s been relatively stable and we are still seeing growth some of which is driven by acquisition and which is being done at very prudent debt levels. So I think everyone is conscious of it but we haven’t seen any direct revenue downward pressure from the macro environment.
Thanks.
Compared to guidance, so if the rates stay that would create pressure on the guidance. We are not changing our guidance right now, because those rates may move back around, but we have been asked a couple of times before the call to make sure we are able to articulate and I know everybody else was on their earnings call, what the potential risk is in and that’s why we have those numbers. We are not changing our guidance though based on that at this time.
I would say, we were at 40 in August. So, 40 in September, so that was our best month ever. Can I keep it at 40? I don't know. That was just a really good month, but it's achievable in any one specific month, which tells me it's achievable on a long-term basis.
See you guys.
That was our last question. Keith and I would like to thank everyone again for joining us on today's call.
There is and I think your question is on material costs.
Yeah. Sure, John. I'd be happy to address that. The answer's a little longer than I think you're going to hope for. It really has to do with the structure of the original deal, the accounting treatment of the earn-out. And then finally, I can address the asset performance. But when we acquired the Centrum portfolio, a central component of that was we only paid for the income-producing portions of the portfolio. And so, we paid a multiple based on the EBITDA that was in place. So essentially we got all of the vacant space for free. So a big part of the negotiation was well, how do we come up with a value for the vacant space? And we arrived at this earn-out methodology, which had a three-year tail on it. And there was a calculation as to how we might pay for that additional space as it was leased. So the good part about that is you actually get all that vacant space for free. And now that that earn-out period is expiring in July, whatever hasn't been leased at that point is going to be ours for really zero basis on that within the construct of the deal. From an accounting perspective, we have to have a reserve for the earn-out. So you have to be conservative in the way you run those calculations. And you calculate your reserve based on leasing all of the space. So we had to assume that it all got leased. Well, at this point with it burning off in July, there's no reasonable expectation of any additional events that would give rise to an earn-out payment. So as a result, we were able to unwind that reserve. As it relates to the asset performance, it's performing better than when we acquired it. It's performing better than underwriting. And so we're extremely happy with the performance of it both to date and in the future.
We're very comfortable with our leverage right now at 5.5 closed all-in with Schurz and as we've commented publicly a couple of times that will go down lower by the end of this year significantly lower into the fours if you assume we take all the free cash flow we generate this year and pay down debt. As far as footprint positioning of the Company now versus call it 2008, 2009, 2007, I would point everybody to slide 22 in our investor presentation that's posted. It's the one that's labeled February 2016, that's our retransmission slide. And in 2016 on a net basis we have over $100 million of net retrans revenue flowing to the bottom line and in 2008 obviously it was a very, very different Company and didn't have nearly the size of the footprint. But we only had $3 million in 2008. So we've got $100 million of net additional cash flow now than we had had before. That makes me very, very comfortable with the he positioning of the Company, even if the macro economy pulls back for a little while got.
Many thanks, Ben. Thanks for the question, Martijn. The Downstream had, I think, its best of the year in terms of underlying performance. It was aided by the, in practice, better refining margins then we've seen since maybe 2007, 2008 period. And towards the end of the year the refining margins did come off a bit, although they have come back a bit at the beginning of January in this year. The actual impact for the quarter in margins then is maybe $100 million, $100 million-plus. But the actual performance of Shell refining, and chemicals for that matter, was less good in the fourth quarter than it had been during the year. And we also had a higher level of planned turnaround activity, which I think we had already flagged. It was partly because we declared some from the earlier part of the year when margins are more attractive. So overall we're probably a few $100 million down across refining and chemicals relative to where we have been earlier in the year for those two reasons. Marketing margins were also under a bit of pressure in the fourth quarter. But over the year as a whole, marketing activity showed a very strong performance with new product introductions, V-Power Nitro, new lubricants, new markets. And we're about $500 million up on the year in the marketing performance year-on-year. So quite solid, sustainable performance improvements from Downstream. Remember, around half of or maybe half of the – more than half of the total Downstream is not linked to that volatile refining margin. It's really solid, predictable, ratable income stream.
Thanks, Tom.
Yes. So, thanks for the question. There are a number of companies, most pharmaceutical and large pharma companies, as well as large biotech, have stated certainly a strategic interest in NASH but, as I'm sure you're aware, that the field overall is extremely early. Most of the products are either preclinical or just going into the clinic now, so there's not been a lot of data. There's a few exceptions, right, with – Gilead has talked about simtuzumab and we're still awaiting results of that Phase 2b study later this year from the two-year endpoint, but otherwise everything's very early. Nothing with any real proof-of-concept data that you can hang your hat on. Okay. Thanks a lot.
Good morning.
Thanks, John.
Yes. Thank you, Al. I think that you are right. And as part of - what we are saying is that we expect our RoTE for next year to be at around the levels we had this year. And what is contributing to that is clearly the cost of issuing additional high-trigger Tier 1 instruments as we start to absorb the cost of the already-outstanding TLAC bonds and the one we issue more. That's clearly a new target. We have been making a re-evaluation of deferred tax assets in the last two years, this year last Tier 1 and this year as we just announced three quarter of what we're going to do this year about. So, as we take into consideration that plus the fact that the consensus on forward rates, you look back into a year ago and this year, forward rates consensus on U.S. dollar alone is 120 basis points lower than last year. So, if you add on all those costs and changes in regulation and the macroeconomic environment, and, last but not least, remember that we still have euro/Swiss franc at around 5%, 6% lower than we had last year. So, we have higher costs also due to forex translation. So, all those factors are really putting headwinds to RoTE targets.
Sure.
And I -- I mean you and I, I think have talked about this before we’ve not had organic growth in the balance sheet. We added most -- almost all of our growth seems to come from M&A. That’s changing now especially with covered loans pretty much have been -– covered loan run off being what kind of negates organic growth but that’s covered loans into the year at only 130 million. So that’s not going to be a factor going into next year. We had record 13.5% organic growth in loans. I think that plus we had covered loans into the year I think you will it different. You’ll see different -- you will see -- start to see some of what you are asking for.
I would just add a footnote that, I think all of them are reliant on the foundation of a good balance sheet. So in order to do a lot of the things that Mark and you just enumerated without the strength of the balance sheet, I think, it would be a tougher sell. So for us to get in front of a Fortune 100 prospective customer and pitch to them our ability to build them a building, as being able to do without any financing contingencies and being able to evidence to that – to them is essential. As being on a call and doing a buyer interview with a broker on behalf of their seller to be able to have our first step forward be the balance sheet and give them comfort that we have the ability to close, I think, is important. And that trickles all the way through to us meeting with the customer who leases 15,000 square feet. And they know that when centrifugal chiller goes, we have the money to do it and that will happen and it’s all predicated on the balance sheet. So I think all the things that you enumerated make up the list, but it’s all stands on the foundation of a healthy balance sheet with a good maturity ladder.
So if you're looking for statement about how the sequential in '16 will shape up we certainly have looked at that differently then we might have done have we not have the oil and gas location that we have right. So we tempered our view of how the sequentials in '16 will play out versus where we were before oil and gas. Hopefully that responsive to your question, if you got another question ask it a different way Scott.
Well, 20 years is a long time, okay. But you know what? Those that still hold on to their shares 20 years from now I think will be very richly rewarded.
So those need to be added back on. And I saw one comment where people were comparing that number to our debt numbers, and that's not a reasonable comparison at all. I mean, first of all, you've got to discount the debt. The debt's not due until after 2021. So, you know, I think people...
Jon, a good portion of cost saves and increasing productivity came out of our branches as we implemented our retail vision and we are seeing better sales, we are seeing more services per household, we are seeing better penetration per consumer credit and yet we are doing with fewer FTEs that are cross-trained and capable of doing more with less FTEs, so a number of the benefits we are receiving would be technology related such as the automated account reconciliation is good example one of those, ACL in the credit area Ken is more familiar with that, but that is going to automate some of the credit process. I guess, the number of things that we are doing to get up to speed on technology, which brings us processes that are scalable, so that when we add banks, we are not having to add as many FTEs per $1 million of earning assets and I think you will continue to see that over the next year-and-a-half to two years.
No.
Right, I mean, in the general literature, there are studies where people have retreated with other JAK2 inhibitors showing that you can still maintain sensitivity, for example at jakafi and fedratinib studies where they did crossover from patients who are on one JAK2 inhibitor and then came off therapy because of either lack of response or progression of their symptoms, but then had a therapeutic benefit from reintroduction of a different class of JAK2 inhibitor. We know from our own Phase 1-2 studies that we’ve had patients with prior JAK2 that that wasn’t a variable that determine whether or not they were going to be sensitive and the only group that you worry about are the true resistant patients and based up on everything that I’ve heard from people like Ross Levine, et cetera, resistance to - true intrinsic resistance to JAK2 is the very rare event, it’s clearly less than 5% or 10% of what they see out here. Jack, do you have any color on that?
I think we continue to make progress there. And as I said, we'll continue to evaluate it as we evaluate all the projects that we have in the backlog.
Oh, commercial, okay. So – but we could certainly drill down, Matt, if you needed that information but I don’t have that – I don’t have that right now.
Let me turn that question over to Bill.
That may be true and we’re looking at that moving forward, but again historically, we have always just reported the year-end because, again, we are not a quarter-over-quarter revenue story, although our revenue has been growing fairly nicely and the trends have looked really good over the past 18 months or so. Just historically, we haven’t done it that way and we did it much the same way that we have done in previous years. So if you look at 2013, 2014, and now of course, 2015, they were exactly the same in terms of the way we have carved it out.
Hey, Eric.
Yes.
No. I think that's right. You know, relative to, are we committed to double-digit growth, absolutely. That's still part of our long-term plan. So EPS-wise, yes, we're committed to double digits moving forward.
Good morning, Paul.
Yes, we opened the last one for this year will be in Centerville or Highveld [ph] outside of Dayton this coming weekend, so that will give us 26.
We gave the oil and gas number. We charged off approximately $2.8 million in oil and gas loans but then we were fortunate; we turned right around and recovered about $2.2 million of what we charged off, unexpectedly. So the net charge-off on the oil and gas side was only a little over $600,000.
Thanks, Rocco and just want to thank everybody for taking the time to join us today. As we said earlier, we couldn’t have asked for a better first year for Restaurant Brands International and for the performance at both of our Tim Hortons and Burger King brands and we look forward to updating you on progress next quarter. Bye bye.
Yes, Sanjay, the growth in the Card business is a very similar story to what we've been saying for some time now. We're seeing good opportunities and growth across the segments that we are growing and that we are investing in. In our Card business the loss content is similar to originations we've been doing for quite some time. The losses of new originations are higher than our highly-seasoned back book just because that back book was profoundly seasoned by anybody who survived the great recession and the very extended period of low originations for us and in many ways for the industry. So off of an unusually low loss back book, we are seeing very good origination opportunities and it's really more of the same that you've seen from us for a long period of time.
We still think $62 million to $63 million is a good run rate for the first couple of quarters in 2016. We had two to three unusual expenses in the fourth quarter. We did some media buys in the fourth quarter that really won’t happen until the first quarter of this year particularly in some newer markets and I’ll tell you advertising in national just little more expansion than it is in prime world. So that was a pretty good chuck of money. We have also restructured most of our benefit plans and just to keep it real simple we have combined all our former time off policies into a pay time off policy in an order to bring all the merged companies together. We had an accrual experience of about $0.5 million in the fourth quarter to begin 2016. We also made a $300,000 contribution to our foundation. You probably know that it’s still in its infancy, but they are doing great things and all that accounts were about $1.5 million of our expenses in the fourth quarter. If you take that away we are in that $62 million, $63 million run rate range.
There are issues around debt, but we have no intention of – I don't think we've ever talked about DTI before anytime. It's out in the future. What we're talking about dropping right now is Cove Point, the Atlantic Coast pipeline, Blue Racer and all times to – when necessary to meet the 22% distribution growth rate that we have been meeting so far and will meet over the balance of this period.
Not active?
Between China, U.S., and South America, okay. The breakdown will be roughly 15% from the U.S market, slightly less than 5% from South American market, and the remaining around 80% will be generated from domestic China.
Yes.
Jordan, there really isn’t anything in our portfolio that I would necessarily like to sell off. And often I am asked is there anything out there that you wish wasn’t in your portfolio? And for the first time in the history of the company, there really isn’t anything that we would just like to get rid of. So, what we are looking at now is what is the easiest commodity to sell, what is a transaction that we can affect the quickest and more importantly, what is the transaction where we can show to the market just how valuable our overall portfolio is. So that has been more of the two driving factors than the overall particular segments in the overall portfolio.
You're saying why do we believe that unfunded commitments are not senior securities.
Thanks, Ryan.
We really just got started turning those wells online last week. And so we're really seeing early data as many as few as a day or two at this point. But I don't expect those wells to be anything other than on our type curve. I mean, we're looking at wells that are right in the center of our Middle Core. We should be seeing very predictable results there.
Sure, we have incorporated in the guidance some assumption around some wage pressure. Again there has been a lot of talk around that. There are really two forms of that, that can be supply driven or can be tied to minimum wage. Its inherent in our assumptions and I come back to the rate driven strategy, you need to maintaining and cover your margins and you see to drive labor cost productivity and you need to be efficient and the outlook we've given supports that.
It's too early.
Good morning Mike.
So James just a couple of things that I want to make sure. I mean, this was the same sort of the counter question that was asked a year or two ago when I was taking on the chin with investors, hey you’re spending too much in R&D, right. So, we’re seeing the fruits of that now. So some to is normalizing in the place of selling more of what we have and that's why a lot of our sales and marketing services support and CTO architect related. I think we're doing a much better job of targeting in those R&D dollars in places that are differential returns for our shareholders and where it's not we’re embracing third-party products. We’re no longer sort of an NIH, not invented here shop that was our DNA originally, it was to do everything ourselves that’s what our customers handed off to us right. Now we're turning around and doing that to the largely a Taiwan ecosystem.
That's correct. It would be for the full year of 2016.
Sure. It’s kind of a mix. So, we have good news with existing customers. We have a broad base of OEM customers that serve another – the broad base of data centers. So, we see successful actions and they are fairly robust in their outlooks as well for data center activity. So, it mixes across the number of companies. And then in addition, there is new product streams and new customers where we are bringing on, which add to that overall mix. So, there is some growth in the story.
No. I would have to answer that slightly differently and I may apologize if I miss both. I think we are going to see it continuing the way the market is evolving. I mean, it continues to – and let me say differently, it historically has done it and we will continue to do that and we will continue to generate the higher margins than many of our competitors do, because of these continuing trends. Now, it’s the same trend that we have seen for 25 years. Now, the other trend that we are hopeful that we will see is a result of this broadband demand, which is the third leg of our cable customers and the telcos both I mean – both industries are out-solacing the triple play which is telephony and video and broadband. But the biggest growth opportunity on the cable side has been on broadband. And that may ultimately generate additional opportunities and cause a change and an adjustment in the trends and could create growth opportunities for us. So I am saying two things. One, the lack of or the delays that Dave is talking about is a continuing episode in the industry that we have seen over the last 25 years. So we have always been able to take advantage of it because of our inventory position. Then the second one is the broadband demand is it continues to increase. We could see unique opportunities that play into our company. But again that’s always a matter of timing, when are they going to…
No, we don’t disclose volume and what is available in public records, you can look it up. There is like $220 million award, they call it, and you can take on the math from there.
I would say they were just ever so -- I mean they were below the 1.4, but they were certainly providing an adequate coverage. I think it was just a matter of -- they were a smaller mom-and-pop operator who when confronted with the changes and the perception of changes in the industry decided they didn't want to be it in anymore. I mean it is -- what's created opportunity for us for 15 years.
We will, we’ll do that actually close the fourth quarter, and when we give our 2016 guidance.
Yes.
Yeah. And if I could give a little bit more color to that, with the exception of LSA, we have the manufacturing build cycle time really under six weeks. And we have currently the LSA systems in the seven-and-a-half week and we're working to drive that down. So, that our current bay should be sufficient, we believe, to double our business without adding any cost to facilities.
I think I guess, I’ll focus on the following Jim. I think we tried real hard during the last year to make sure our spent is the right spent. So, I think we saw some decline towards the end of Q4 last year and that’s continued at this point. I wouldn’t necessarily read into the spend whether that tells you anything about the timing. I think the important thing for the shareholders is we’re trying hard to do the right things, spend the money wisely, you’re supposed to just spend money and add a lot of consultants. I think the other thing is an indication we’re trying over time to make sure we have stronger associates internally so that associates owners [indiscernible] by the way and not third-party players. But in terms of reading between the lines and timing I think the answer is we’re just trying to be smart on our spent.
5 milligrams to 10 milligrams.
And, Michael, this is Jamie. I think that's right. I would just add that we've taken the appropriate adjustments to our plans, but our inventory is current, and we feel really good about our plans for the fourth quarter in terms of our merchandise assortment, our marketing plans. We're going into fourth quarter all guns blazing.
Slightly below the lower end of our comp guidance.
Yeah. I'll take the first part of that. With the slide that we used in Analyst Day where we showed that 86% was basically DD or higher on our credit ratings, that has really remained very consistent in where we are from that standpoint. So we continue to stay obviously very focused on that and we like the positions that we have with our counterparty credit exposures. But I wouldn't – we've really not seen much movement in that and we know there's been a lot of changes with the agencies, but it's not really impacted as far as our top credit exposures at this point.
I would like it to, but we will see. In fact, 14 basis points, whether it goes one or two basis points either way, it's not going to be large but --
Sure. You will see it on the face of the 10-Q that was posted today and it’s basically 23.9 million shares. Keep in mind as well on the fully diluted share count you need to allow maybe a 100,000, 200,000 in addition to that posted number to get to a fully diluted number.
Okay. So according to Dell'Oro Group, 2016 the enterprise and service provider total Wireless LAN market is going to grow at 11% to 12%. I believe that’s their forecast for the year. Just to give you the contrast there, their Q1 to Q3 actual and Q4 estimated for 2015 was $4.5 billion - I mean, full year-to-year over $4.5 billion and $5.5 billion. And so based on their forecast, they are seeing 2016 to more than double from 2015 in terms of year-over-year growth.
Sure. Well again, you kind of know it’s relatively early for us, but what seems to be the driver that is resonating out in the market place is, there is a concern on the part of fund sponsors who are making sure they have a fiduciary coverage for their DC plans. So this particular client hired us as a fiduciary manager and they really wanted to improve the participant outcome. So the first thing would be a re-enrollment and that’s a practice that would really help to get the participants into a better investment framework, a better asset allocation that would be appropriate for them.  So as part of that we’re streamlining the line-up. So we’re taking funds and putting those together into a proprietary if you will or white label types of fund. So simplifying that, putting all the U.S. options together in to one fund rather than multiple funds, so there’s less choices that a participant would have to make and in addition to that creating a proprietary target date funds. So overtime they will, what we believe that we will see a massive flow into these particular programs and I think the re-enrollment is kind of a key step in order to ensure that.
Well, I’ll again take a stab, I’ll have Clay kind of pile on there as well. We still have got about $120 million left on our program that got approved last fall from the board. The last few weeks has really the stock market has had more of a slide. We’ve been in our quiet period leading up to our earnings, so we haven’t been able to participate in the last few weeks, as a result of that. But I would anticipate we get back into the program here, particularly at these levels. But we are measuring cash versus our NTI construction schedule on those sorts of things.
Thanks, Paul.
They did what they did, not my choice.
As it relates to the per-cap benefits, we've talked before about how we are very pleased with where we're at on membership and what we're seeing in terms of ongoing revenue. And that clearly did help out on the admission per caps, but we don't exclude disclose exactly how much of our growth on admission per caps is relative to the membership. As it relates to the leverage, I think we continue to look at that. Obviously the debt markets are extremely favorable. We'll continue to look at that and evaluate it. And as we've done in the past -- you know, we're not opposed to taking on additional leverage if we feel that make sense, to use for things like share repurchases.
Again, that’s by region. It depends on how you’ve contracted your employees. Right now we’re going through what’s call the redundancy process here in the North Sea, which takes a considerable amount of time compared to the Gulf of Mexico. So the Gulf of Mexico is fairly quick process, which we’re going through right now. In North Sea, we will probably drag on until we won’t see the full impacts of downsizing until the fourth quarter?
Thank you.
Okay. Thanks, Peyton.
Venezuela depressed the division's unit growth, yes.
Yes, so what we do when we're establishing guidance is, we go through the expected activity of all of our partners. And we do have some insight into what the expectations are. And we, obviously, handicap that some, but what we haven't done, and I think what we're going to do today is, walk through partner by partner the activities that we expect to have. But it's a fairly well-thought-out process. And if -- as of this point, we're confident that it reflects what we should expect in terms of 2015 revenues.
And you know one of the reasons -- one of the contributing reasons that we bought ASCO.
I wouldn't read. You heard correctly. This happens from time to time. We've got two events that are now in their second year in terms of the awards, and then again they kind of change places here. In terms of the quarter, they were both great events. They have similar profiles in terms of being two of our big tent pole event, but each event has got a unique line of the sponsors, unique set of promotional deals, and unique set of revenue and expense considerations. Well, we really want to make sure just from the credibility with all of you guys, which is the most important thing we have is to core up the key items. So they may impact year-over-year in comparability at times. But we will just need to continue make you aware of them, it's going to happen all the time with us.
Bob, it's a decision we have to make each year as we go forward. As returns are still favorable lower than what they've been in the past, still favorable, but we will address it each year.
Well, I haven't looked at stock price recently, but as you know, I'm a student of Warren Buffet, and I remember the famous article he wrote as to market of 1986, I'm fine with that because I have an inner score card, 100%, I don't let other people put scores on what we're doing in the company or how I feel about it. I want to tell you that in my comments and I don’t know if you’re on the call I said I sold a 100,000 shares in the second quarter to pay off my remaining margin debt but at this point right now I wish I had owned a lot more Carriage and nothing else, it's a dangerous world out there..
Good morning.
That's right.
Its approximately $30 million. Their transactions move off very quickly Mark. So that 30 million bucks basically less than flat quarter-over-quarter.
This is Gill. I just want to emphasize one thing that Derek touched upon a short while ago, and this is a testament, again, to the investment that we have made over the years in growing our sales force around the world. And that is – and the people, relationships, and education campaigns that we have run in China. The past two months, as the upheaval in China has intensified, we have seen a very large number of trade, traders that are seeking opportunities outside of China and that's been driving a significant portion of the international growth that Bryan is referring to here. You're also seeing the open interest for the entire exchange growing significantly, which is another thing that you did not see in the years that you mentioned, right? So these things, together with the product development, that has been done across the board, is what I would say, differentiates us in this environment from the – from the past ones.
I am going to let Joanne take the first part and then I will come back.
Okay. Hi, Sheila.
Well again, we sold shares at $45 in 2013 at the end of the year to consummate the MeadWestvaco acquisition, and we hated doing it at $45, as we said. We actually downsized the equity ARPU at that time because we didn't like the price. But we liked the assets so well, and they've performed extraordinarily well, even better than we expected, but we liked those assets so well that we were willing to make that trade. But as I said, we didn't like it to issue at $45. So, whether we'd issue stock at $48 or $50 or any price, it really depends on what the use of proceeds are. And if it's an extraordinary opportunity and it makes sense to do that to keep our balance sheet in shape and investment grade, we'd consider doing that.
Let me start with the last half of your question first, which is the $150 million, that amount pertains only to the net performance fees on the Axalta sales, it does not pertain to the other $1 billion plus of transactions that we have already done in the month of April. Is that responsive to that part?
Well, Sharon, it's been down so far this year again due to the increased comp and the increased performance. So we haven't seen a whole lot of wage inflation this year. We gave quite a good raise to our team about a year-and-a-half ago. We've been living with that for a while, outside of our change in D.C., which is a brand new change that just happened in July. We have continued to see really strong labor performance across our Shack. If you recall, one of the things that we talked about in the past, at this time last year most of our Shacks actually had a higher labor, because we were doing the crinkle fresh cut fries, that increased labor quite a bit. And now not having that, we've rather come down. In addition, with the increased sales the flow-through has been strong. So again, over the long-term as minimum wage creeps upon us as it will for the entire industry, we do expect deleverage on that line in the future from the results you're seeing today.
I would say that we’re moving on schedule with respect to the direct selling license. We’re following all the procedures that need to be followed. We’re running our submission and checking all of our boxes. I wouldn’t say that there are any impediments. We’re running on schedule.
I would say, in terms of our guidance, we'd be at the upper end of the range, for the proportional and the parent free cash flow that we'd get in Bulgaria. I would mention that, in terms of encouraging news, the Minister of Energy yesterday came out and said, that they had -- there are two phases to it. The first is, that the BEH, Bulgarian Energy Holdings would receive a bridge loan from banks for later on take-out. As she mentioned yesterday, that they had received significant offers from one of the bank consortiums -- I think expect two or three to come in. And that's very favorable, because we'd get paid with the bridge loan and we wouldn't have to wait for the bond operation. So that really, again that's a favorable development. Let's wait and see. If that does occur, that would -- and given that everything else happens as we expect, we would be at the upper end of the range.
25% in the TRF. So we got 17 points.
Tom recognized that with all the discussion on medallions and all the losses being taken by our peers on medallion, over the course of this period, this last 12 month period, we've had a total charge of $30,000. So the numbers again demonstrate that even though we may be a New York lender and we may be a medallion lender, we do lend differently than others.
I would say as the quarter went along that the comp sales decelerated a little bit. And as I said to David, at the beginning of the call, I think that the overall economy has had somewhat of a drag on sales towards – particularly in March, particularly in some of our regions because of – it seems like in April we came back somewhat.
This is David. I would say that we're also if you look on the Instacart App, we're adding new items all the time. We're starting to add more and more of our prepared foods mix, which wasn’t available and we started with Instacart. So there is a more full shop for our customers and they're responding.
I think that when you get to Florida, I don’t know that there are specifically a cap rate differential for us. As a company, we’ve really focused on where we can create value, both near- and short-term with a particular acquisition, we feel good we can do so there. The difference throughout the country, I would say, when you get out to the resorts is that you will get probably a 50 basis point difference for all things being given equal. But as I’ve shared before, we get stronger rental increases more typically in the non-age restricted communities. So that’s when the economy is doing well. So, we expect to be able to do so in our portfolio.
Okay, I will answer that question. So we have very - obviously, a lot of experience in underwriting and understanding healthcare businesses including regulatory side, so we have an extensive due diligence process that we go through when we deal with these types. And very extensive sort of risk management processes. In general, when we acquire business and have PropCo/OpCo separation, the OpCo is responsible for those types of obligations should there be any. So prior to and after closing.
What I'm referring to is, even though we own 57.2% of the shares, they are an independent private company that has to follow their public company which has to follow their own corporate governance requirements and their Board, particularly the independent members of the Board have to act in the best interest of UCP shareholders, not PICO shareholders. So although we can speak as PICO shareholders on behalf of our shareholding we can't speak for UCP.
Go ahead Colin.
So you say – generally our jumbo strategy is part of our mass affluent strategy in the community bank where I indicated that 90% of the loans originated for portfolio in the quarter were jumbo loans which is a trend that we have been seeing and we use the jumbos as the lead product to help us to develop high-value relationship. We’ve had a lot of success with that both directly in the market through our bankers and through some correspondent business that we do as well. We also use the jumbos as a lead product in the private bank as well and we’ve found the volume there to be fairly robust and we have increased our share of that market is that what you're asking.
A couple, huh?
It was about 28% of whatever their operating expenses were. I don’t have the number in front of me Steve. We have recognized most of those at this point.
Yes to all those questions. But what - we make some commitments to some based on the volumes that we can produce until we get a big plant manufacturing it. So today, we are limited in production, not interest.
When we're looking at our pricing, we're looking at our weighted average cost to capital and what we believe that is and the economic capital or PMIERs capital. So those two components -- the weighted average cost to capital certainly reflects our debt and estimated cost of equity.
Sure. So if you look at our total revenue for the quarter in Asia Pac, it's about $15.8 million and our total revenue for Europe was about $10.6 million. I will say that we had a very good quarter in Asia, our distributors were up year-over-year, really the weakness in the international markets was focused and centered more around Europe and the Middle East. But we are seeing good growth out of our Asia Pac distributors as well as subsidiaries.
Correct.
They are taking somewhat longer, but they are not taking massively longer. So, we started a process at the beginning of the year, you know we thought some sales might happen in the first half, some of it is drifted into the third quarter, there will be more news over the course of this quarter, be in the third quarter you will see some stuff happen. So, you are talking about stuff moving up a few months here, not dramatic. There is no sort of big issue, I mean sometimes it does take longer people need to get us stopples, you need to do the due diligence they need to go get, yes they have to go get financing et cetera, but again nothing particularly that I would highlight or that’s peculiar.
Should I also think we have an inventory of assets that we think could be candidates for disposition that you know is big enough to fill our appetite for dispositions at least in the near-term, is how I would characterize it.
Okay, holding company, minimum we do have do have small portfolios $27 million which is collateral in the [indiscernible] increasing cash in at the subsidiaries level --
Yes, we continue to be involved in a number of conversations on that front. We did interpret that as a net positive. Because if you are going to monetize real estate, the IRS has taken that stance, then you sale-leaseback, financing, transactions with companies like ours is the appropriate and best execution we believe. Has there been a sea wave of additional discussions? No, but there is been a slight uptick and we continue to be fairly optimistic that one or two of those will hit and be significant
So there are actually a lot of news articles floating around, they are not necessarily that accurate. So I think you may be referring to a particular article about raising a passage of parcel tax, if you refer back to the article, that article also talks about passage of parcel tax being 10% which is completely untrue for beauty products. Current beauty products, passage of parcel tax is 50% and that can only be lowered. Because for every single other category it’s anywhere between 10% to 20%, to have a 50% passage of parcel tax is pretty insane and that can only be lowered. So regardless of which version of news article you read, the conclusion can only be beauty product passage of parcel tax would be lowered.  In terms of import tariff is that for beauty products, import tariff may need for most beauty product import tax is actually only 6.5% and it’s only charged on branded price. That means charge on cost of goods sold not retail price. So that’s not a big composition of tax, beauty products coming into China and the main efficiency that Jumei Global has created is cutting out four layers of middlemen compared to traditional cross border through the more great channels. So lowering our import tax per se doesn’t really do much in narrowing the gap of price because we are creating efficiency not just creating a price – not just closing a price gap.
Thank you for joining us today as we discussed our quarterly and year end results. We appreciate your time and interest in First Defiance Financial Corp. Have a great day.
Thanks.
Josh, this is Dan. In terms of our exchange, our book of business, we were pleased with the growth in the quarter sequentially. It's actually exceeded our expectations. In terms of the mix between inpatient and outpatient, we don't see any specific trends there that need to call out at this point in time. We continue to build our book of business. We're well positioned from a contracting strategy that we focused on early on and we're capturing our fair share of that business.
I'm sorry?
So, Toni, what we do is at the point in time we provide an outlook, we take that kind of that beginning of that month's set of rates, and we forecast the rest of the year. And if you actually compare the currency rates at the beginning of May to those at the beginning of February, when we provided the outlook for the year of $3.53 to $3.73, they are roughly the same. They are not materially changed.
So, compliance for a drug that is preventative for a silent killer can be very difficult because people for lots of reasons don't want to think or admit that they have problems that need to be treated. They feel fine. Why do I have to take these medicines, et cetera, et cetera? In terms of specifically compliance for Praluent, the only thing – the only data that we have because it's too early to tell from the commercial world yet – the only data we have is from our clinical trials where, I believe, and Bob or George can correct me if I'm wrong, that the compliance for the injections was extremely high, even higher perhaps than for the concomitant statin therapy that people were on.
Good morning, Catherine.
Exactly, gradual process.
Okay, thanks for joining us today. Our strong financial performance in the fourth quarter and record performance in 2015 gives us confidence as we move into 2016. We’re excited about our financial outlook for an even better year ahead with robust demand, continued low fuel prices, and manageable industry capacity to Hawaii. And with that, aloha for joining us on today’s call.
We do so the Tennessee Rider is subject to audit mechanism that they do each year. We've gone through, I believe, two audits thus far and we’ve received a 100% recovery.
Well we defer a portion of - I don’t have the number in front of me but we defer a portion of the revenue related to ongoing maintenance which goes over and that’s the period of time that we’re analyzing because we’re changing our benefit periods for service and like that. So at the moment, we’re using a three year period for the deferral.
Yes Dan, it's actually we've had that 10% or some type of renewal cap in place for some period of time. And so it really isn't anything new. And part of the reason why we do it, is it sets up a great discussion with your resident because yes, you're right they don't like a 10% renewal increase. However, the next step in that conversation is, hey, go out and look at the other properties in the area, and we think that you'll come back and conclude this is a rental value, a good rental value and we think we will keep you as a result of that. And so I think it does act as a reward for being an Essex customer which is important to us. And at the same time thought there are these benefits that you don't really see, which are lower vacancy, lower turnover cost. And if you have X amount of traffic coming in the front door, you now have fewer units to lease to that fixed amount of traffic, and obviously it can push rents on the -- for the people that are coming in off the street a little bit harder. So, I think it actually works really well and we've had great success with it over several years and we're happy with it. We think it's a great program.
Thanks, Joe.
I believe these comments as we’re on track. These things go and fit and start. It’s still early days in the year. So we’re confident that we’ll achieve the 200 goal that we set out and we’ll give you update as we roll through the year.
We're 100% confident right now, we're going to start on or before July 1.
On the urban and street side, we have not seen it yet. And the one pleasant surprise has been none of our retailers are talking about the strengthening dollar and foreign tourism the way that I thought I might have been hearing, that in general, their discussion is their management teams, their CEO understand that these cyclical changes occur. But when they can open the kind of important location to present for their brand, they're willing to do that. Everyone complains about rent and the only distinction in the street and urban is the expectation that trees grow to the sky. Now retailers are saying, we can't participate in that. But we as landlords have never been strong advocates of that kind of rent growth. We've enjoyed it, so maybe you've seen some level of stabilization. On the suburban side, it's very box specific, to our suburban retailer tenants, to their credit they have been very disciplined. And so we have not seen over the past several years any meaningful growth. And thankfully, our retailers have not stretched too far, so if there is some form of a softening, my hope is as it relates to new leases, that our retailers are making responsible decisions. That's certainly the sense in our negotiation. So I have not sensed a slowdown, but final point, we're 96% occupied. I think we signed, Jon, 15,000 square feet of leases last year?
The industry as a whole and the industry associations are working pretty closely with the NAIC trying to limit the number of categories from where additional factors might come in play. So that's clearly a work in progress. I think, I said before we kind of see that as a 2017 or '18 event. And that’s the latest information that we have, that's still the best estimates. From an impact our preliminary are using some of the information they have out there, that is of course subject to change, it could mean maybe a 20 basis points to 25 basis points change, reduction in the overall RBC percentage. What we don't know is for sure is then how do the rating agencies and how the users of the RBC data, how do they react to that and so that what we'll have to do from that perspective.
So Kurt, if there is only a 150 pad optimal rigs in the entire North American fleet across all of us, and that rig in a pad application, particularly a large pad application, significantly out drills any other piece of the equipment that's out there, and this is not just the equipment, it's the crew, it's the safety, it's the entire package, and you're looking at your drilling program and across the board, you've got to take your cost structure down. And the most efficient way to do it on the drilling side is pads, and particularly larger pads, you got a very limited amount of equipment to choose from, which to a great degree right now is already dedicated to operators. And if you're putting a drilling program together and you're faced with that choice, what you do is you try to go determine. I think again, that's what we're seeing.
Good morning, Mike.
Hello, Helane.
We've also, Katherine, included the number of patients in the trials as offsets to our projections and to the way we look at the growth of the market, so we've taken those numbers and those numbers of patients into consideration, as we have laid out our growth plans for Iclusig.
If I understand your question clearly, we continue to drive success with our customers, even though they are consolidating, but we continue to proliferating our innovative products. The other part that we are growing quite rapidly is a system design -- system customer, and I mentioned earlier, couple of pocket [ph] opportunity. You highlight PC slowdown that is true, but we see some of this new application coming up really strong in the video related area, in term of the IoT and then most of this, the image vision related area, automotive in term of dash autopiloting, and then all these are driving a lot of data and sensor to the crowd. And that's why I mentioned earlier about the Big Data, data analytics, across multiple vertical markets all the way through medical, video surveillance and they want to have all this data to improve their business, even in the retail stores. So, I think those kind of are driving the silicon development and also driving the system company doing vertically integrated, and so I think those are the opportunities for us that are on two sides. One is stronger, consolidation company that we continue to grow with them and proliferate with them, and there’s a new breed of system enablement because we are uniquely positioned for our two, our IP, and then our system integration, hardware/software co-design litigation, and so that can really address the power signal integrity and time to market requirement from system company point of view so they can go to market much faster than a very compressed timetable.
I don’t have it with me because I didn’t end up back - but we can get I doubt is I don’t think it significantly different than what it was in the fourth quarter down a little bit.
Thanks, Aaron.
Historically, it’s been around six months to nine months, although I can tell you we haven’t had very many. We’re about nine months past March 5th now and we haven’t had very many regions open the doors yet. There is a lot of trade negotiations going on. TPP is up in the air, you’ve got MCOOL [ph] up in the air. There’s just a lot going on around trade. I don’t know how much that’s impacting. Whether or not these countries open up, we feel very safe about our supply chain. So, I don’t see any reason there for there to be any reason not to want to take great part of it from the U.S. So I’d really hesitate to try to guess on when these things will open up. So what we did, Diane, is we just put the current pricing in our year for the whole year. And if anything breaks lose, then it will benefit us.
On the first question, John Thiel who runs Merrill Lynch for us, where largely we are affected by the discussion on fiduciary standards. Remember, U.S. Trust is actually a private bank and operates into the fiduciary standard and most of its activity. So, John Thiel does the lead in our business does great job for us and has been clear. We believe that doing what’s in the best interest of the customer is absolutely the right thing to do. And while this rule has just come out yesterday afternoon and frankly, Betsy, to get prepared for your questions this morning, I have spent a lot of time examining into detail. But from a basic standpoint, we’ve been clear that that’s we see the industry moving and we expect lot of movement there. On the robo-advisor, I think that the clear segment match for us in that area in terms of what Schwab and other people have talked about is really in the Merrill Lynch business, which is below the Merrill Lynch cut-off a lot of their return. So, John and his team drive people to $150,000 in investable assets free to invest, which is net worth of a $0.5 million in the upper range of the client and Dean Athanasia and his preferred team drive the business below that. And if you look in our information, you will see that that business has got about $118 billion of both, which assets are growing faster than the industry. Year-over-year, I think the assets were up 18%. The number of accounts of the sales levels were up and so that’s really the automated rebalancing portfolios and stuff like that and we are driving that through as a core execution. And by the way, they also refer tens of thousands of customers a year up to Merrill Lynch at the same time. So we are trying to have the best of both worlds.
Good morning.
It does have. Yes, it does have some influence and it adds a degree of uncertainty because the timing is not fixed. In an ideal world, when you announced an M&A transaction, you would know exactly that it can take you x months to get through the shareholder and regulatory approval process and you plan your conversion and start customer communication. So, it does introduce a degree of uncertainty. We’ll have a better sense when we see the ultimate time and how to think about future opportunities and what that means in terms of how we model and how we -- and how we think about conversion timelines and customer communication. But if there is added degree of additional uncertainty that from a preference standpoint, it won’t be there, it would be much more defined timeline that you can manage within and execute and communicate with customers and shareholders and do it all in a way that allows the regulatory of process and their objectives to be achieved and do it in a way that allows you to facilitate M&A in most efficient manner for shareholders of both organizations.
That’s -- it is too hard to estimate that Camilo, really.
Well, PayOnline is not only based in Russia, PayOnline covers Russia, Europe and Asia. It's a full processing platform for online e-commerce acceptance with its own frontend backend gateway, it's connected to multiple banks and financial institutions in the regions. And it has its own proprietary floor management and filtering, doesn’t only work for the online environment also works for mobile payments environment enabling payment acceptance within the applications. If you have an application that whereby you'd like to accept payments whether it's through iOS, Windows or Android we have PayOnline enables you in that purchase. It's one of the more advanced platforms available in the market today and we're able not only go after small to medium size businesses that we typically going in the United States for but able to go after larger merchants. As we demonstrated by signing of dating networks to the processing $100 million year processing also we signed up cathier.com which is one of the largest ticketers in the regions it's actual an affluent ticket masters in the United States and some other brands name merchants that we have working with us with Russia, Asia and Europe. So it's a very advanced e-commerce platform which enables payment acceptance for traditional payment metrics and alternative payment metrics within the website and mobile application.
I think we expect to happen, we expect to see continued run-off in the energy portfolio and we expect that our criticized portion of the energy portfolio will also continue to run-off. We saw that in the past quarter and we expect to see it in future quarters. It’s hard for us to figure out how much of that run-off is going to offset any additional migration that we expect in the portfolio over the next quarter or two but we think that it will be significant.
Our quick service business in the Americas is pretty broad to a number customers but there are couple of customers that are large enough to have an impact. And those larger customers as they’ve reported have been struggling somewhat with foot traffic and sales and that impacts us as well. We are gaining with some of the smaller quick service restaurants and we feel pretty good about that .But it's not enough to offset the very large chains that are well-publicized and their challenges.
You’re welcome.
The -- I think it's all cash, the current rate is 8.1% on the blended loan portfolio, Smedes. A very small part is not cash.
We’re nearly talking about our payments that result from that trigger. So there is a little bit of a difference between the two events but we think, it’s going to be on the, what we should be very close to being in that time, that’s likely timing. And it all depend on when the actual timing of the approval is.
So most of those actions have worked – actually took place in the later part of June and the early part of July, with of course the exception of the games sale, which will happen kind of mid-quarter Q3.
Yeah, fair enough, Steven. We just -- part of the synergy or opportunity, probably a better word, between GXS and core OpenText on the acquisition was being able to extend their managed services which they do wonderfully to our enterprise customer. And we've officially launched that at scale across the organization globally and select datacenters in each of our geographies, they are going to offer to our enterprise customers those managed services. So, we've been really in earnest at it for about 90 days. And the initial reaction is very good, I'd expect to talk about a couple significant wins in this quarter actually when we get to our call in July. But we've been at it about 90 days, the interest is very solid. We're going to win customers this quarter for enterprise, managed services and subscription, leveraging the GXS infrastructure. So, still early days and we'll be talking about some wins this quarter on the next call.
Thank you.
John, the revenue number that we've commented on is roughly $21 million for base rent and license fees associated with the business and then we do receive some expense reimbursement as well. That equates to about 3% of our 2014 total revenue but we don't provide any further disclosure beyond that in terms of NOI.
Yes, well, and again now the way to what I am going to say. I think there are two issues. One is the quality of the Krill resource has a direct impact on our production cost given the yield that it derives. And I think we are working much closer with fishery’s companies to make sure that we have as close to the pond as possible to the boat access or ability to get the best Krill possible. So that’s all you do that, while I guess you can let your imagination that you can go to commercial arrangement facility partnership. And I think we are actually and André has been leading that. I think we are working very, very closely with this company to see how can we integrate so to speak better that not to be done through corporate integration but certainly through commercial integration. And also link to that is a price because obviously pricing at Krill is a key component of raw material of our end product. So therefore, it’s control of quality, control of price. So obviously working perhaps with less people, with having a continuum in terms of our sourcing allows them to manage their fleet a different way. So maybe André you should elaborate a little bit more, but I think we -- that’s a focus that is paramount to our success. André do you want to explore a little bit more?
It is still a two-thirds fee-for-service. That's about where we are, and that would include ArcRoyal, as ArcRoyal is providing services to the manufacturer. And we don't break out our products and packaging segment. So we'll have to leave a little mystery to that going forward. But suffice to say, they did contribute in the quarter and we continue to see very good activity in leveraging our packaging business across our manufacturing platform, both over in Europe as well as here in the United States.
That’s correct. It excludes the gains and losses on property investments and pretty much everything else is in other than the normal stuff that’s excluded from EBITDA.
Good morning, Scott.
No. That’s very accurate. And again, we can’t predict exactly the timing of which will happen. But there are -- when you look at the legacy investments there, they are handful, I think, on my count seven that are a very large and meaningful. They’re all in various stages of being evaluated right now. And those funds for the most part are nearing the end of their existing life. So over the next year or two, I expect that bulk of those investments to be liquid [Technical Difficulty] and hopefully a very favorable levels and we can expect some activity in the second half of the year as things goes plan.
Yes, exactly.
Yeah, we'll follow up on that. I'm kind of doing it by memory. I think we had at year end somewhere around $600 million in the Montney and about $150 million in the Duvernay. The programs in both the Duvernay and the Montney are relatively limited. A lot of the Montney capital in 2016 is actually in Alberta, which is not in the Mitsubishi JV, but those programs have been reduced.
I think it’s cyber security, aviation, our global mobile piece of that business, both of those were [indiscernible] investments.
We weren’t planning on doing that. We will have a – obviously by the end of the year, we will have a little bit of a clearer picture for where we’ve ended up this year. And to the extent that more disclosure of even a different approach is appropriate, we’ll look at that. But at this point, no.
Okay. At this time, we appreciate all of your time and your support. Jim and I are looking forward to our future earnings call because we believe our news will continue to stay as a positive trend. We wish you all good afternoon.
Ben, I'd just add to that, to Brett's comments which I agree with all of them, and I don't want to sound like a broken record but I'll reiterate what we're doing the next 12 months on this, we're moving from air freight to sea freight as these products ramp up. We're moving these cost-out programs in the supply chain, so that's with suppliers and our partners but also within our internal programs and manufacturing and COGS reduction. And thirdly, we're increasing the incremental growth at lower cost plants. And I think all those three elements will help move GM to the higher end of Brett's guidance rather than the low one. And then finally, our sales teams, Jim and Ann and their teams are being provided incentives to drive high gross margin growth. So growth in the AirCurve 10 range, growth in the Astral range, and growth in the AirFit range of masks all being provided incentives to the channel to make sure that we grow those high GMx products. And so all those together I think are a pretty powerful weapon.
Thank you once again for joining us today. If you have further questions please feel free to contact eHi or the Piacente Group Investor Relations. Thank you.
Okay.
He joined the credit management so he is specific to his accountabilities range from the underwriting asset management and restructuring. So not origination but specifically investment cycle, really the credit management side which has those three specific accountabilities that are reported to him.
Yes, Heiko, I can hear you clearly. How are you?
I would have to agree in that. Yes, if we can get the company over the $2 billion mark, then you get more, think of it as flying at more altitude. It does help you deal with some of the lumpiness if you were. You do get a little smoother stream of earnings. I have to admit that. But the other characteristic is that you do have to watch with the client concentration. And so we have got to get, that's why you are hearing us right now with our growth really wanting to get things happening in technology, things growing more in financial services. And we are really encouraged with the fact that Q1 we grew 29% in technology and we do believe by the second half of the year, you are going to seeing more growth in financial services. So we can get a more even distribution across the client base in the industry. That will help in minimizing your propensity to lumpiness in your business.
Okay.
Oh, certainly, well, it’s in there, we have it.
Yes, freight was almost 75% of it and just a little bit internationally, because we are winding down on the MRS project right now.
(32:20) recovery, but we think it should return to something better than the first half.
Whatever we do in terms of hiving off a business or splitting up or separating or de-conglomerating the -- each business will have appropriate balance sheets to accomplish their missions, we did that very carefully with UE we know how to do that, it's crucial to the success of the businesses, the way we look upon it we are still an owner -- the way I look upon it we are still an owner of UE, we kept our shares, and we need you -- we want UE to thrive just like we want Vornado to thrive and any children, or grand children that might come out of Vornado will be at a similar condition. And by the way we do have the mother ship balance sheet to do it almost anything that we want to. I would tell you that while we do have an enormous amount of liquidity intentionally we consider our silly stock price to be our number one target. I would also tell you just to comment about the balance sheet, I mean Steve Theriot said that our consolidated debt to EBITDA ratio was 7…
So if you look at the Americas and Europe, we had a year-over-year customer growth of 3.5%. That was driven primarily by Mexico and Canada was strong as well. In the US on a customer year-over-year basis was down slightly.
Michael obviously the big factor in here is where things are is the last few days crude seems to be firming up and it may take some time, if it continuously firm up, it may take a month or two before we start seeing base oil moving upward. But we know, I think the big message in here today we wanted to share with you is we've decided in the fourth quarter that we're going to go in and take aggressive steps to restore the spread and the spread hasn't been restored but there is more work to do.
Yes, we can hear you fine. Thanks Jason.
It could be less than that. But we use $500 as a rule of thumb.
Okay. Thanks very much. Thanks for the question, Aneek. Can I have the next question, please, operator?
Yeah, Adam. So broadly speaking, the things that we've been focused on executing in the first half with the sales force have been operational items like, first of all, getting the group hired, which we did, and then going through a very disciplined structured process to get folks ramped. As you know, it takes about six months. And we are on track to have folks ramping up during the course of the third quarter. Remember, they were hired in the first quarter. I can comment on sales capacity which was down in the first half relative to the year-ago period, simply as a function of the transition that we've talked about before. So, really, I think the focus in Q3 is absolutely on ramped capacity, and we think we're in a good position there. Efficiency is really something that I'd kind of point you to 2016 on. Right now, we're focused on getting this new sales force up and going.
You don’t have to stock all the replacement parts or repair parts, two or three different types, that’s not to say it doesn’t happen, but I don’t like to do that as much, but on the mattress side, you can’t say that different parts.
Thank you. I will start by talking about iron ore prices and maybe, one comment on export duties and then maybe Kishore cover it for you [Technical Difficulties] look at in either today’s or last month’s iron ore price range, where we can actually deliver positive margins by exporting both through a combination of reducing our costs from our cost structure, which would have been the case three years ago to also the export duty relief. And I think we need to see a combination of both of those. I have been involved with many interactions with senior levels of the government. It seem to give us comfort and confidence that there is hearing the issue regarding our needing relief on the export duty. Of course, the steel industry is probably whispering on the ear on the other side of that - if your question is risk rating, bit of a challenge that we do have to overcome. Our objective is to recognize that Goa ores are actually not as well suited for the Indian steel sector nor are they in that demand for the Indian steel sector, so exports is a win-win situation. That’s the argument we’re going to continue to make. In my view, the recent iron ore price rebound has some extent evidenced through announcements that BHP have made recently and some - a little bit of signs of life in terms of the Chinese steel sector. So we have to be ready to work within a range that is that can we export iron ore at the prices we would have seen even a month or two ago. And also need to recognize that the spread between higher grade ores and lower grade ores is actually widening in this period of time. And what we are producing at Goa is generally in the lower end of that spectrum. But Kishore, anything else you want to say?
The part of that increase in nonrecurring happened in the first quarter Conor, so I didn’t bothered to update guidance at this point we do get another a penny here in the second quarter so as you look at our increase we increased our guidance to send the last quarter, that was nonrecurring I just didn’t update guidance at that point. The accumulation of those two items are now $0.02 so we updated our guidance we had $0.01 good guy in the second quarter from operations $0.01 from that the nonrecurring item you mentioned and then $0.01 also came from just a hodgepodge to other items. The reason we only increased FFO $0.02 and not for those $0.03 that because of our investing activity for the rest of the year. We’re going to be selling a few more assets than we had originally given guidance to. John mentioned that going to 270 on Third which is being built currently and will be finished here in the fourth quarter of 2015, but we’re expecting no income contribution from that community on 2015, but we are selling communities that are generating income to fund that acquisition and then set the penny backwards that we move on FFO.
So let me just talk about the visibility part. I think every year that goes by I think we get a little bit better at really understanding the ebb inflow of our environment. I mean that the company is bigger and so the numbers of data points are bigger. But I think we've gotten to be the point where we are pretty good at forecasting but I'll tell you we are not perfect and they are still -- there are always things, those projects that should have started that don't start or start late. There is other project that comes out of the blue that just shows up on our radar screen and we get going. And so are always going to have that give and take and that just part of the challenge that any consulting firm has in terms of trying to mesh up the demand and supply in those kinds of environment. I think our visibility isn't necessarily any different. I think our ability to manage in that variability is probably little bit better.
The core tomato franchise has always been polarizing. There are people who either like tomato or who don't like tomato. And we haven't been able to offer the people that don't like tomato base a different alternative. So we believe that tomato will still be an important part of our franchise for those who love it, and we'll be able to offer other things, as well.
Break that into two pieces. If you take our quarter, our third quarter year-to-date numbers for Brazil at the exchange rates for last year we’d be at $20 million plus this year or $10 million. If the real goes to exaggerating here, I am not suggesting this but if the real goes to 4.5 or 5, you know what that means; if the real goes to 3.5 or 3, you know what that means. So, our plant has -- when we complete the expansion we targeted to be able to produce at a capacity of average capacity of 300 tons per day. We have operated the plant on multiple occasions over 400 tons per day. We do not have -- we aren’t forecasting that and we do not have the brand to be able to run at that level. Marc, you saw we were up 52% in local currency through September and yet we’re down in U.S. dollar, so Brazil is going to be Brazil and we’re going to have to write that one out. On the U.S. side, we completed the expansion at H&N and we have the capacity in place, we have the team in place, and we absolutely have the capacity to hit the trajectories that we were talking about previously. We’re delayed a couple of quarters, we’re starting to get some traction now; we think Q4 will be good for us and we think that 2016 will be good for us. But there is a lot in the pipeline, there is a lot of stuff coming, we expect those things to convert, one by one they’re coming on. And we have to get them first to convert and then to ramp because everybody’s initial purchase order is relatively small. But we’re not happy about the quarter; we are actually excited about where we are.
Yes. So, Paul the growth rate so the $11.4 million was about half of the quarter. And frankly was in line with what we expected. Although I would say on a full year basis we probably have a little bit of upside than we thought what's going to happen. I think with respect to last year, you are looking at double digit increases coming into the year. So it is in line with what we expected. And I would say again on a full year basis, this just expands on that. One of the things that we've talked about that affects the revenue for Studer Group is the purchase accounting and the deferred revenue impact. In the quarter, it only had about $400,000 impact. And we had talked about a $2 to $3 million range for the year. At this point, based on where we are we think they will likely have some upside to that range. We will probably be below the $2 million hit to the year. And so we talked about a $70 million to $75 million range on a full year basis. We are likely to be at the high end of that range and potentially higher than that for Studer for 2015.
Well, I mean, I would say that if you look at the big routing guides right now, the freights getting easily covered by the top carrier broker and it's not going very deep into the routing guide. So that essentially means there's no spot rate. On the other hand, I think the business between a loose market and a tight market is a lot narrower than it used to be. So I can't predict, when we go from loose to tight, but I think that bad weather, disruption in the national network of transportation capacity isn't always that far away, and we saw that happen in the first half of 2014.
Yeah, yeah. Exactly.
Good.
The biggest thing to drive gross margins is managing the inventory so you don’t have needless liquidations because you have too much. So I think that that we definitely have our arms around and would be expecting very good inventory control and the ability to chase when we find that we need more.
Obviously, best to look at it by refinery. Toledo, obviously, runs zero heavy. So that's 100% light. If you look at Paulsboro medium sour to heavy, that's basically the predominance in this slate. So if you're 150,000 barrels a day of crude runs, we're running 100,000 barrels a day of Saudi crude, either medium and in some cases we run light. And then we're running Vasconia and other heavy crudes on the others still. Delaware City, we'll be typically running about an 80%/20% mix of heavy to light, 80% heavy. Waterborne is the most economic right now, ex the fact that we've taken the coker turnaround. Obviously that doesn't apply while the coker is down. Chalmette is about the same. We're looking for options to run Bakken. They are not as economic as, frankly, the Venezuelan crude, some of the South American crude that we're running. So you're going to – and then when Torrance comes in, of course, it runs a 15 degree, 16 degree API slate. So, on balance, we're probably in the 70%, 75% medium to heavy range for the total crude slate assuming the economics are there. Now one of the things that we like about our system is if they shift, we have the optionality, particularly on the East Coast and in Chalmette, to swing that around. Gasoline yield, 50%, 51%. I go back to the fourth quarter. Everybody, including PBF, turned the dials to make more gasoline, maximized conversion on the hydrocrackers, maximize conversion on cat naphthas and things of that nature. So it could go up a little higher. It did go up a little higher. However, I suspect that it will re-equilibrate somewhere around a slight bias of 51%, 52% system-wide gasoline, 35% distillate and the rest others stuff.
I don't know if we would agree with that, having said that, as you've seen over the past 8 years, that is often the way these things work. And the key for us is to -- if we're continuing to excel and to provide clients things they're looking for. And obviously, at the top of that list is performance. But it's very confident that as it has at every point in our 21-year history, it will ultimately result in continued growth in assets under management.
Yes, with regards to the Kansas City offerings, broadband offerings, we still, Frank, only overlap Google in about 2,500 of our homes, and we respect - we expect and respect that that may change over time, as they’ve announced they’re working on launching in other markets. But when you look at our footprint there, the investments we’ve made allow us to offer a competitive-gig product to over 50% of our base there. We differentiated ourselves by providing a consultative approach to marketing our product, so we help our customers use bandwidth versus some of the lower touch models that they can get other places, and we’re seeing a growth in the gig product, although I would also tell you we offer other options that allow customers to spend less per month if they want on Internet. And the one final thing I’d add there is that while the consumer market gets a lot of attention in KC, Kansas City, because of Google, we have a very strong track record of growth there with our commercial metro Ethernet service. It’s a very good performing market on that customer focus.
Well, I’ll just say Christina, we gave expense guidance at the beginning of the year between total operating expense of between $220 million and $235 million, and we’ve not updated guidance, so we contemplated starting to build our sales group when we gave guidance at the beginning of the year.
Hi, Jack.
So part of that was federal home loan bank borrowing that we took advantage of which was an attractive, a very attractive borrowing rate, so that was a meaningful portion of the increase in short-term borrowings if you will that you described there. And in terms of the timing of the purchase, again, Mike we have an asset liability committee that has a view on where we should take investment decisions and we thought maybe right after the rate hike it maybe opportunistic and I don’t know if that's right in the long-term, but it was -- it's an attractive trade through today.
Thank you Brad.
Yes, I mean this, we’ll have obviously a larger consumer business; generally the second half of the year is much stronger than the first half of the year or at least from a fiscal year basis for us, given that that’s generally when new product launches happen, Christmas builds happen and so forth. So that will definitely change the seasonality a bit for the overall company. My guess is that typical seasonality for ADI is going to be relatively similar sequential increases every quarter for different reasons. Obviously the second quarter will be, would be more of an industrial story, the third and fourth quarter are likely to be more of a consumer story. And what was your other question Chris, missed it.
Well, our objective our goal is to increase. But we think that in this quarter was a very high average room rate because in our expectation was around Ps. 1,200. But if the hotel continue to be successful in terms of occupancy rate and if the average room rate in the quarter throughout the other hotels in the quarter, we could have a similar average room rate that in the third quarter.
Your numbers are close.
The last part of your question, say it again.
Yeah. The first part of the question, I think the large number of competitive alternatives that are available for customers to check out versus a few years ago probably had some role in expansion ratios. It's very hard to measure that from our perch. One thing that gives us comfort that it's probably not overwhelmed by that are the closed one, closed loss ratios that Tom mentioned before. We're actually performing very well there again for opportunities we're engaged with. So, I guess we'll – I'll leave you with the hypothesis that the number of things customers are checking out has increased probably play some role, but it doesn't feel to us that it's the overwhelming factor. With regards to verticalization to better penetrate a customer, yeah, we're increasingly interested in that. We don't have immediate plans. And as a matter of strategy, largely we've been leaving that to our partner network. You can probably see what's happened to our partner network in terms of revenue contribution and customer contribution over the last, say, four years or five years. A lot of that is in the area of verticalization. Actually, just a few weeks ago, I was at the Tableau Partner Summit and met with a customer who builds amazing Tableau visualizations and dashboards and KPIs for people in the commercial construction industry really specific stuff that we'll never be experts in as ourselves. And at the moment, we're more fond of the partner ecosystem angle on that. But we'll certainly evaluate it every year.
We have the security underlying it, yes. I mean in those cases where the redeterminations came down as I said indicated we will give people a short period of time in order to bring outstandings down.
Yeah, I think that, you know, clearly the numbers speak for themselves, but if you just look at the increase in our pipeline numbers, which is really what Chris targeted in his prepared remarks, I'm very confident that we're going to start to see that business begin to grow as we report out the balance of this year in the next - really not necessarily in Q2 but certainly three and four.
Thanks Chris.
Thank you very much. I – in closing today, I would like to just sort of thank you again for joining us. And to just remind you that we remain dedicated to our objectives of conserving cash of executing our 2016 exploration plan, reducing costs, working on our third-party agreements, expanding resources, optimizing our underground development plans, and overcoming any remaining hurdles that may stand in the way of restart of operations at Keno Hill. Meantime, I still think there were clearly a call on the price of silver. We have a very rich silver property, great exploration potential, and an income-producing environmental subsidiary. And as always, we appreciate your support and interest in Alexco. And with that, I’ll turn it back to Mike to close out the call.
Yeah. We continue to – we reassess that I'd say periodically. So that'll also factor in with drop schedules and the capital budget and things like that as we look later in the year. So the next time we take a real serious look at that, and this is really kind of starting now, is that they'll run up to the capital budget, the annual plan and capital budget for the coming year. So that'll cause a pretty deep dive on some of those things.
Hi, Steve its Nic. Those will be study updates on refractory with glioblastoma and the San Antonio meeting for the 2101 for the breast cancer study. Again we want to stay within the rules and regulations of the meetings and prior abstract releases. But they will be study updates.
Yes, so there are probably three variables that are helping us. The first one, Diane, is the fact that we’re able to target more efficiently. For those people who are sort of new to the story, the way we’re building the platform for the future which allows us to launch new products at very low costs, so we are expecting high growth rates at very high gross margins, which has been the case with the services we’ve launched so far, is the fact that we know your school, we know your text book, we know your class, we [offer test] [ph] and then guess your major, we know when your mid-terms are, your finals are, and if you have any text book we actually know if you are struggling with that page. That allows us to bring the right service to the right student at the right time. And so that is of course a very big factor and the fact that we’ve been able to keep our marketing cost lower, even as we’ve added more services. So that is because we get over 80% of our traffic organically and then we get to use the internal funnel, as you’ve just referenced. So that’s been a huge boost to that.  The second thing which I referenced on the prepared remarks is the fact that we’ve expanded the amount of contents that we’ve had. So we have over a – I think we’ve doubled the amount of content in the last 2 years that’s available through Chegg Study and we’re nowhere near finished. By adding more content we not only get vertically deeper in a particular subject but we get horizontally wider, which means we’re available for more subject. So the ability to offer solutions to a broader array of students and target them better is really sort of a big deal and a big growth opportunity domestically for that product, and then ultimately internationally.
They're all subject to negotiations. It's up to Disney, how they want to manage access to those assets before, during or after the release of Star Wars 7. So it's certainly an ongoing discussion.
Yes. And then remember, that number has in it stocking orders and timing of other things. So longer-term, as you have a bigger and bigger install base, the relative value of stocking orders is going to go down and that has nothing to do with sort of the pure economics of the exchange. The other question was around recurring revenue and remember it's not just instruments, it is also service.
Just one other comment, I’ll make to that, we’ve had several open positions over the last couple of quarters for a variety of reasons that we’ll probably talk about in the future. We’ve just been delaying in filling a lot of these positions. So we have had the benefit of that too in the long-lived not filling those positions. We have reduced travel and support expenses too. So, there are 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.
Quinn, we’ve -- when we’re out on the road giving a presentation and we talked about the LineSpeed family, we talked about form factor a lot and I think we’re able, I think the dice size is such John, John can get it into any one of the form factors that are currently popular for our customers if you will. So, the answer is yes, the Retimer has some unique features sitting on the isle that perhaps other suppliers of that element didn’t think about. And additionally, it’s very, very low power. And it fits into all the form factors and it’s generating probably the most excitement in those form factors where there are no other players at the current time or very, very few.
Well, thank you, David. Look, the DVR numbers are going up in leaps and bounds. You take a show like Elementary which -- where you're adding a C7 number, it basically goes up by 50%. So I made this statement which I think is more true than ever: Overnight ratings are virtually useless unless you just want to feel good in the morning or feel bad, depending on what network you have. So C7, definitely, we expect it to overwhelm C3 in the coming upfront, we hope so, we think it's more appropriate. And judging from the feedback we're getting from a lot more advertising agencies, we think that will be the currency. Obviously, some of the live programming like sports and live events, that currency becomes much more important. So we are capable of selling it both ways, but our scripted programming, most specifically our scripted dramas and more than anything else -- and the comedies as well, that extra 7 days means a great deal.
Well, yeah, it does. It helps me -- we're not going to comeback with TV's out of big boxes that weigh 1,000 pounds, those days are over. So, we really had to make a change that will be a forever change.
Well I don't. I think we get -- we certainly get lots of phone calls and talk to lots of people both buying and selling and we've said publicly before that we have a five year plan to grow the business which we think result in EBITDA number that even without multiple expansion produces the stock price which would be a great way to return for our shareholders. However, at some point, we will attract interest from a larger entity, whether it's private equity or whether it's a big competitor. So, but we're certainly aware of what's going on in the market and it's an interesting aspect of the business today. I don’t know if you [indiscernible].
It's a little bit earlier to talk about 2016, quite frankly, but we think that the conditions will be relatively consistent. Again, commodities may level off, next year it's a little bit early to speculate. But again there is literally thousands of different inputs all driven by mainly the car lines that are on, and the mix that we are on, but we don't a major headwind with commodities going into 2016, if that's the question.
Well, Andrew. I mean, we haven't yet produced guidance for 2016. And so I will hesitate to talk about 2016, but I will say, Andrew, as we've discussed earlier, the first two quarters were showing as we were coming down on that ore body going through what was largely stripping. In the third quarter, we hit solid ore on the Cortez hills open pit, and that ore will continue for the next several years.
And Sergey, on just comfort level with respect to acquisitions, I think it really depends on the opportunity right? For the right opportunity, you may have the ability to lever up a little more. It’s all very dependent on the opportunities you see, and what the combined company looks like.
Chris, this is John. I think as we sit today, we’re pretty comfortable with where we’re at. The businesses that we have are all good businesses like you said some little better than others. We’re working on all the activities around making all of these businesses better. We don't have anything on the horizon. At this point as I said earlier to a previous question, we continue to take a balanced approach to capital allocation, we want to make sure that we continue to pay down our debt, get our balance sheet into position if something would make sense and our Board approves that, then we would obviously take a look at it. I think at this point in time, it’s - we’re in pretty decent shape, we've got some headwinds, we have some challenges, we're very pleased with Scepter and Scepter's performance, if obviously we found another Scepter, I think that would be something that the board would and management would have to consider. But right now Chris, I think we keep our powder dry and we move forward and improve all of our businesses, so we can obviously create a better return for our shareholders.
Because someone buys a hardened device they're still using it's the DDI functionality, but we count that as security. And the reason why we do that is we find it hard to separate, what value should we attribute to security versus DDI. So like we said last time, I wouldn't read too much into the fact that if security grows really highly, then that's a concern about our core DDI market, I don't think of it that way. It's a good thing because we especially on the smaller families as part of our products we have a pretty significant model on the PT appliances versus the non-PT appliances. Does that make sense?
Yes, so outlined on our expense slide, the levels of expenses that may not be repeated would be the hedging ineffectiveness, the warrant related income and the deferred comp. In addition to that as we outlined just for the quarter-over-quarter outlook that we do expect increases in several other categories. Staff insurance is something that typically rises in the third quarter -- in the fourth quarter, occupancy expenses, marketing expenses, consulting expenses. We are continuing to invest in technology, so technology related expenses et cetera.
The Cherry Creek hotel which really since we have bought it the Hyatt Place in Cherry Creek is really benefiting from just a very good location in a market that has seen tremendous demand growth really from the transient customer. From a corporate perspective the hotel does sit adjacent to a pretty large office tower but it's really not the primary driver of business in that market. And we’ve continued to see just nice outperformance out of that hotel. The Hilton Garden Inn at the Tech Center as well as upper single digit RevPAR growth in the quarter and that one is more obviously corporate driven but again just that entire Denver area and we see it in our Innkeepers assets as well that are in Denver it is just a very strong market.
Thank you, Jonathan.
We have not -- we feel, after a tough and disappointing Q1. We feel good about the momentum in the China business. It did pick up. Each month was better than the month before in Q2. And I won’t comment on current period results other than just to say that we’ve not seen any meaningful dislocation from the stock market turbulence. It’s a dynamic market and who knows what is going to happen in the future but at least today those big extramalities don’t seem to be hitting our business
Hey Kerry, I'd add to that, this is Frank here. I think what we're seeing in mobile is the effects of our network effects. For a number of quarters now we have said that, we invest for the long haul. We are a marketplace business and given that we are a marketplace business, we do benefit from those network effects. And once you get to that critical mass, on these sales – supply side or the demand side, that's when those network effects really catch fire. And I think that's, that's what's been happening in our mobile business. And as Todd said, that's a key contributor to that growth.
You bet.
That was predominately Ann Arbor. All right, they've had some early wins that is very encouraging whereby they have had a value added reseller that has purchased multiple units and has really made good year for them and right now they're building off of that model. Previously they were going directly after manufacturing and now they've kind of pulled back and decided that a more effective strategy goal after value added resellers something into manufacturers, into new lines for manufacturing that as opposed to getting current manufacturing processes change. So again that model seems to work very well. They had a big win here in 2015 and they're actively involved with a number of other applications as well as other companies to duplicate that model.
Well thanks Andy, and the answer here it was a little worse than I had anticipated and primarily on the accounts payable side I think we knew that contract capital was going to be a drag as related to the contract primarily on the nuclear jobs we knew that was pretty much embedded in the first three or four months a year. So we got through that kind of as expected. And we also knew that some of the new awards that we won over last 12 months were still kind of in that engineering and repeating phases. And as that ramps up, and a lot of half the year, you'll see us then progress to generating more cash flow. So yes, I think there's still a lot of confidence that we'll be for the year being that $500 million to $600 million range of operating cash flows and I think we get there, really two or three different ways, one just doing a better job of managing accounts payable and monitoring that. Two, as revenue progresses during the year in some of these new projects ramp up into the procurement and construction phase, traditionally that's where you see us getting positive cash flows from there. So I mean, I think those two Andy I think we'll be able to do that and then the third aspect is just the guys are doing a great job as Phil mentioned on the nuclear jobs. And so, we're working closely with the customers. We're getting close to some billing milestones. We're also working with them as far as being able to hit those milestones and also potentially pull some forward. So with that, I think you'll see the nuclear jobs being less of a drag in the last three quarters of the year than you saw in the first quarter and then improvements on those other two areas.
Well John I think the state has always been a supporter of responsible of resource development and they continue to be a strong advocate for the project. I wouldn’t say that the support has changed, but with the significant budget pressure they are feeling with the collapse in oil prices they are certainly doing everything they can to encourage our activities and future investment.
I think the rating agencies will take a view on the sector as a whole and if they take a draconian view of the sector I think every company in the sector will be re-rated and we are just investment grade today. So, I would not hold my breath and say we are going to retain that for the longest time. If they changed the ratings in all the companies within the sector certainly we will be affected by it. But the impact of that will not be material at all on Weatherford as I explained earlier. So, it definitely it doesn’t affect us dramatically.
Thank you very much. Keep your fingers crossed.
Okay. Coastal is usually different than the Field. It gets priced more off a LLS. So you have to look at the differentials from where we're picking up that Coastal and the Field relative to the LLS, which is typically tracked closer to Brent. So it's just those various differentials. I won't say that's a condensate and it probably does not have a big impact on our operating margins. So it's not something that we focus a lot on, but it is due to those impacts.
Okay.
Yes, that’s kind of a mine by mine thing. Right now Lucky Friday is running the highest recoveries that we’ve ever had. We have to remember that recoveries are always highly labored to grades. So and in particular in Greens Creek and Lucky Friday their levered to silver and lead grades because most of the silver comes out and the lead concentrate. So, you’re going to see fluctuations but Lucky Friday, we’re running as high as we ever have. Greens Creek, we’re running very high as - higher than we ever have. Casa Berardi is a bit lower than you’ve seen historically due to some arsenal high rate and capsulation in the 118 zone. We’re managing that now through blending and proactive reagent addition. And going forward we’re applying extra raft technologies to better identify which ore actually has the in-capsulation.
Yes, thanks Rich. So the first question -- I am sorry what was first question again I just totally…
No that would be consistent with the way we're already doing business. And as we announced last quarter we have obtained our license in China.
All right. Wonderful. Thank you.
Thank you.
Not any more granular than that.
Yeah, we're exactly what you said, we're right on target, even though year-over-year it looks like we're spending more money. And it is, a lot of that is driven by a couple of things. We've had more outages at our larger operating companies this year, last year as a comparison...
Well, agree with you that we do think that overtime we have the ability to grow tangible book, obviously as I mentioned before one of the items that you are always focused on with tangible book is the impact of rates on your AFS portfolio and you’ve seen that there were times when that can have a - that can play a heavy hand in dampening down the growth, but we do believe that if we can continue to perform we should the way we have been, we have the opportunity to continue to grow tangible book. It’s one of the reasons why we think that continuing with stock repurchases is the right thing to do from a capital return point of view.
We're all looking at each other. Probably the general answer to your question is, yes. Although, again, where we guided the utilization number for drilling, if a rig goes down or if we pick up extra rig, it will impact the margin at this level. Simply at the lower revenue levels, everything can impact it at a greater extent. So we've got a range for both, and it depends upon what the variability actually ends up being as far as what drives it of course. And the answer to your question is, yes.
Organic expense growth, I am not sure. We do not really track expenses on an organic basis. If you give me a minute, I can you give an idea what the constant dollar numbers were or major line items. I think, on a constant dollar basis, salary and service was just over $3 billion and office in general was just over $480 million.
Hey, good morning, Al.
Yeah. That's the best information that we have. The guidance that we were given is that it would take about 90 days to get an approval for a request of our size, and 90 days would bring us to just the end of May or perhaps the first week of June.
So Rob, hello there. We, as I mentioned to you that the $10 million includes the four projects that we’ve already announced and as well as a few others that we haven’t yet announced. So if the comment as we made is that we're pulling things forward aggressively already. So the plan we have right now at the pace we're moving is a pretty aggressive plan.
Well, first of all I actually read your study on the German Life Insurance industry. It was very well done and very interesting reading material, Michael. So, what can we do in the ultra low-yield environment. I think, we play here our scale and be a advantage. I think that is the product design I mentioned already to reduce duration length. I think that is a deferral periods we have on the single-premium products.  Then I think our cost advantage is probably around 80 basis points compared to the average markets. And our asset strategy is probably also more exploited and more sophisticated. Part of the Garrison I mentioned right in the beginning of my presentation of course is being held by the investment portfolio and should go up in our life balance sheet and that is also a type of investment which is lengthening our assets duration and gives still reasonable returns.  I think that is really a combination of all of it. And I think the scale advantage and the active asset management and it’s probably is a main positive. That does not mean that we are sitting idle on our old successes. We are constantly working on further gains and improvements.
We haven’t done that we did introduce newer forms of polices a couple years ago but that isn't the case right now.
Yeah. So, $180 million to $220 million, so averaging out about $200 million and we still feel like that's the right number given growth, investment opportunities that we're very confident we'll have those investments that will continue to drive Change the Game.
Thank you.
Then Rick, our run rates are holding fairly steady with the weekly order rates are holding fairly steady at this point in time.
It's clearly, clearly undisciplined, my no commentary on countries. So if I said it was a rocket ship that has continued. Brazil what we're seeing is this with a tough economy, a value-based product like Netflix, that's very inexpensive is really appreciated. And so even though there's tight economic times currently, that has not held back our growth. And we were definitely pleased with the content and with the offering that we had. And maybe Ted you can talk a little bit about the Japanese content offering.
Sure. Jonathan, it's Dave. I will take this one. So for the fourth quarter, billings was impacted about 3% in terms of the billings growth rate as a function of currency, which is more than we saw in Q3 on the billings side. Revenue is a little bit different. It's a little more challenging to give an exact read, largely because what's recognized as revenue in the fourth quarter as a result of billings that have occurred over many, many years and many periods prior. So it's much more blended and muted. You get the general trends will impact the revenue for sure, but you are not seeing that as discreetly as you are on the billings side. We anticipate the first half of the year will have reasonably consistent kind of a headwinds when you look at where the currency is today relative to where it was at the beginning of last year. And then so we just make them conservative estimates around the impact of that particular for the first part of next year.
We've seen 28 nanometer is a long-lasting, long-life node. And given our variety in recipes we are very confident in our 28 nanometer market share. So we're saying it’s a big node where we will invest for it, but we will also follow the discipline customer driven pace in terms of our expanding our 28 nanometer capacity. We don't have a final target but its going to be a big node, a major node for us.
Sure. So again with respect to some of the comments that Mark had made earlier, quality -- ultimately quality from the FAA in the aerospace perspective is defined as the ability of the part to meet very stringent mechanical properties and survive in the end-use environment. And so our system is a key part of that and for all of our aerospace customers we do anticipate and we are a 100% focused on helping them make that case to the FAA. So hopefully that clarifies that issue.
Thanks, and thanks to all for participating this morning. Before we close, we remind you to refer to our release in Web site for Safe Harbor and Regulation G compliance statement. We will file our quarterly report on Form 10-Q with the SEC within the next week. The Form 10-Q provides more details and disclosures about our financial statement. Please note that events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statement in accordance with generally accepted accounting principle. Our call was recorded and can be accessed on our Web site or by dialing 855-859-2056; conference ID 87440452. The telephone replay will be available until May 5th. This concludes our call. Thank you
That's right.
Yes.
We have not ever really said that this capital was going to improve near-term margins. This is really, I think I have characterize it is a generational investment in our business. And it's really about the long-term support of programs over the next couple of decades. So the time phasing that you are seeing now is really driven by our analysis of the project, where it stands and then how you bring that project into --how do you start that project up in a way that's not terribly disruptive to the work that you have already got going on. And so it's a pretty massive planning job to think your way through. I am building the most complex warships in the world and now I am going to redo the facilities or create new facilities while I continue to build the most complex warships in the world. And so you know we are very thoughtful about that before we cut the money loose to go and invest in a project because once we cut it loose it's too late to go back at that point. So we are doing a lot of analysis. We are doing a lot of study, a lot of planning, a lot of interaction with all our program folks and with our customers to make sure that we keep everything that we have got on track but that we can effectively and efficiently cut in the programs or cut in the projects in a way that they will support programs as best they can. So there is a lot going on here, but I think it's evidence of the thoughtfulness that's going into these investments.
Aric Nesbitt has the elimination of retail open access program. We support that the most. But all the proposals are addressing. And probably the one area that I think we’re focus on as you are as well as the retail open access but all the proposals address the unfairness of the current program.
Our plant actually runs at max capacity, so we're constrained historically by feedstock. With the de-bottlenecking we just did, our job now is basically a combination of sign the supply agreements with the OMCs, expand our existing supply agreements, and continue to deliver to our existing customers and add customers. So, it's a very broad-based marketing opportunity. We do expect the 2016 full capacity, we do expect demand to exceed our supply at 50 million gallons, and a need to increase to 100 million gallons. And I think that we should all watch for the press releases, because there are some very exciting developments with not only single bulk customers, but also the OMCs, that are now reflecting the fact that India, the 5% blend needs over a billion gallons, 1.25 billion gallons of biodiesel, and only produces about 20% of that. So, there's a billion gallon expansion in production required in India, and as we see that ramp up happen I think that our company, certainly through the IPO, will be one of the primary beneficiaries.
Thanks again for joining us today. Our second quarter was solid financially and operationally and we’re pleased to provide the updated survival data from the demcizumab based on the clinical trial and patients with non-small cell lung cancer. We will always make ourselves available for your questions and comments and appreciate your continued support. We look forward to updating you on progress across our research and development efforts with you. Have a great afternoon. Thank you very much.
Yeah, and to launch campaigns that may have been planned, so some of the things that may have been considered in the works, some of our partners may have decided to pause to get that better certainty in the market before they launched marketing campaigns on their behalf.
No. Go ahead. You finish.
Tracy, do you want to take it.
Yes, I think that, Jeff, this is Ben. I think that the innovative structure that we use this year was the special circumstance and that was probably the exception rather than the rule. And in our preliminary conversations we are just talking about the tried-and-true structure that’s worked very well for us for the past seven years.
Yeah I think as far as just ASPs for the full year we mentioned on previous calls we still expect probably mid-400s, 450s probably up a little bit, based on the first half of the year and some of the increased pricing probably approaching the 460,000 range for the full year. But as we’ve talked about in the past I mean there has definitely been a shift with more volume that we do to some of the active adults, it’s definitely a little lower price. I think the new order ASP is 429,000. But as you look out even beyond this year I think we've always stated given our product mix, given what we focused on, we're probably a mid-400 ASP builder going forward. It's really going to depend on the mix at the time. So it could fluctuate a little bit. But it could be a little less than 450 or a little bit higher in a given quarter but…
About Mozambique, our plans are going ahead very well. So there are no changes in terms of plans for FID. Actually, in terms of costs you know that we're running, at the moment, all the major EPC contract tenders. In both cases, I mean onshore and offshore, we have a very good level of competition with three major consortia running in both cases. So in this area costs through the competition we're quite confident that we will be able to reach the level of costs that allow us to sanction the project. In terms of size of the project, clearly we're talking firstly about Coral. After the summer the plan is to sanction the project. And the good news just received is the approval of the environmental impact assessment. So that means that also the Mozambique authorities are really proactive towards sanctioning of this project. And for Mamba, we already declared we're targeting 2016 for the FID of the onshore development.
I will comment on, well I’ll make – I get this question as lot is do you expect private payors to follow CMS. Private payors are leading in home infusion. CMS is the behind and private payors reimburse for antibiotic cared home and peripheral nerve block at home, because they know the home is a least expensive place care. Our federal government is still behind in reimbursing for home infusion. And there’s a lot of senior citizens out there that deserve to receive care in their home the most effective place of care. And so I think the federal government is behind the times and their price cuts are kind of behind the times of what private contractors have done previously.
Sure, Blake I would tell you that comments what I made earlier were really reflective of both our operating costs and our capital costs. The point I would emphasize for you is that really regardless of whether we're in the high price cycle or in a lower price cycle that we're in right now. The organization has remained focused on the fundamentals. And you've heard us say before that we're price takers. And we really focus on those things that we control. And those things that we control are things such as cost, our reliability our productivity and it's how we structure the organization in the most efficient way. I'd tell you that we are very well positioned we never lose sight of those fundamentals, but we're also very well poised that when we get into a down cycle like this that we can capture additional savings and as I alluded to previously that given our financial capability, we're also able to invest during the cycle and capture a lower cost structure on resources that we had plan to commercialize in the future. So, I think very well positioned, we've got a very capable organization that keeps their eye on the fundamentals through the cycle and I think we're as I've said in the past we got to lead that cost curve.
No, we haven't really seen that with new customers. I mean, new customers tend to be cautious. They tend to commit to what they've done in their prior platform and we do generally see much better results on Demandware in their first year but they're not willing to commit to that, which is fine. I mean, they tend to exceed that by the sort of the same margins new customers exceeded that a couple years ago.
In 2015, I gave a lot of credit to our operations working with our supply chain teams and then working with our suppliers to get our costs down which in terms – especially in terms of products, like sand and chemicals, gets the costs down for our customers. But in 2016, I'm not sure how much more we can get out of the supply chain, whether it's from the mines, whether it's from the chemical suppliers. We worked hard in 2015 to take cost out of the system. It's getting more challenging in 2016 to take cost out of the system.
So two parts of the question. First, yes, we have seen Aruba or HP partners actually come and now have become Ruckus partners. I do think that we have taken business away from HP in the hospitality space because of the confusion in the transition. And I also think that, like I said in past quarters, Aruba is going to get distresses from the Wi-Fi space. I think that HP will get Aruba not only into campus switching but also data-center switching, and I think that in that kind of a drive I think that a lot of previous install base for Aruba can be vulnerable over the next period of a year or two. So I think that there is definitely opportunity for us.
Well, we’re focused on all our rigs everyday Waqar. So, it’s never too early to talk about opportunities for any rig in our fleet. I’m actually going to be traveling to Australia later this month. And obviously the discussion on the future of the Atwood Falcon and the Atwood Eagle will be fair game. Fortunately we do see some opportunities for both rigs and we’re going to be pursuing those in the coming weeks. Obviously we’ll look to close some deals as soon as we can. But fortunately those two rigs are in a good position. We see additional work, the rigs are operating safely and reliably as they always have. And we’re hopeful about getting some fixtures to extend those rigs in the coming days.
Right.
There is one for Norway, basically. It's a translation, I would say, effect because Norwegian krona is lower than the U.S. dollar. And DD&A was also lower, thanks to the increase of production and some past impairments.
Thank you.
But with the funding Doug that you are referring to is for existing projects.
Well, let me address your second question first. The propane line is – we're commencing line-fill in May. It will be in service in May.
A combination of selinexor with pomalidomide or with VELCADE will be running parallel to the STORM study. So we will push this – the STORM – selinexor with that in the STORM study and then separately the combination cohort in parallel.
Well, it’s definitely pushing to the right. I mean, you’ve seen the budget cut significantly for 2015 really across this space. And I think it is fair to say that things are pushing into later ‘15 and early ‘16 beyond where they would have been let’s say six months ago. But keep in mind, the Atwood Admiral is not scheduled to come out of the yard until really the end of the calendar third quarter which would be our fourth quarter. And by the time you move that rig around to the Golden Triangle, you’re into early ‘16 anyway. So our first availability for the Atwood Admiral to turn to the right for a client is really going to happen right around the end of ‘15, early calendar ‘16. So that’s why that timing actually doesn’t line up badly with where Admiral is today.
And I’ll also add, in our trade zone, corn remained early, relatively early, or pretty close to normal. So, our expectations will come off significantly earlier than it did last year which would give us much more time to have a good fall application.
I was just going to say, so as we look forward to the end of the year and are jumping off point at 2016, obviously that shadow AUM is going to be a function of deployment and capital raising but the meaningful pipeline is not currently making its way into the financials or the AUM numbers.
When I say yes -- when I say what I say that it maybe when you look at it, it may not be 600 per quarter, it maybe 450 in Q2 and 5,700 in Q3 I mean and then a little larger in around that number in Q4 really. But we believe we’re hopeful that our -- it will offset with other deliveries into other deliveries. So it will be a little difficult. And I’ll tell you that into Q2 what it was exactly. But we do know the sales are going to be -- maybe who knows right now 100 units rest of the year, no one is really purchasing on that side of the house we’re just -- we're focused as much on the other market segments right now selling into them so we can help offset that.
Yes, we had a good quarter in loans and we’ve had actually this year, I think -- it’s hard to -- well it's not that hard to predict. Unless something changes we should have our best loan year in 2015 since prerecession. So clearly couple $100 million greater than last year in commitment and so forth is what our run rate is right now. So we feel good about that. The problem is our prepayment pressure has increased in fact if you looking at our loan prepayment penalties so far this year we’re $4.3 billion -- $4.3 million, excuse me. And last year this time earlier $2.1 million, so it's more than double and this 10 year treasury that sits out at 2.05% or whatever it is continues to put pressure on mostly commercial real estate loans and that’s why you see the quarter over quarter, we didn’t grow commercial real estate loans even though we had pretty good loan production in that area. We grew dairy, we grew single family residential and we grew constructions loans, but actually our CRE portfolio went down slightly and that was because of the prepayments.
Yes, it’s a great question, Craig. A number of parts, starting with the gross margin is due in part to our mix. We set a record again in Q2 as we had leverage inside our production probe card factory and supported with our engineering probe. And so it’s really a mix between that and systems. But if systems continue to improve, we’ll get the benefit of the ATT thermal subsystems integration and we expect that to help lead us up near that 50% mark over the next few quarters. And we should be in that range for our systems gross margin as we get closer to our success model or adjusted EBITDA, which is set up to be in the 22% range. And then I think another part of your question, what’s happening in the middle of our income statement in kind of OpEx, our R&D and SG&A, and we are investing in our R&D as our customers are pulling on us. And to help meet their product roadmaps with our technology is exactly the right thing for Cascade to do. So we’ll continue to invest. And that percentage will probably cover some more similar to what we did in Q2. And our SG&A is really from a modeling perspective, it feels like typically it grows at about half the rate of the revenue growth, but from time-to-time we have some activities like we did in Q2. We had a number of marketing events and sales events that we attended a number of conferences. And so we had some kind of one-time expenses that crawled in there. And Q3, Michael talked about our COMPASS event, it’s in Boston and so we’ll have that activity, which is – it provides great value but also adds some lumpiness to our SG&A.
Thank you, John.
Great.
I think it's most likely a spectrum over multiple years again, it ties to win capital projects are being completed for our customers. And there's an awful a lot of spending still going on in the Gulf Coast with projects coming on stream between 2016 and 2019. And so, we're going to stage our production and deliveries to meet the needs of our customers which ranges over a period of time.
Correct.
We had some lumpiness in the batches that went out during the quarter, so it’s the cost of manufacturing. There is a small amount of manufacturing overhead that rolls in there and there is some product samples that roll in there as well.
Yes. I will let Kelly answer the reclamation question, but just a clarification based on what you wrote in your report that you said that you believe that we are going to idle APIO. We are not going to idle APIO, okay, Brian? We are going to continue to pursue the cost adding cash cost to CapEx. We are going to pursue BHP and Rio. If they continue to go down or continue to go down, the difference is that I have no commitment to stay in Australia, and they have the full commitment to stay in Australia, so everything that they do as consequence. Everything that we will I only do replicate what they are doing, so I would be there worse nightmare, because I know that their game plan is not to shut down Cliffs Koolyanobbing. They could care less about Cliffs' Koolyanobbing, the game plan is to shut down [ph], which they will not be able to accomplish based on what I have seen so far. What I am saying is that I will be like that parasite that will continue to be there sucking their blood through the very end. We are not going to shutdown APIO. We continue to drive costs down, because we know how to do it, we know how to push the button. Three quarters I am here. That is exactly what I have been doing. I will drive cost everyone will give us yes this guy knows how to drive cost down. Until everyone say that I will be relentless, so APIO is not going to shutdown. You can continue to say that, but you should know that you are wrong on that. Kelly, please.
Basis guidance on the realizations on gas prices?
You bet. We’re working out some opportunities that would add additional units there. However that we’re taking that into consideration coupled with additional geographic expansion markets that we're targeting right now. We're going to sit down and by the way what the probability of each market is going to be and we’re going to playing a tough situation as I keep telling Rick by about the middle of heating season where we have the potential to run really great utilization in the hot oil division throughout the whole season so that's kind of the best I can do it. I mean there is a lot of variables in there.
Well the other thing to keep in mind, Justin, on year-over-year is we've been fighting an FX headwind with the euro at an average of about 131 last year at this point in time versus about 112 or 113 this year. So we really came into the year and a bit of a whole. And when you strip away that FX component they are actually add a little bit above where we had anticipated they would be.
Dave, this is Mark. We believe the rate of organic growth in our core business has been doing -- continuing to improve quarter-to-quarter. We’ve seen a number of quarters now in terms of organic rates of growth picking up and we talked to that on the call, to organic growth in business on the merchant side excluding the impacts of the acquisition of Mercury being 10% which is very strong for the quarter.  And we are also seeing our integrated payments business overall including Mercury continue to actually improve in terms of rates of growth to some modest acceleration across that entire line of business inclusive of all pieces of that business. So, we continue to see very positive trends and I guess almost a bit better than we’d expected coming out of first quarter.
Yes, let me answer this way first. Consumer modules always comes in faster. Their product cycles about a year or two or so. And industrial, automotive always comes later. And this year we see lot more activity than in a same period of a last year in industrial and automotive market segment.
Please go ahead, Tian.
Yes, you got that exactly right. I mean, I think if you want to think about the cadence throughout the year, and obviously with international growing versus domestic declining, we’d see second quarter sales flat to up from Q1 from a sequential point of view and then sequentially growth in the back half of the year. And it’s exactly as you said, Rob. It’s driven by the new awards from the end of 2014 plus what we’re seeing here in the first three-plus months of this year and their natural ramp as they start up.
Hi, David. It’s Alan. Those are a bunch questions. If I miss any of them, tell me and I’ll go through it.
Thanks.
No, nothing. It all remains the same.
No.
Yes, I said $25 million to $40 million. And that's based on FW being EBITDA positive, we believe all the businesses will be EBITDA positive. That's part of why we've taken the steps that we have.
Hey Matt, this is David. I think that's a fair conclusion. We had a good Mother's Day, that first of all was positive, and that was happening as we were getting into the earnings call. But then we saw a lot of building momentum late May and into June, and one of the things I mentioned in my part of the opening remarks was that, our wedding band business, which fell a bit below where we thought it would, it did accelerate towards the later part of June, as well as the engagement business. So we saw some strength coming out of the second quarter.
Well, the legal expenses, hard to predict on timing. We still have ongoing litigation. We do expect overall SG&A to be down in 2016 as compared to ‘15 given that as well as lower incentive comp giving ‘15 with such a strong year on earnings.
We haven’t seen much of it yet. But remember that usually a lot of times it's not during the downturn where you see the greatest pressure on these companies, but actually during the upturn, but I have to stop replacing inventory when your completing inventory you generate cash, when you have to replace inventory you burn fluid cash, and sometimes that can be more challenging as it bottoms out, maybe the upturn when you really see company struggle to stay on business.
Well, the why now is, we are also looking to do this. We’ve gone through some major wins over the last five or six years. So that’s independent of the pricing situation. We are always looking to improve ourselves. So this became a plan and we think it's a very, very fine plan. Is this related to the pricing, not directly but officiating that we are in a competitive environment and much of the competition is coming from China which is based on price. And we need to be in the good position to complete there. And these moves puts us in the position to complete there.
Tejas, it’s Vince Miller, I can kick it off and if others want to add. I think the beauty for us is that we can do it the right way. And so we have this integrated suite of products, so we have the FoundationOne backbone. We can conduct this study and get the data for doctors and patients, both in a disease specific way and a stage specific way, because one of the trends is that earlier stage cancer generally has less circulating tumor DNA than later stage cancer. So, I think the data will determine things. And we start with this population for whom there is no genomic profiling, those are whom there is no available tissues. So, clearly this is a huge opportunity for those doctors and patients to get a best in class assay we believe. That being said though, additional indications beyond that will have to be borne at over time. And, whether it applies to 8% of patients, 28% of patients or 48% of patients where there is no circulating tumor DNA that will be sorted out by disease.
There is one small amount in Q4, not anywhere near the level. Sharon is double-checking but I believe the alternative fuels revenue was about $3.6 million in Q4.
So I'm going to answer the question slightly differently, Hunter. We have had historically what you might describe as more of a mechanistic structure to our hedging where it's sort of been on autopilot, but in periods of extreme volatility like what we've seen in the back half of last year as well as the first part of this year, that's not necessarily the most prudent way to hedge. And given all the bearish signals in the market for the first part of this year we've been reluctant to take out any position in 2015. However when we look out to 2016 and beyond and we look at both the revenue environment, capacity environment and our cost structure, having the ability to lock-in or said differently, reduce the volatility of one of our single largest cost inputs enables us to accomplish so many other things that are really important and create value in the business. And as we look at hedging, despite maybe taking a more opportunistic approach, it's really more of risk management and reducing the volatility with our costs and that enables us to play on things much like what we did today with the $3 billion share repurchase program. So those go hand in hand. If we see a more stable environment with less volatility going forward, we might be able to get back to a hedge program more like what you've seen in the past, but we are looking at particular price that are more attractive. If that's characterized as opportunistic, then so be it at this point.
Great. I didn’t know really nothing is different we did add some more cost cutting for this year later on top of what we did in 2014, with salaries benefits and travel, it was an excess of for those areas of over $5 million.
Thank you.
That would be correct, Grant. We are completing testing on a broader range of produce using the new methodology that we reviewed with the FDA and they were in agreement that, that would address their concerns. So, we are currently conducting that testing on a broader range of produce and we expect that to be completed in the coming weeks at which point we would be ready to resubmit. So yes, by this summer, mid-summer, we should be in a position to resubmit, and from that time, again it’s a 120-day calendar days from the day we submit to the time that we would get approval or an acceptance letter. In the case of produce, we do not have to go through USDA approval process. So, we will be able to commercialize for produce as soon as we get the FDA approval. So, that would be 120 days from the time we submit, which we would expect to be before the end of the calendar year.
I think what we call is it’s an interesting question and it’s very difficult to answer given it’s really depending on the consumer’s behavior from here on out. I think what we generally kind of thought of is that the number of people in our buildings hasn’t really been the issue it’s been their willingness to spend. And what we’re seeing is that trend starting to pick up and whether it kind of gains momentum or flat toes at some point it’s very difficult. But I think as an intermediate kind of target for ourselves or as a way to kind of think about it is we felt like in 2008, 2009 we were kind of 20% off of the peak in terms of ability to drive our business and so I think we feel like we can try to get to those levels overtime. But it will be very dependent on how the consumer chooses to spend and how they develop and all of that stuff, it's not going to happen overnight, it’s a much longer kind of timeframe that we would be able to get those kind of levels.
Good morning, Kevin.
Good morning.
Yes. So, from the promotion side, we're focused on profitable promotions. So, we're testing and rolling out and the all-store BOGO is a perfect example of that where what we will be promotional, but it'll be profitable promotions. And so, hence, part of the reason why stable margins, so we'll make sure that we're driving those returns. Our acquisition cost is a function of this and while some of our acquisition cost went down in the fourth quarter, the impact was not material to overall margins. And we're sure that we are pricing effectively based on the market to determine the retails on those products in those key categories. The pricing impact, as you said, is more of a longer-term impact and the resulting impact to margins. So, we'll be testing different pricing changes again earlier in 2016 and then communicate more as we learn. But the impact from a margin perspective would likely be later in the year.
Well, thank all of you for the interest in our Company and the continued interest you have. We’re all focused in making 2016 a better year and just thank you for calling in this morning. Good-bye.
So, you are absolutely right though. That’s key, if you really want to maintain efficacy you need to keep taking the product because it will, you know vaginal atrophy is a chronic condition and will get worse if you stop taking it. So, the key is both, having something that’s easy to use, but then also making sure they take it.
I think actually Gary; I think did [ph]. We have already reported. I don't we've broken out all of the details but we've reported milestones that were development related milestones. I think maybe four, five different milestones over the last couple years and quarters. And we have a milestone that includes the shipment of the first engineering system that we would score revenue upon acceptance of that system and that is its own discrete line item and we haven't scored any revenue against that line item.
Hey, Jim.
It's mostly volume adjusted. It's -- as lot of headwinds and tailwinds, but obviously with 10% revenue growth, it is a big impact. On the negative side DGG is pretty much impacted by the, I mean the currency also, but anyway it is mostly on the volume and then the some programs that market will in place and last year we spent a lot of time and resources and money to deliver the new CRM which will provide a lot more effectiveness to the organization. Mike perhaps can talk a little bit about it, but that is also factor that is we expect to deliver incremental operating margin to have deliver overtime.
Well, so if you're calling out the incremental spend on new products most of those are coming out of our new initiatives. And I'd say that it's too early to say that we're seeing a benefit, but we still expect that we will. If you're talking about our standard $50 million spend on new products, we track it very carefully with each division every six months and we're very happy with the performance in general of our $50 million spend on new product development.
Hi, Eric. It’s Sheamus. So, as you know we’ve definitely over the last three or four years closed fairly significant portion of underperforming stores. As we look to the future, we’re anticipating that the store base will stabilize. That being said, we do expect as we commented for this year, that we will close a certain number of stores based upon our ongoing analysis of the entire real estate portfolio and the profitability of stores. So this year we’re projecting 8 to 12 stores. Those closures will be supplemented with new store openings. I mean, that kind of the expectation that we’d have is we move beyond this year. There would be some normalized level of closures, which would be supplemented by new store openings such that the overall store count that we’re projecting at this point is relatively stable. So we’re not going to experience the significant reductions that we’ve over the last three or four years.
Jordan, so we're still going through budgets for next year to give you the most up-to-date data. We're looking at the numbers, it looks like it's around flat across the entire portfolio. We're trying to push it into the positive territory. But these one-off exceptions which have reasons to it, not due to anything other than being a site of preference (48:43) or something we underwrote that are driving the down piece of it. So you're going to get a full picture when we put out our guidance at the beginning of next year.
Well, I think quarter-to-quarter, Kevin, we can certainly see some fluctuations. We had a big, big boost in loan growth at the end of the fourth quarter, so we reported a very strong number and linked quarter not quite so much. We had a strong, strong deposit quarter as we really tried to climb that engine as we spoke over the last several quarters about our desire to grow – fund our loans with core deposit growth. And so we ended up with increased balances of the Fed, which don’t do a lot from an NII standpoint. But at the end of the day, it was a two-day shorter quarter. So we do see growth there and we do believe as we continue to again grow our loan growth, we’ll see increases there.
I would say the net spread will probably be about 2.5% with the blend of funding.
[Foreign Language]
All right. Thank you, Brian. Next question?
3.7.
No, I have said we are still slightly bullish. For ‘16 we are a little bullish and that kind of increases as we got – go out over time, but it’s relative to where we were a year ago. It's, obviously, a lower price level.
And we are already thinking about different studies that we could run, because remember we've got to do the safety study next year. And so we have the opportunity to explore certain populations and having Lin onboard and what's most competitive and what makes most sense we're having those conversations as we speak.
No, it did not add barrels or production in the first quarter.
Hello.
But it does, potentially our solution, which limited basis ties into the synthesis, offers the opportunity for integrated trade-offs of RTO predictions of physical layout quality.
However, I mean, we possess 50% or close to 50% in the multifamily, we’re actually over 50% of the multifamily units that are available. So we benefit just as much from sales and transfer of management as we would do as a detriment. In fact I mean, our existing client base is growing their units every quarter as they are applying more units to their portfolio as well as our products to those units for management purposes.
Thanks again for joining us today on a very important day in both companies’ history. We look forward to continuing to execute in our respected business, closing this transaction and delivering on the combined results and potential we have shared with you today. Thanks again.
I would say the one thing that is both good and bad is the extensive amount of rain and flooding that occurred in the State of Texas that’s a great market for us. And where we had been experiencing drought, we experienced flooding in the months of May and June, which I think delayed some of the consumption that we’re going to see in that very localized truck market. So if you look at Eastern New Mexico, the entire State of Texas, Oklahoma, Missouri we saw a very, very wet spring. So I think there is a lot of pent up customer demand there from what we’re seeing and talking to customers. But it’s beginning to dry out and we’re seeing the benefits of that. So when we came from drought to significant amounts of rain, it happened right in the middle of the spring season. So I guess that’s the most color I can give is that we clearly believe that we’re going to pick up those opportunities, but I hate to blame it on the weather, but to some degree the weather does need to cooperate and we did see pretty extensive flooding throughout the entire State of Texas.
Good morning, Bill.
Just the expenses you asked about the IRRs without going into the numbers they are very consistent with other investments that we've been seeing in the pipeline space and significantly above the IRRs that we’re seeing in the third party acquisition market for renewable assets at the moment.
That’s right and we've got a lot of older stuff out there. So it's right exactly like we would have expected.
I think we view it as a bottom because, first, Q3 really is an incredibly concentrated quarter when you look at the premium tier and it has within that meaningful Samsung GS6 impact. We expect to see some improvement with the premium tier launches of other leading OEMs that use our Snapdragon. We also expect cost and efficiency activities to start to moderate some of the market structure impacts over time, but ultimately we are going to continue to invest strongly in the roadmap and we think that's the basis for having a competitive position in the next product cycle that is different than what we are experiencing now.
All right, thank you very much. I want to thank all of you for joining us today on the call. I also of course want to thank all of our associates for everything they do every day, especially around the holiday season. I wish all of you guys happy holidays, and we will talk to you again next quarter. Thanks for joining us.
Well, yes, so we have a maintenance agreement. We don’t talk about the pricing, but it’s – we have a maintenance agreement. And that allows the casino to get all the updates from us and technical support. So, as we install more systems this year, the maintenance agreement will start the second year. So, what you will see is we will book the revenue this year for the new installs. And then 12 months after we closed the order, the maintenance fees will start. So, we will continue to build that recurring revenue.
Yeah, the original guidance that I gave on depreciation should hold true for the year.
Well, it's a Catch-22. It worked, recognizing we don’t do a lot of it. But we also don’t want our members to get comfortable waiting -- our people comfortable waiting for the next deal. So we are going to do things on a sporadic basis, on irregular basis. But we at least -- as Craig said to our heads of merchandising e-commerce and membership marketing try some things. And so we are trying some things. So we are not -- we’ll let you know that the things that we tried generally work. But it's not like we want to change our methodology. We wanted also make sure that the value of the membership is the value of the membership. But we’ll keep trying some things.
Thank you.
Thanks Jess. Brett, can we have the next question please?
Thanks Ryan.
Reliant was not in that number.
We generally don't break out specific orders but as you highlight we saw good growth both quarter on quarter as well as sequentially in both the domestic and international markets. Domestic in particular on a quarter-on-quarter basis grew over 80% versus 2014. Domestic was up over16% sequentially. So as I think we spoke about after last quarter's call, our objective and we’re quite confident as we’re going to continue to see a sequential growth through the remainder of 2015 and most importantly significant sequential growth in the domestic market as a result of all these different initiatives we have going on.
I'll answer the wholesale question, Eric. The shift is timing. The Customers wanted it earlier so they had an opportunity to get it on the shelf and it can turn more, and therefore, it does have the opportunity to produce more reorders if that were to occur.
Thanks for calling.
Well, our goal is still to bring working capital down as a percent of sales. And you are correct, over last two years we brought it down by about $300 million; about half of it was payables including supplier financing programs and about half was inventory where we took out about five days of operational inventories this year and we’ve also improved the quality of the receivables by working down the percentage of past-dues. So, we are pleased with that and we still have a several days to go, we can get out of inventories and keep working on past-due receivables. So, the goal would be continue to bring down working capital by kind of on average of 100 basis points a year for the next couple of years. And then we think we will be kind in line with the peer group.
Gabe, this is Joe. I think what we’ll do on that is once we get past the internal budget process we’ll come back to you before, certainly before the next earnings call and provide a guidance update on that number.
Okay.
Thank you very much. Thanks to all our participants, thanks for the questions. I would like to remind you this call is available for replay over the next two weeks. Same numbers that can be found at end of yesterday’s press release. If you have any additional questions, please contact us on ir@banro.com and we will do our best to get back to you and respond. Thank you very much.
That's actually that is the result of it is that when you say even less predictable it means surprises or very likely and Jay I had a lot of conversations in 2014, when I first start to using that word complex. I was challenged on that issue I don't no one is really challenging me on it at this point with that a ton of surprises through the year 2014 and 2015 and I think the bottom line is it's really less predictable.
Yes in fact we do think oil and gas will continue to be a headwind. And that’s got a fairly long tail, it’s not just the number of rigs that are running. When you think about that it also extends into steel, for instance, I’ll referenced steel in my comments earlier, none of those pipes are being purchased to go down in the wells and extends into some of the other customer segments additionally. So that would be one thing. And then with industrial production and capacity utilization and the Purchasing Managers Index, we did see some moderation. As the quarter progressed, we were pleased to see a slight uptick in the March industrial production from the revised February industrial production, but we just want to be a bit cautious. And as I mentioned in my comments, we do track to the best of our ability what we would refer to as project work. And we are a bit encouraged by the fact that both the number of projects in-house and the dollar amount are showing nice increases and hopefully they worked their way through the income statement in the months ahead.
No, I think it was just more cumbersome than the newer version which is the Icon [ph] which also has imaging which the other one didn’t. There were some centers that liked it very much and used it quite a bit, but then the Icon seems to with its imaging component, there is a lot more interest.
Well, look, again, we're focused on growth, that's our strategy. We could use some of it, obviously, for M&A, if that makes sense, Walter, but again, we're fundamentally focused on our growth.
Hi, Jeff, and this is Sam. As to the level, I think we saw several published reports about maybe elevated level of appeals in the last cycle. I can only speak to our book, but nationally there was an appearance that maybe there were a higher level of appeals. And the nature of that it comes down to some of the dynamics relative to our view of the strength of the class, leverage, cash flow, overall construction balance sheet et cetera. So it didn't -- I mean we are not always going to agree on everything, but certainly we have a very constructive dialog with the regulators at those points of time. So I can't speak to the national sort of view. As it relates to our book, we continue to feel confident in terms of the quality of those credits that were on appeal, but ultimately have to make the adjustments to the rates as the regulators direct. Now, one thing I will tell you just for clarification, part of the move as John said in the third quarter criticized number were those accounts that were on appeal. We went ahead and made a reserve allocation for those during the second quarter, but because they were on appeal, we didn't make the actual move into criticized until the third quarter. We want to be sure we had the full impact of the results of those appeals. And in a couple of cases, there were some movement relative to certain aspects of those credits. So we feel like we were justified, and it was the appropriate thing to hold off and making those frequent adjustments until we fully heard the appeals.
And Alex on the basis, it's about $235 million on the remaining.
Now, we just unveiled it at our TubeMogul University which was in October, not September, to our Platform Direct clients. We have a few clients beginning to use the software, but it's largely still a platform services phenomenon, but what we've seen with other new product launches is that often they begin on the Platform Services side of our businesses. This is exactly what our mobile looks like previously and that’s largely a Platform Direct business now. So I think it takes a quarter or two before we see the impact, but there's no question that this is going to be a real catalyst to keep driving our Platform Direct spend.
Thanks.
Well, obviously, it depends on the Highway Bill, and I think some of the contractors are being conservative. And we saw a little bit of softness in the quarter. But seasonally, we typically have -- the fourth quarter is a pretty good season for us. I think it's a little premature right now to try to figure out what's going to happen in the construction. I don't think there'll be significant year-over-year change, but it really depend what'll happen with the funding and what some states are doing as far as raising their own. Like in Pennsylvania, they put additional gas tax, which hopefully will spur some business. But I would say, the U.S. will be better. And once the U.S. sorts out its infrastructure issues, we're doing a little bit worse in Asia, and Europe should hang in there relatively quick. But it's a little bit early at this juncture to feel what the road contractors are anticipating, given that the bill expires in May.
Okay. As Gareth says our recent weeks still we are seeing the order books remaining relatively stable into the fourth quarter. However we do see the industries in general everyone our industry peers reporting a very cautionary us view and we are also seeing some macroeconomic shift for example that some of the foreign exchange fluctuations that may be effecting to overall IC market. So we need to have sometimes to see a stabilization of these factors. So although we remain cautiously optimistic we still think that yes the visibility in the fourth quarter is not good enough to give a very [indiscernible] coming.
I mean in general Collin, we think stability in markets is a good thing and well the existing sulfur lumber agreement isn’t perfect. We do think that it has been effective in delivering that stability during dependency of the agreement and certainly is as a proxy going forward, we think it’s a good one.
Good morning, Brandon.
No, I mean nothing that we haven't covered in some of the prior questions about it. It's going shorter ordinary course now as expected.
Yeah, well as you know Phil, it's a good question. Tengiz as you know has been a very good business for us in Kazakhstan. We and our partners have had very good relationships there, and we've had a lot of success, financial and otherwise. And the next phase of opportunity there is the wellhead pressure management project and the future growth project. And we've been working this for some time. And we consciously delayed FID when prices came down. We consciously delayed FID so that we could get additional definition around the project, get greater certainty around what the costs would be. And frankly to drive costs down, given the opportunity that is present given conditions in the industry, and we've had some success with that. But we're not at the point where we're ready to take FID today. With low prices that we're seeing, we're working closely with our partners to ensure that we have adequate funding for the project and to further take costs down. We have been pacing investment. We've been doing critical infrastructure work, but we're still working this project to get it in condition for FID. So I think you'll see us continue to pace investments and we'll keep you updated when we can. We do think these projects are good. We do think that they will go forward. But we're continuing to work it to drive costs down and get alignment on financing.
Well, Jim, I will start. I would say revenue down per unit is probably more a function of mix and most of our expansion is weighted into the Permian and the Eagle Ford.
Well, clearly, kraft paper was under a lot of pressure because of the dollar and because of excess capacity in the global market. And it was unusual competitive strengths in that product line. On the linerboard side, the pressure was just normal. I would say kraft paper was abnormal, linerboard was normal. I'm sorry, does that answer your question?
I think we've been consistent all along. We view RIDEA as meeting a different level of risk-adjusted return versus a triple-net-type asset. And therefore, we are going to be looking for opportunities where you can reposition assets, where you can look at market-driven rents, capital investment programs, rates and things of that nature to be able to drive NOI growth. And to the extent, we think that the risk-adjusted return is sufficient for the risk that we're taking versus a triple-net-type investment, we're going to go ahead and make that investment and we see that in both the Chartwell and the MBK transactions.
No. no. I didn’t read what he said but what he is probably talking about is what had temperatures that virus disappear normally but that will not be I assume that what he was talking about.
I have no comments on a particular product.
No, that has not changed. What has changed is that we now have capacity that we can fill with new customers and at a time that significant decrease happens, we did not have that pipeline of new customers. So the almond milk is still not growing versus prior year, it’s still declining.
Well, we’ve got a nice range there. The order as we’ve discussed in the past is worth roughly 13 sales, three op income. So we still think it’s within range and as always we work as hard as we can to do whatever we can to remain in that category and take there some of those issues that come up from time to time. So we view it as – it will be great to have it as planned, but if it doesn’t happen, then we still feel pretty confident. We are going to do what we said we are going to do.
Well, Alvin, we've been working hard on the inside of our sales – in-store sales growth in addition to growing our margin percentage. As you know, we've been talking about some strategy that we have and active in the U.S. on milk, bread and eggs and improving our traffic count to the large market basket customer that those items attract. We've also been the beneficiary of a very successful market-leading campaign on energy drinks in our stores, particularly, in the Southwest that has been very successful. And then, in general, our food programs continue to gain theme, and food customers generally have a larger market basket as well. So those three items continue to bring incremental improvements quarter-over-quarter. And they all – all of those items bring with them a higher margin percent with them. So we're able to grow both numbers at the same time. I also would point out in Canada, we have light increases on same-store sales in Canadian dollars year-over-year that we're very proud of, and that actually using some synergy programs between the U.S. and Canada to grow those businesses as well. And so our customers in Canada are liking our strategy just as much as they are in the U.S.
No, that does include growth in rate and occupancy we would expect in the second quarter. Yes, so that’s how we get the extra $0.01 or so in the second quarter related to some kind of core operations.
I'm sorry; we were at $150 million Day 1, $230 million now. So...
Just to further, that thought. The pipeline from our point of view has never been stronger and that is not coming from any particular size of operator, meaning the large operators to mid size operators to small operators there we’re seeing operators of all sizes, showing stronger interest than before and what’s very interesting to see is how operators, who weren’t originally thinking the direction of TiVo being their solution provider, rethinking previous choices they made in terms of where they go to a get a solution and looking at TiVo as a better and more logical higher quality future path and that rethinking process is something that’s new to what’s going on out there, the combination of all those things, really gives us a sense that we have become the leader in providing advanced television solutions for those who are looking for a third-party who can provide it and not doing it internally themselves.
The volume will also the take the royalties in Texas down.
Okay. If you look at it, the first section of that – the first – there are 10 Muses, and the 10 Muses represent great elements of design. And the first muse is really focused on the – what we call the new classics that we are just introducing. In fact, they are just going to our design centers. And if you go and take a look at it, these are really you might say a formal classics with a lot of gold and silver gilding. And all of that done – in fact, all of these products was made – are being made in our U.S. facilities, in North Carolina and Vermont. Now this and if you take a look at it, it is quite a bit different than anything else we have. The second – the third phase is going to also be formal but is going to be much more towards what you might call a European attitude, still classic but somewhat more relaxed and in terms of its attitude and that will come to our design centers in the summer and the consumer launch in the fall. Between these two, I think we are going to be extremely well positioned in our – the more, you might say the more formal. But keep in mind today the formal has to be relaxed. It has to be customer friendly. So if you look at the book, you will get a very good perspective of what we have just introduced which is just getting into our design centers.
I would just to add to that that we are getting strong expressions of interest from a lot of different parties ranging from strategic buyers to non-strategic buyers. And I think that makes the point that these are high quality assets and it's a very strong business portfolio. So it just reaffirms our belief that this is the kind of business that would benefit from a lower cost structure outside of Lockheed Martin. And we feel very strongly that we'll be able to come to a conclusion by the end of the year on what the path forward is for that element of our business to make it more competitive and stronger in the marketplace.
The recourse is to try to sell it through the highest price we can and if we have availability to have canceled backups that are out in the delivery cycle before we get there, we can try to see if we cancel those goods. Right now, we have a few. We have a handful, five or six of them in stores now. They are selling well. They are not great but they are not nearly, out blown the doors but they are selling acceptably for this time period. And I think we believe that our customer will be just fine with buying that tall-shaft boot in the proportion that we have to offer to them. So again that will be something that we will have a better handle on as we get to the Investor Day. At the end of October, we will start to see, have a little bit of our picture on what’s going to happen there.
So, the revolver is – the new facility is a single facility that does not include a term piece and a revolver piece; it is just a revolver. If the question is, why did do we choose to maintain cash as opposed to paying down debt? And I think everybody's got a different position at their end with their bank facility, and ours happens to reward us having cash. And so we've kept the cash on the balance sheet to maintain maximum financial flexibility, and that has certainly worked to our advantage now. And I think this facility that we're able to negotiate is done in such a way that it recognizes the cash that we have on the balance sheet, so we get credit from it from a net debt standpoint. You say well okay, you got a little bit higher interest cost associated with not paying down revolver debt, but revolver debt is the cheapest interest we have. And so, we've got a very low price that we're paying for tremendous financial flexibility going forward.
Well I think you can now revenue guidance and then just talk about the guidance that we do expect similar throughout year-over-year to be significant and that’s the result of being to be deploying the Sequels and have them used in a certain amount of volume.
I'd like to add to that. This is Lance, our commercial team has a robust business development pipeline. They're pursuing business opportunity that presents itself to us because of our wonderful diverse franchise. So to Rob's point, it's hard to be precise in making a future call. There are opportunities and puts and takes. The guidance we've given you is what we think is our best guess.
Yeah and I want to just add we have said for the last year and a half that this is a dynamic business that you have to manage through these variations in production periods. We’ve known about them forever. When you look at the 30 and 40 year cycles and that you have to prepare for them. And so we're taking various actions. I mentioned that we did some upgrades this year that should help on production for the wind that is there. Secondly we haven't announced it because it was just something we do in the ordinary course of business, for example we just, last year we refinanced [indiscernible] or reprised if you will, we just closed on South Kent as well and that's another $2.5 million of cash flow roughly that wasn’t in our base expectations. We have some other payments that are coming in. We have some adjustments we can make in our cost expectations, slow down some of our cost and lastly I would say this is one that nobody likes to hear about Mike and I argue about this all the time, we do keep some cash reserves for this purpose. It doesn’t count in cash available for distribution but that’s part of our business. During high performance periods we’ll fill up the cash reserves, in lower performance periods we use up those cash and that helps to offset the payout ratio as you are raising, it compared to some companies who don’t keep a reserve for that or have higher payout ratios to begin with.
Well, thanks for asking. We really don't know any more than what's been presented in the Colombia blogs and some of the other media down there. We worked as integrated team with Reficar for actually over five years without any serious disputes. So it's really kind of disappointing to hear some of the rhetoric that's been printed. But all I can tell you is the plant's been turned over. It's making product. It's selling product since the end of last year. We support our technology licensing obligations. And I think part of it is really – it's symptomatic of what we're seeing in an entire industry where a lot of these producers are struggling to rationalize their capital expenditure in this low price environment. But this was a major expansion that also had a critical strategic investment for Ecopetrol that had longer-term implications for strengthening the entire position of the South American market. So I got to believe that the benefits of a project that was very well built and is being very well operated, combined with a substantially upgraded workforce, that we trained 17,000 Colombians, I think it will provide the strategic return they're looking for. So that's all I could tell you. And so we continue to live up to our obligations and I think some of the rhetoric has toned down a bit and that's where we're at.
I would just point out that, we have 88 core stores and three Q auto stores. So it’s a very small part of our business today. It is not a material amount of our used vehicle sales. I don't believe that we are disrupting any markets. I think we have got something on our hands here that's very interesting, we are making progress, we are selling cars, we are learning. We are learning how to solve this puzzle of creating a marketplace where we can retail cars, that otherwise would have found their way to the auction. We still get a lot to learn, but we like the fact that at three stores, it's very manageable, and we think the smart thing to do is continue to work on those stores. There are some technologies coming to play in those stores. There could be -- we are working with our technology partners, we are working with our financing partners, we are experimenting with a number of different things, and we think it's just right the way we are doing it, and this is what we want to stay focused on right now.
I guess, I’m not sure, I understand the question.
Yes. Anthony, we initiated it last in May of 2014 and we spent about $5 million in that, so $30 million authorization. Then we spent another call it $2 million there, so we have got a little over $20 million left in authorization, which runs through the spring of 2016.
Well, that's an easy question, Tom. Thank you. I actually am looking at my general counsel to my left and I'm going to let Larry take that one on and just update you all on – yes, there is a programmer lawsuit that is still being reviewed by the courts but, Larry, you want to just comment on it?
Well, we're not going to talk about exactly how the quarter is progressing. We've never done that. But it's a couple of different things. Last year, the weather really hammered us in the first quarter, if you remember. A year ago, right now, the Northeast and Boston and New England in particular was buried under roughly 8 feet of snow. So the weather has been more conducive to us right now. And last year, a number – DICK'S Sporting Goods and a number of other retailers were also impacted by the port strike and didn't get some inventory in on a timely basis, and we don't have that. So between the easier comps, the better weather and the lack of any merchandise issues resulting from a port strike make us feel confident that we can hit these numbers.
Breaking out.
Well, I think we really won't to provide any additional comments on the – on our – kind of giving a percentage on that. We're very confident in the data of WATCHMAN as Dr. Stein has articulated. We're very pleased with the clinical outcomes that we're seeing in the launch. And so we think the submission has unprecedented clinical data for it, but we won't provide any further comments in terms of putting odds against it. And hopefully at the end of the 3Q earnings call, we'll have better visibility to it.
That’s true but it will be like 2 in the morning for you.
Sure. So in terms of the launch, we’ll actually start promoting the next day. We use the package insert just like we do with Jublia and Onexton. Then we’ll prepare the marketing materials, we’ll deal with the FDA, develop a PPC campaign, and then we’ll do a formal launch meeting sort of later in the summer. But we’ll be able to promote off the package insert the very next day. The two 9% price increases were not taken by us. We didn’t own Salix until April 1st. So you’d have to talk to Salix’s previous management to discuss those. In terms of the $900 million run rate for Xifaxan, I think that actually seems a little bit low. In fact, it is low. But once we get passed the PDUFA date, I think that that’s actually the appropriate time to give a sense of what we Xifaxan is going to be.
Thanks, Joe.
Thank you very much for your time and attention. I will see you next quarter. Take care.
Raj, thank you. The team is very focused and cost reduction has come across in all the areas. It's been a combination or reduction in G&A, productivity enhancements in mining and cost reduction as well as the processing, as well cost reductions in the processing area in terms of efficiency then again reductions, and improvement that we brought in terms of changing some of the thickness and other things we put in the plant.
That's so just -- you know right now we're just kind of -- we can't boil the ocean right now Joe so we're kind of concentrating on a few market spaces that we want to get out and then we'll start adding you know a little bit out of time, so.
Yes. Thank you again for joining us today. We are confident in the demand transit of support of our growth over the past year and half. And expect this trend to continue. We believe we are well positioned in the marketplace both with industry leading technology and solutions as well as very strong base of partners, resellers and long-term customers. I'd like to personally thank our shareholders and friends for their support and patience. We look forward to updating you again in November.
That’s a great question and I guess for you and the entire audience, I think the best expectation is that it will be relatively equal over the next three quarters in terms of how that $2 gets allocated. We do expect the second quarter to be the worst quarter of the year, but that’s also the place that we’re probably likely to use all of our reserve. So that's probably the best guidance we can give at this time.
We generally don’t want to disclose that Doug. Sorry.
Good morning Todd.
Yeah, if the - let me approach it this way, one, if that would have to happen it would impact the entire industry not just us. So we’d really have to take a look at what the entire industry response is. Secondly, it will depend upon what GCB surcharge they were to add to the CCAR requirements. I don’t know how the GCB surcharge will be calculated, I guess we’ll all find that out Monday and that should be informative. If they give us the opportunity, if they come up with a GCB surcharge that we can actually manage and therefore take effective actions against then certainly part of our action plan would be to really focus on managing down our GCB surcharge. Thirdly, if they were to add the GCB surcharge into CCAR, I don’t know what changes they might also make in the CCAR process itself. Don’t forget some of the things that they build into CCAR such as the market shock actually serve the purpose of putting more stress on the larger institutions already. So you would think that if they were going to put the pressure on the capital then to be fair, they might take some of the pressure of the CCAR calculation themselves. So there is a lot that is unknown about what may happen and so contingency plans at this in time are somewhat dependent upon the scenario in which we’re ultimately dealing.
Yes. That was just some maintenance in contracts that we had in Q3 on the renewals for the bookings. So, they just slipped into Q4.
Good morning.
Well, thank you for joining us today and we look forward to giving you an update during the course of the quarter, and if not, on our earnings release, which will probably be in early August. Thank you for joining us. Cheers.
Hi, Brian.
So, the currency on batteries was in total $13 million on net sales in the first quarter. And of course that impacted mainly Europe and Latin America. We have a very strong underlying business trend and we believe we will continue to grow that, yes and we grew in Europe, for instance, over 8% in local currency, so a very strong performance and that will continue. I think the one big exception was really in North America, where we have explained already where we had that, let me say, little plausible promotional spend of one of our competitors, which did distort the market in the first quarter.
Yes. In total for the quarter we signed I think – I think we signed three products and I think majority of those had - were for Serene and for the year it’s over 10, yes. I can tell you that – a little bit more granular in terms of new products that were launched, there were three new products that were launched this quarter and I think they have been close to 9 and have been launched for the year and majority of those have had Serene in them.
We have strong leader there. Anthony runs that business for us and then just in the couple of years when people are stepping away from the federal space, we're investing in the federal space. And we're seeing the fruits of that labor now. You asked if we expect – if we thought would there be revenue draw-in to this quarter and I guess, hinting that it might jeopardize Q4. We expect to see strong federal business in Q4 also. We have, again, the right product portfolio, lot of sales going on the campus products there. The routing products, good footprint, diversified across all the segments. We feel pretty good. As a matter of fact, in general, as I sit here, across all our segments, product portfolio, we feel pretty good. We're as well-positioned going into a quarter as we've ever been. This is a great outcome for us right now.
Yes, plus minus a day; I think it’s that week that we intend; normally we try to get it out on the Wednesday night?
Yes, sure. Yes, I look forward to give the number later to you.
And Frank on expenses?
Yes, most of the impact is mark to market on our owned 330 fleet that now we’re selling in the next couple of months. So most of it is just an accounting adjustment reflecting current market prices of A330s.
Thank you, Alex.
$20 million because of the impact. Jim, you want to jump in on the impact of the $7 million?
Thanks Mark.
The international for us is really and specially on the European side is to continuing taking over additional brands that we sell today in the United States as we done already with our golf platform adding now Callaway, adding Ben Hogan to develop a relationship with Walmart Europe as well as expanding our Original Penguin business not only from a retail perspective but also adding additional outlet businesses with us, my father mentioned on with Coin in Italy as well as developing a stronger base with El Corte Inglés in Spain opening up Germany other territory. So, our focus is definitely to continuing spending in Europe and making Europe a bigger or international as a whole bigger piece of our business where I feel that we’ve had, now that we have the right team in place, we’ve the right people to be able to execute on that and as well as Canada has been a strong momentum hiring this the new General Manager for Canada I think I going to make us even more important. We are taking some of our brands there that we haven’t been able to fund the right channel of distribution or the right partners, I just came back from the magic show in Las Vegas and we had a very very good show not only on the domestic basis but also on an international.  And as well as expanding on into other territories like even in India, where our licensing has done an incredible job in looking for partners there to enhance our brands and our lifestyle.
No, there was not an earnings impact, Peter. It was broadly a function of benefit from the movement and exchange rates and how they affected exposures and our derivative portfolios, combined with some improvement in some of the parameters that we've been focused on working with risk a little while and then also the business has been actively trying to manage the optimization of the capital such that we're earning the returns we need to return.
It's pretty much promoting from within. Kelli Molczyk is also VP of Ladies' Merchandise, and she was given that position almost a year and a half ago, and has been with us since 19-20 years. And we have Stacy that works with denim and accessories and categories, been with us over 20 years; and Melissa has been over 20 years in footwear and other categories. We feel we have a strong bench, and that Pat help develop a strong team as she takes her retirement.
I think the answer to that question is yes. So, if you kind of picked up on the math, we've got 10 wells flowing back in the early flowback stages. We have four more wells that have started flowing back in the early flowback stages. And then we are about to move off of a nine-well pad that those completion operations will take some place somewhere in the third quarter. So you've got 10 wells plus 4 wells, plus 9 wells that all should be contributing at various levels to Q4 production, so I would think it is sequentially higher than Q3.
Yeah, so there are -- correct, yes. So there’s multiple options.
Yes. Well, I have the reconciliation of this figure between U.S. GAAP and IFRS. And mainly what happens is in the accounting issue, the level of taxation, while taxation according to IFRS is $23 million for the quarter, in terms of U.S. GAAP it was reported was $80 million. So mainly you have the main difference between the one and the other while in terms of the cost of sales, including depreciation, according to IFRS, the report is $182 million and in terms of U.S. GAAP, it's $179 million, a small differences in the order of things, but mainly coming from the taxation that we have already incorporated in the past, due to the part, under IFRS you have to calculate as before income tax that you account as an asset, before income tax as well. And this is what happens now in our internal report. If you look at our financial statements, shown in the back of our press release, you will find for instance and this is just an example, you have at the P&L our current income tax expense of $5.3 million, while you have $5 million as a deferred income tax that we account in our balance sheet as well. So it is a difference with the timing to report and how you report in advance certain issues. We have already incorporated in the past this taxation for Yanacocha as we are doing now with our accounts.
Yes, that’s correct. We would anticipate a similar design to what we did in the initial Bigfoot test in Ohio County or [indiscernible].
Hey, Bob, this is Bob. I think the answer is we look at that every year. Certainly, we have been more active in the share repurchase arena, that's largely not a call on the equity, it's actually just capital structuring; we're below our targeted range of 30% to 40%, leverage at 26%, so we feel we have significant capacity to do that. But again, first and foremost, we want to invest in the business. You can see that in the investment levels. Going forward, we'll look at that with a forward view as based on our best estimates of what the business can do. Certainly, you heard Richard talk about the priority is investing in the business, paying an increasing dividend. So we look at dividends. M&A activity, if it's out there, we would opportunistically look at, and then the rest would be share repurchases.
Yes.
Thanks, Patrick.
Correct and I think that’s a benefit of which we can’t really forecast or get a sense for right, because it’s hard for us to know what the value of the units that were shipped really represents.
I would say, Dan, I think the AFFO number is probably the number that has less future movement from accounting issues like that so.
Yeah, we cannot provide guidance as a matter of policy, but the bulk of our synergy is probably won’t be achieved until towards the end of Q4.
And Mike I’ll just add, we’re not done with the payback from the investments we’ve made in the prior years. We continue to see benefits growing from those. So it’s not like we’re visiting a pause and then waiting a couple of quarters a year before the new ones kick in.
We find both those kinds of opportunities attractive. We find them both attractive and then it goes back to the kind of balance that we have been balance discussion that we have been trying to illustrate over the last year or so. It's a lot easier to do the little bolt-on acquisition than it is something that's more stand on its own. But, we continue to look at both kinds of opportunities and we will.
I'm not sure I'd consider it conservative. I guess, I would consider it a fairly realistic view from our standpoint of how that's going to play out. Maybe we’ll be wrong, maybe it'll go earlier, but again, I'm not sure I'd necessarily characterize it as conservative.
Yes. So we have – what’s really – what’s complete is we are now done with one of our three manufacturing partners. And have now ramped up both headset – some headset models and HyperSound with Foxconn. So we continue to use three manufacturing partners with Foxconn being new and that relationship we would expect to expand over time on the headset front. But we’re now complete in terms of their up and running on HyperSound production, and they are up and running on multiple headset models.
Well, once again, we’re very happy with the progress that’s been made. Since we strategically repositioned the portfolio and appreciate everyone's support, shareholders and analysts on the phone, and we look forward to talking to you next quarter. Thank you.
Thanks. Operator, we have time for one more question.
That's correct.
We haven't, Edwin, we haven't communicated book to bill in prior quarters. It’s not something that we talk about.
Yes, absolutely. You’re describing exactly what’s happening, so sort of flat to modest share decline or modest share growth, but that share performance in the context of substantially better gross profit per gallon performance. That’s sort of the quantitative side of DairyPure. On the qualitative side, you saw in Gregg’s portion of the prepared remarks the new products that we’re able to roll out in 2016, so focused on those whipping cream and half-and-half items that today tend to have lower distribution than our branded white milk products and have attractive margin profiles. So we think DairyPure--we think the branded white milk side of DairyPure very much is an enabler to increasing distribution and increasing volume on some of those other products.
The benefits of it.
I think both. We’re -- we've started to ramp up some. Again, we’re focusing on making sure this platform scales. I’m trying to bring a lot of clients on to this platform, so does Wayne. So we’re investing in scale. We’re also investing in this software-as-a-service delivery, which is sort of more sort of a kin to the ASP solution we offered in the past. So we’ve gotten started but there is still some more ramp up to happen in coming quarters.
Yes. Good questions, Joe. So the first part of your question, we are conducting the feasibility study and what I can tell you right now is that there is no surprises we hope to present the data that will hopefully continue to demonstrate strong feasibility for the actual treatment clinical trial at the -- an upcoming opportunity. So as you know, we have conducted compassion use protocols using different tumor types such as pancreatic cancer, colon cancer. We have really encountered any difficulty, so we continue to believe that we're agnostic to the source of the tumor tissue in terms of applying our process for the amplification. The second part of your question is, in the non-treatment phase of the muscle invasive bladder cancer study. We don't intend to look at any sort of immune parameters because in the treatment study we actually have the opportunity to acquire tumor tissue pre and post administration of AGS-003, which will provide us far better optics on the a) the introduction of the immune response as measured the way we usually do it in the peripheral blood as well as looking at the post-treatment tumor samples to determine if we're observing infiltration of the tumor tissue with those T cells from the peripheral blood. So not unlike the RCC trial that I mentioned in -- that's being conducted at Roswell Park the bladder cancer study will also provide us with tissue pre-impose treatment, which will give us the best possible view on the impact that is occurring at the tumor side based on the immune response that we induced in the peripheral blood.
So maybe some color on Canada. I mentioned in the script that the small number of project opportunities in Canada, and I think, today we have something like $30 million of bids that are open outstanding there. Of course, in Canada we have some longer term integrity contracts and maintenance contracts up in the oil sands that kind of are the foundation for that business. We see some additional integrity opportunities in Canada on the pipeline side and we still see RFQs coming around tankage and the balance of plant work associated with that tankage. So we think that's a good mix in Canada. In the UTD space, we do see some transmission and substation opportunities. These aren't the large multi-hundred million dollar cross-state type pieces of work. Generally, they're within the state of Texas, Oklahoma area and they're in the $35 million to $55 million range. We also see opportunities in Texas on wind power in particular. And there has been fiber optic build-out going on both in Texas and in the Southeast, and we're now engaging in some RFQs around that. And in both cases, the renewables and the fiber optic work that is 2016 opportunities.
The way we look at it is we have had in the last eight quarters - we’ve had a couple of quarters where they were 20. The key is to get sustainable margins at these levels of demand from our customers that are certainly higher than the 17.8 now and certainly - we’ve talked before a year ago that we wanted to get those sustained at 19, 19 at core. I think we’ve to have an interim look of doing all the things we can and then further refinement and change in our product mix to continue to enhance it. So it’s a journey.
We don't really have a lot of information in the public domain with respect to specifics but you recall in the last case we got offset of off-system sales established in rates and relative to over or under performance we will either get the benefit or give up an opportunity. And we have seen some pressure on gas prices this year which has been putting some pressure on off-system sales but in the upcoming rate case we will get a – we will get that trued up and hopefully a fuel clause and eliminate that volatility moving forward. But we really don't have any numbers in terms of actual sensitivity in the public domain. And recall that the prices obviously were at lows, so I mean opportunity hopefully will be that they would tick up a little bit but –
Yeah.
It's about $0.08.
There is a possibility, possibility given that and we got through a most of it, loans are going to start really closing as we go into November and that’s a little bit a wildcard if that slows things a bit. But if in general we've gotten through it Q4 is looking pretty solid.
Good morning, Jeff.
A question around just the robustness of the pipeline or what – in particular.
Thanks all for joining us and we look forward to speaking with you again next quarter.
Yeah.
So Joe, I think I am ready to talk about targets at this point in time. I will tell you that we were able to meet with the advisory board of Critter Control, have been in town and had a chance to meet with them. They are very happy with the way that the integration is going. I am not sure that you are ever going to have every franchisee that's always going to be happy. But 17 of the 18 that were in the room, were extremely positive. They are happy with what they are getting from a marketing support. They are happy with what they are getting from the back office support that we have been able to give them. And that's a little bit of the synergy that I think that we are going to be able to see in the shorter term, its going to be that. So we will continue to spend time with them, and I think that's going to help us as we are moving forward, and as we kind of develop our overall wildlife strategy.
Right.
First, I'd say, again, going just by our business units, we see good pipeline growth in our OpenEdge business unit, really for both the OpenEdge and QuarterCon [ph] product categories. So we see that that has the opportunity to contribute positively through the selling cycle in the second half of the year at a higher rate than it is in the first half of the year. We expect BravePoint will continue to contribute to that, but again we're focused on non-acquisition growth. In our data business, again we continue to build a strong backlog of multiyear revenue in our backlog versus the prior year and even in the fourth quarter. So we're seeing that pipeline grow as well as the revenue backlog grow, and we see positive momentum coming across our regions outside of North America as well. So year over year, while we expect the data business to be down in the first half of the year from a revenue -- recognized revenue point of view, we expect we will have positive growth on a full year basis, so that will contribute positively, certainly more positively in the second half of the year. And then in our app dev business, which was small prior to bringing Telerik into the business, we are seeing good interest and good buildup in our subscription pipeline. We think that that revenue base will start to -- I mean that subscription base will start to contribute more positively to the year-over-year revenue growth in the second half.
For the full year.
Yes. So I would say in durable assembly around the world things are relatively normal and I would say the one exception is the weakness we saw in North America through Q3 hasn't abated in Q4. I wouldn’t say it's got worse. But, I would say this lower level of demand that we saw on same customer situations is continuing here throughout the last few months. But not and other parts of the world and our durable assembly business in Asia and in EIMEA underlying is at expected levels. And we don't see extended shutdowns from customers for instance, in Europe which we've seen in the past after when there is weak demand. We don't see those sort of things at this point.
There was a funky upgrade pricing model we had for certain clients and we have limited that over the last year and half that’s really helpful.
I think we said we’re not providing guidance for G&A this year but our current budget calls for less than $5 million of G&A.
Thank you.
All right, thank you
Hi, Jeremy.
Yes. We continue to be very pleased with what is going on in Brockton and Hartford. The team and I are actually looking for other sites up in that area, because we have been very, very happy with the results. We are excited about sort of our first two stores in the Northeast and I am hopeful of more to come there.
Well, in the second quarter relative to the first, our overall gross margins were about the same, we got -- which was a very good level year over year, helped by nice -- the nice pricing environment, helped by leverage of our infrastructure, and the penetration of new products and services. The real sequential margin improvement was in that SG&A where Bill mentioned we had better workers' comp and auto experience in the second quarter. And the other thing we talked about in the first quarter was the extra G&A, if you will, because of the document shredding contribution, so we lost quite a bit of revenue to cover that extra G&A. And we've done a very good job of managing our cost structure and kind of rationalizing that G&A to the organization that we have today. And so we're pleased with the execution there.
Sure. I think that the last consumer insight study we did, first I think everybody knows that we are more leaning some urban and suburban environment. We don’t have as many stores in urban environment. So, when we did our last customer study we learned from our customers that – because we, such a big piece of our businesses is perishables that they really want to be shopping Sprouts. They would not use home delivery significantly. However, LA is obviously a very dense market parts of San Diego, other cities that we operate in are fairly dense. And so what we want to learn from our customer for us is, this is as much of a learning exercise to see how we can add value to our customer and see how that customer engagement moves over time and are we bringing new people in, into the system. So I think for us it’s we are going to learn from this, we are going to see I think five – in urban environments today, I think it’s in the next two, three, four years, it will be a requirement. In semi-urban requirements and suburban areas, I think it will take longer from an adoption standpoint. So, for us, this is a purely learning exercise and we will see how it goes. We are not working with anybody else at this point and have no intention to do so at this point. Amazon has been fantastic. The Prime Now team has been fantastic with us in really supporting us on this. So, we are planning on rolling out to a couple more markets to learn more and how the dynamics shift and see if we can really draw a new consumer in. So, that’s where we stand on it today.
It doesn't hinder anything. We have complete flexibility around it.
Vlad, as you know, our business, especially Fibre Channel business largely is a half [ph] a pool business. It's not a backlog business, right? So when we gave guidance, what we really based on is the normal server cycle. We don't know if March quarter server shipment will be higher or lower. That's something -- from our position, it's very difficult for our -- for us to project. We rely on our OEM to just pull our Fibre Channel Adapter when they need it. Based on the shipment, the backlog, everything right now, our guidance is we think we will be normal seasonality. If the overall server shipment, it will be much better. As you know, our Fibre Channel Adapter revenue is very highly related to server shipment, then our business will be better. We'll see.
...what we've seen over the past 30 days to 60 days, it was tracking closer to 50% up. Just ROVs were up in the mid-20%s, low to mid-20%s.
Well, thank you, again, for your interest and support of Streamline Health. If you have any additional questions or need information, please don't hesitate to contact me at randy.salisbury@streamlinehealth.net. We look forward to speaking with you while again in early June, when we will discuss our first quarter 2016 financial performance and when we will have our press release out on time. Thank you. And have a good day.
Good morning Roger.
Well, in relatively diverted into investment outlook, and I think what we can say is that we have a comfortable capacity situation at present. Of course when we're moving into new areas like, for example, oral semaglutide, this is an area that will require substantial investment from our side, not only in significant API capacity, but also in solid dosage form facilities which we don't have at present in that scale. Just reminding you from the oral data that the volume of API that is needed for a patient on daily treatment of semaglutide compared to once weekly where the dose in the trial was just one microgram coming up against the much higher volumes that was utilized in all trials, I think that is going to be very significant. And hence, you should anticipate that you would see us initiate investments once we take the decisions on moving into Phase 3, if that is taken. And we have hinted towards an increase in our current spend level where the investment level is 4% to 5% in fixed assets over sales on a yearly basis. And see that move up at a level of about a percentage point and do that for a period of five years, that also is an indication of how long time it will take to construct such a facility and have it qualified and ready for commercial launch. So substantial investment will follow from that. Apart from that I would feel overall reasonably comfortable in maintaining the current guidance we have for the investment levels.
And so that should give you enough raw materials to run the math.
Yes, it's possible it could go lower than 150,000 next year. We don't know exactly how much. Some of that's going to depend on how big the retention gains are. But it is possible you could be looking at 140,000 to 150,000. We're going to keep you updated as we know that information and data. And some of it will depend on where the starts obviously come out as we look to some of these initiatives kicking in towards the back half of the year that we're putting in place now...
Well, again, we'll have to wait to see how these cases come out, and we've asked for several things to help mitigate that pretty dramatically. I think we've traditionally said that 50 to 100 is the kind of target that we're constantly working toward. I certainly think that truing up our cost in these rate cases is important to get there. And so I don't see anything yet that would cause that to change. Certainly, we're looking and continuing to ask for things that would help make that more consistent year-over-year.
I’d say it was probably on the high side, Jim. Part of it is, on percentage basis, we look a little higher in the fourth quarter. We’ve got this backlog, and we’re trying to build some of these operations and be in place to run at a higher rate. We’re going to double our run-rate, basically, for 2016 over 2015. Incrementally, we don’t think we’re going to increase that much going forward in the year. We think we’ve got most of the infrastructure in place that we need to do that.
Right. So we do have claims that we're collecting on and we do have receivables unbilled that Dan talked about. But probably the biggest factor in terms of that DSO is in RCM, the much lower and decreasing revenue that it's calculated off of.
Sheila, yes.
Sorry, forgot about that.
Okay, so that's what I'm trying to emphasize here is that, the Christmas Spectacular has been running for like 80 years. So I mean, I'm not looking at a 80-year horizon on this, but it is an investment that you expect to amortize over multiple years. And if we got that model, actually has a fantastic return to it, if it falls the same one with the Christmas one did and is looking very good. If you're looking for impact on quarterly basis over the next 12 months, no, that's not going to happen. But if you're looking at a business that will year-after-year have a stronger and stronger return, it'd be something that we can count on, much like we do with some of our other products like Knicks and Rangers etc. This is a great thing for the company.
Okay, thank you.
Yes, we – I mean, we think it will slow a little bit, and we think we pay down $40 million in 2016 to get our debt down to $210 by the end of 2016.
We don’t expect to break at all during the year. As our profitability increases, our revenue increases, the relative impact of the share based compensation will decline. We have used up the majority of our NOLs when we recognized the big profit in the sales of Prochymal assets and at this point we are working down on our R&D tax credits. The R&D tax credits do have a limit as to how much you can take at any particular year limited to 25% of your taxable income. So we will be paying tax in the course of the year. We don’t expect it to exceed the 30% rate that we incurred in the first quarter.
Yes, there is this leverage in fact in almost all our facilities. We are producing more product as we sell 10% or more units if you look at it that way. We are also doing lean manufacturing in automation processes and procedures where we’re cutting costs out per unit on that basis. And the only contrary to that is that we did start up a whole new capacity in Mexico and its underutilized right now and there is a phasing in of that to in front of us, but we’re looking at product mix improvements, so many of the products that are growing fastest were higher margin. We’re getting more volume across fixed costs throughout and then we talked about the efficiency gains through automation and other lean manufacturing initiatives that we believe over time will all contribute to the growth. And then when you look into ’16 and even more in ’17, the Mexico thing will really start to accelerating that gross margin improvement.
And Matt I would add.
Well, it's definitely part of our strategy, but that particular customer had almost no impact on revenue per rig because we're just in the early, early stages of implementation. So it would get lost in rounding if I divided the revenue we got from them by the rig count.
I think what we have always said there, first off, is we can't speak for the sponsors. But there have, in times past, they have expressed the question what can they do to help? It doesn't mean that they will be able to or they can help. But again, I think we have a very open dialogue around those opportunities.
A little better.
That are at that size.
You bet.
Thanks everyone. We appreciate the support of all of those on the call, our dedicated employees, customers, vendors and the rest of our shareholders. Thank you for your interest and patience in Inventure Foods and for joining us for the call today.
Yes. I think its normal volatility. It’s something that we’re going to watch very closely just linking it to back into the reprising for interest rates as we work through the block it’s the balance between placing the rate increases and retaining clients through that process at 89.3% feel very good about where it sits at the moment. But we will continue to watch it really closely.
So, Sterling, I think Marcus has mentioned this on several occasions. When you have a pipeline like we do of very significant tier 1 customers, there is an added uncertainty of exactly how those initial licenses are going to be, are going to come in-house and how many of those tier 1 companies we'll actually license in the quarter. We feel very good. We have more tier 1 than we've ever had before but that uncertainty requires us to have a slightly conservative perspective when we give guidance. So we feel very comfortable right now that the guidance we've given is something we can easily achieve. Currency impact is something I think we need to take a little bit in a different way. We have about $10 million of total revenue impact from FX. So if you look at the currency rates last year when we get guidance to the currency rates in the fourth quarter where we sit today, that 10% has driven down our growth by about 3.5%. I think that has to be taken separately from the guidance for the fourth quarter because we know what the currency impact is and during the last quarter's call we told people that we were starting to edge at the high end of that 100 to 300 basis point range and therefore part of that currency impact had already been taken into account.
No, it's primarily a mix. Right now, our mix is more heavily -- or backlog going into the quarter is more heavily orientated towards the process systems. So it's really a mix related issue.
Okay, well let's take a look at and start with a run rate if we look at the service the same way we did at their total booking. So, our LTM run rate on the service is now into that $2.3 billion number. So if we say that the market – and right now it's from our quarter and the commentary, the markets are tough or actually internally have used the word the markets are brutal. So with the step down in the markets for next year are we going to do the same thing? And the answer is yes, we're going to still focus on the consumables. So how are we doing on the consumables? Well, with part of the fleet being idled and having a reduction in service business, we actually – we're able to hold our service, our consumable growth, so we think we can do more of that faster and we're seeing some traction there. The capture rate on the installed base we've talked about, still actions there even if there is a reduction. But if we look at to the commodity side to your question, coal is tough right now, there is no question, so where we got to get the service growth is into our hard rock, with Montabert we want to exceed that, there are expectations that we have there, to get some service growth, we really like their service model, we think we can do more. Looking at the copper, I talked about my comments, we've introduced the new LHD and just give you a model that LHD, we think of it as the continuous miner, it runs really, really hard and that's in a block cave mind we haven't been in before, so that's all new and incremental stuff. It's small, they like the first one, it's not going to be a ramp up overtime to replace continuous miners but we think we've got some opportunity to do that. So on the hard rock side, on the service piece we have more but maybe I'll stop there if you want a little bit more detail of our – maybe point me at different direction.
John, I think it speaks to both, but we have always said that the dividend will be adjusted consistent with growth in earnings and what we are doing is reflecting the confidence we have in the individual businesses, any earnings in the quarter and the consequences that Tom talked about on the other side of the chart, so I would I would say it is both, and it reflects the strength of the capital position and our outlook.
Thank you again for taking the time to join us this morning. We look forward to discussing our first quarter 2016 performance with you in April, and see the initial beneficial results on the actions we spoke about on this call today. Thank you very much.
Yeah. So, that added volume will start to feather in really primarily in the last quarter of this year. So, we can say that these next couple of quarters as, again, we mentioned earlier, you're kind of letting the dust settle in the energy market and everybody figure out where sand needs to go and who needs it and which market, which shale play the sand needs to go to. So, we anticipate really seeing the need for that in our fourth quarter of this coming year.
We think it’s going to continue to build momentum Mark, especially as it gets out towards 2017. But if you think about the nature of this revenue recognition standard and what public company they report five years of data in their selected financial data in their 10-K. So they have to get into this now and figure out what the impacts are going to be? What systems changes that they have to make, and just how they’re going to get the whole thing done? This is a huge process for big companies. It could be 50 to 60,000 hours max. So, we think its going to continue to build momentum. But there’s other pieces of our business that are doing equally as well. In the IM space, we’re doing a lot of work around Data Governance, Security, Privacy, BI and such, in accounting and finance which actually, it was kind of nice to see this quarter, it went 16% quarter on a quarter-over-quarter basis. We’re doing a lot of finance transformation. Nate, referenced the project that’s going on down in the Philippines, that’s a big -- that’s a global project that’s just got a lot of work in the Philippines, but that’s all about finance transformation. So, we’re very encouraged by a lot of the different segments in the U.S.
Yes, so, actually, Jon, so I didn't give book-to-bill information. It's just not that relevant a metric for the company now, where we have over 75% recurring revenue stream. So, yes, for a large instruments business, it's a relevant metric. For us, it's – we just don't see it as that relevant. I didn't include it in my script and we don't include it in the recon package. Just so you know what the number is, it's actually slightly positive, 0.5% for Q4. So – but as I said, it's just not that relevant of a metric for us. And then in terms of your second question – I've completely forgotten what your second question was.
Sure. But Larry can maybe expand on it, but the VPC, deferral of some of those shipments on the delivery dates that we had there was the key item there.
Good morning, David.
Good morning, Steve.
Yes. For the Baby Tiger's, last year especially, second half of last year, Ctrip invested heavily to incubate 15 Baby Tigers, now, this year, Baby Tiger -- the revenue contribution from Baby Tiger Project has been one of the key driving force for our revenues. Now all the Baby Tigers, they contribute about 20% to 25% of total Ctrip's revenues. And by the end of this year, I think most of the Baby Tiger Project will be at least break even. And by the end of, our goal is to, by the end of next year, all the Baby Tigers, they have to be at least breakeven, so they will contribute positive bottomlines for the Ctrip Group.  And would you please repeat your second question?
Thank you.
Look, the methanol plant, as we've talked about, what we're really looking for in a partner there is somebody who's willing to put skin in the game along with us. And of course, we would view a significant part of our capital contribution to be the infrastructure and other assets that we're bringing to the table. So let's just assume that you're talking about a project that's somewhere around $900 million to begin with, and you ended up with a 50:50 relationship, and part of our contribution to that is going to be what we have in place today. You're not talking about a significant amount of capital from Valero's perspective. We are willing to put some in, but I don't think it's going to exceed anything that we've shared with you. In fact, I'm certain it won't to date. That being said, that project somewhat hinges on our ability to get the kind of transaction that we're comfortable with, number one, that brings expertise to the table; and number two, provides a potential platform for us to do additional transactions down the road. So that's really our view on that. Do you guys want to speak to alky at all?
Oh I am sorry, yes, so the charges are really the net GAAP impact of the sale of 8th Vineyard which ultimately ended up being as a $1 million debit and the fraud which was $3.4 million in the second quarter and we are anticipating a $1 million insurance proceed to ultimately it is $2.4 million for the year which translates in our current share account into $0.026 a share, so it is really $0.035 one time items, we are lowering guidance by one point or $0.01 at the middle.
Yeah. And just a little bit more on that. I mean, what Sam described, these services be it burns or trauma, typically, lead to more surgical procedures in the facility. And as I mentioned in my comments, we've reported seven consecutive quarters of surgical growth. And so as we grow our surgeries, obviously, we're growing our case mix. And that's showing up in our numbers.
No, I think it's really across-the-board, good cost controls in many facets of the business. As we often say here at Kroger, sales are a beautiful thing, and when you can have north of 5% IDs, the sales leverage on the expense line becomes quite enormous, and particularly if your ID sales start to exceed where your own expectations were it gets a little tough to add hours as fast as the sales start to come and it takes a while to catch up to that. There could have been a bit of that as well. But I wouldn't say there was any one particular area that would stand out. It's really pretty strong across-the-board cost controls from many locations.
Thank you.
Yeah, obviously I think a lot of it comes down to whether we end up being at the very high end of our NOI range. If we are at the very high end of our NOI range that will get us most of the way there and then obviously there’s also timing on acquisitions and dispositions can have an impact too.
All right. Thanks Doug. Operator next question please.
No. We're not looking at minimum volume commitments right now. We're forecasting things to remain steady where they are. We're down in that segment, for that system we're down about 15% from our peak which was in April.
Yes, Sean, so actually I'm going to hand that question to Jim Hollingshead, who runs our Americas business. Volumes and price for masks.
I would say that we're trying to give you guidance on what we think our (0:50:37) visibility towards. Because we're in a flow business it's just hard for us to get expansive beyond that. We have, no question, we've seen a lot of activity in the first quarter. Some of that was slopping over from the end of last year, but still we've seen – our pipeline today is north of $6 billion worth of deals that we're looking at, which is it turns all the time, but it's lots of transactions we're seeing that we added 21 new customers in the first quarter. And if you look at those 21 customers, probably about (0:51:10) 70% plus or minus of that was investment-grade contracts that we were able to create. So, we're very excited about the demand that we're seeing. And our relationship managers are likewise pretty jazzed up about where the year is heading. Is it possible to do over $1 billion? Yeah. Keep in mind the $1 billion that we're estimating is a net number. So, well, there may be some property sales during the course of the year. And so, that will be in that number.
The other thing that I would mention on pricing in this industry, it's not just the price that products are sold in at. Pricing in this industry is also having to be less promotional and have less discounts. I think the strength of our products and our market share and how the products has resonated with consumers has allowed us to be less promotional in terms of discounting. That's price too. Sometimes that's not as obvious as selling in at a higher price point, it's also us being less promotional and having to discount less given the success of the products.
We're here, Jamie.
Well, at the outset, we wouldn’t have run the study if we didn’t believe the duvelisib would outperform ofatumumab, and as you know that with many Phase 3 studies there are planned interim analyses. However, I would point out this is an event driven trial since the endpoint is progression-free survival. So we’re accumulating events. We cannot predict we will have the requisite number of events to trigger the Independent Response Committee and an IBMC to review the data. And so an interim analysis is planned and the expectation is if there is overwhelming efficacy this trial could conceivably stop early. But we’re not making any projections into that. We’re blinded to the outcomes of these data.
Hello, Todd.
That’s a fair question you ask. I want to have a good answer for you, because it’s clearly the board’s decision each quarter. But kind of like here we say, what I can definitely tell you about the interest rate forward curve, is that, its’ wrong. Hope it never actually follows. As we had said over many quarters and people were so focused on where our dividend was relative to our earnings. When we adjusted it last quarter, and we had said, and people rightly asked, well, should we view that as the future, is that really where it’s going to be. And we said, whenever we’re sort of making adjustments, it’s going to be wrong, because we’re constantly growing the company, right. We’re continuing to ramp and deploy. So, our view at the time wasn’t we’re going to constantly adjusted every quarter, who is going to make an adjustment that we thought would be safe for a while. Clearly, this quarter we exceeded that by $0.3 million. So this is kind of our base level. Whether in the future the board decides to increase it or do a special, we don’t know yet. But we remain focused as we only said on generating more and more income, our goal is $0.50 a share. It doesn’t mean we’re going to get there, but we’re trying. And credit quality, we’re not going to bend on. So we’re just going to keep working towards the goal.
Well, I think as Floyd alluded to a moment ago, the fact that we are one system is certainly an advantage to several of our larger competitors. I also think the fact that we own the source code over the years has been highly customized that’s hit our business. I think our results have proven. Its allows us to be one of the more efficient operators in the industry and so I certainly see that as an advantage and being on one system, not only can you be more efficient from the headcount standpoint, but just the real time access we have to our business on a day-to-day basis to be able to make decisions quickly I think is also very important.
No, there's nothing new there. It's pretty much what we outlined in our Investor Day in December. And it really involves further rationalization and closure of mines.
I don't know that I’d, I would say, it shouldn’t be compared to what other people think, but I think we certainly do have a very positive view on the lodging cycle as I outlined in my comments and feel this certainly is the time to benefit from the investments we're making in the properties that we already own.
Correct, Right, $9 billion deal by the end of 2016, Frank.
Ask that again, Ian. I’m sorry, I...
First of all, it's a very competitive market, as we said, big picture, it's the most popular tourist attraction in the world. We've admitted that there is headwinds here, and we've also admitted that we've lost some share to our competitors, and that's easy to surmise from looking at their numbers. However, we do see it strengthening again for us and that's positive. And big picture for me, it's all about stabilizing the business and moving forward. Specifically on being competitive, our first initiative is 2016 and just getting Mako in place, which we're very excited about. As you know, it's the biggest, tallest, longest, fastest coaster in the market, which we have a very good marketing plan for and then also Cobra's Curse, as I mentioned, in Busch Gardens Tampa. We are looking in 2017 and beyond of what to do with the water parks to make sure they're competitive. We have a very good packaging plan with the SeaWorld Park to make sure that pricing-wise it's competitive. And so we can't announce anything right now, but we're certainly looking at what we need to do to our water parks to make sure we stay competitive in those markets and in Orlando specifically.
Next question is from James Targett of Berenberg.
I think what we can say, Jon, is that it will certainly be bigger than the Greenway Fund.
I appreciate everybody joining us for today’s call and your continued interest and support of DMC. And we look forward to talking with you at the end of the third quarter. So thank you very much.
Now our real estate agent will think as well and he is being patient with us.
Primarily the commodity was copper. And we all follow COMEX and right now, it's had a favorable effect. Whether that continues we'll have to see what the worldwide commodity does. But in general, in sustainability of margins we had very good margins in Power, probably some of the best we've ever had, certainly helped by our big data customer and in the factory efficiencies, but as I said on the call, I congratulate the team for taking cost out of the products, cost out of the factory. And we'll continue to do that, I mean we talked a lot about efficiencies in our automotive plants. We apply the same strategies in our non-auto plants and we're seeing the benefit of that in Power. The big driver there of course is sales, and Power has a very good [prime] [ph] that when the sales are at a certain point, the factory efficiencies are quite good. Is that sustainable? That is sustainable to a degree, but also is dependent upon our large customers in that area, not as a predictable business as auto. And I think we said we've got about one quarter of visibility and anticipate a similar quarter here in the fourth quarter for power. Elsewhere, I mean you saw in interface, the margins are affected there because our sales are down, again we are anticipating a little better sales in Hetronic in the fourth quarter, and we have undertaken efforts to improve Hetronic's factory and margins as well. There I would say that is dependent upon -- largely dependant upon sales. And then in auto, as I've said before we have contractual price downs that have gone into effect. There is additional ones next year that are to be in the automotive business. Our teams, they are ahead of the -- where we expect them to be in their factory improvements, in their cross-selling models and we saw the effect of that in the quarter. But in general for Methode's margins to continue to improve, we do need a non-automotive product to ramp, Dabir and all of them that I talked about from Chris' question. [End]
We are not anticipating that that will have a major impact on their volumes, based on their relationships on who they operate with their - the base service. We do not anticipate a weakening of demand or changes from that standpoint.
Good.
Yeah. So the mix hasn’t changed all that much, maybe a little of a bias towards municipal securities, but we obviously have always held a lot of municipals relative to the total portfolio and total peers. We’re still buying CMOs and tools as well. So probably those are the two largest categories and obviously the buy yield on those is slightly over 2% and as we’ve said before, the roll-off yields are considerably less and changes in any one quarter. But for this quarter, a lot of what’s rolling off is less than 1.5%. So obviously we’re going to pick up some nice spread just to the normal reinvestment activities.
It’s program margin business. In other words we – first of all, there are no A350 sales. There are almost no sales in 2015, so it’s not to drag on anything. But when we deliver the product even though the actual cash margin is lower in the early deliveries and much higher in the later deliveries, that’s a constant flow for the business over the period where we are delivering the product.
So the Head of Service took over the Head of Worldwide Sales. And so through that process we kind of did a real scrub on the pipeline with a different set of eyes, actually with the new organization if you will. And yes, it kind of came up with some what I would just say business that was forecasted that with a different view probably should not have been.
That's very good question. I think overtime given the interest and the opportunity for the solution that we will actually licensee third parties to in turn sub license the technology and work directly with Tier 3 lower Tier 2 and opportunities. And that we will focus our attention directly on the Tier 1 higher level Tier 2 opportunities. And so we do have a model in place whereby we’ll continue for the foreseeable future to handle and to support our Tier 1 and upper Tier 2 licensees. And then as the ecosystem begins to expand that we will license and support a distribution channel if you will who are enabled and empowered to work with Tier 2 and Tier 3 licensees directly for which we will share the royalty model going forward but we do see a very, very broad opportunity to significantly expand our licensee base and as I said we want to be a ubiquitous solution and so we will continue to drive forms of expanding our licensing model through third-party relationships.
Yes. I think generally our view of the NRT API business is that it's flattish to maybe up a little bit. It generates a lot of cash for us and therefore is a good business. And you know, so far year-to-date, it has done better than that, which is just an unexpected plus.
If anything what we did do and we are looking at our budget back in December you know we knew we were going to have to do the new re-aligning in Q1 and again I think that was part of that guidance, but for the full calendar year and when we’re going to the budget and looking at our underground equipment fleet and with regard to scheduling at the various sort of preventative maintenance activities etcetera, we said that okay, guys why don’t we bring this forward and do it concurrently with the no reline and just make sure we’re very well positioned for Q2, Q3, Q4. I want to make sure it doesn’t move forward. We’ve got all that resources fully available, so obviously equipment fleet being a key one. And now we’ve got all that complete. As you’re seeing in the month of April, I think we’re very well positioned at the remainder of the year to achieve the ramp up to 6,000 tonnes.
Thank you, Allison, and thank you everyone for participating in Juniper's second quarter 2015 conference call. We really look forward to speaking with you again when we release our third quarter results, and thank you, and have a good day.
I'd say that management obviously with the addition of a government contract in UK and I'd say Workforce Analytics clearly will be another big step up. Auto, I think the market in the U.S. auto market will be modestly up versus this year, but I think there's still another year of great growth prospects for us as we continue to mature with our strategy there. So those are a couple.
We have to make -- obviously with the timing of -- we can't control the timing of when the FDA provides that notification to us based on that, as long as it isn't going to compete with holidays, we would have to just avoid that potential for occurrence. Just a question of following the typical spin-out timeline that any company would have. But having prepared for this, over the course of the year, we think that could be in a matter of weeks, based on the PMA approval being granted. So we think that timeframe is fairly short, but we wouldn't do it over a holiday period, we avoid that, if that became a conflict.
We've already started doing that on our completions. We've been really focused on cost reductions across the board, including the Niobrara. But part of what we're able to do there because we have the infrastructure, and Rick can talk some more about this, too, but we've been able to start using or we're working towards being able to use our produced water there. So it becomes part of the cost containment effort. And the results we've seen so far on the slickwater is – we're not as far into it yet as I'd like to be, but so far, the results are pretty good. You got anything to add there, Rick?
We will continue to see the -- to taking more opportunities on TSV with our silicon interposer technology.
Yeah. Pat, it was in the neighborhood of about $4 million bucks in the quarter. And as Brian said, as the plans ramp and continue to move to fill up the plan over the next several quarters, the impact of that will diminish over time.
This is the normal lumpiness that we have globally in Pharm Systems.
Thanks.
I don’t think we’re able to put some hard numbers around that, but what we are saying is we believe we have an excellent opportunity to deploy $4 billion of equity substantially into that marketplace and produce excellent NOI yield and market rate yields once we’ve accomplished that full deployment.
Hi, Chris. I just want to add one more point to that of your question around debt. It came to me as Steve was answering your last question. That is we do have some notes that come do at the end of the year. We'll be looking at different refinancing options of those notes. So while -- I said in my prepared comments that our guidance doesn't reflect -- just reflects our current debt levels. We do have refinancing come up and we'll be considering alternatives to refinance those notes at some point in time this year. Okay, thank you.
It’s still lower income – lower taxable income as a percentage, if you will, then the R&D credit is more of a fixed amount, so really distorts the percentage.
Sure. The relationship with Monsanto is one that we’ve been developing for the last probably four years now. And they’ve made a lot of internal investments, acquisitions that they’ve made. And I would say we still have a good working relationship with Monsanto, but I’m not counting on a lot of additional revenues as a result of that relationship that we’ve put in place over the last four years. They’ve taken a different path of doing more of the work themselves, and that’s okay. They’re going to be a large player in the market space. We have a good relationship, and that’s important to us, and there could be opportunity down the road. We always like to maintain strong relationships with the significant players in the space. But it’s not one that’s going to yield any immediate revenue growth for us, I would say, in the next four quarters that I can see. Deere is really different from that. We continue to grow excellent relationship with Deere, and they continue to become a more significant customer of ours for ATD. And it’s a very healthy and great relationship whereby we can deliver some technology to Deere to address gaps that they have in their technology suite that they develop primarily in-house, but they have specific projects whereby we provide steering solutions and other control solutions, and that continues to grow. It's been slow growth, but it's been very steady, and we expect that to continue to be a strong opportunity for us going forward.
Yes.
I don't know if I would call it holdup, I mean it has been a combination of both US replacement and new market growth in high -speed international. And the backlog is certainly combination of both. But as Mike mentioned we do expected to be somewhat second half loaded, this quarter if you think about the comp from last year, Q1 was fairly; it was one of the stronger quarters in Security with pretty big growth going into that quarter. But we expect that we will start to see this accelerate as we get into the second half of the year. And given that it is backlog that to find is shippable and customers and such for it, we are pretty happy having that backlog we had in Security for I guess forever. But we are still getting pretty -- feel pretty well positioned. Don't know anything is holding it up but as I said in the past sometimes it gets hard to call potential big ticket purchases that might move in or out of a quarter or even potentially in and out of the year at some point.
Tom, go ahead.
And John, I think the other thing I'd add to Chris's comments is that as part of trying to give you guys some insights into the quarter as I reflected the kind of mid single-digit comps, I mean, if you will recall last year, in Q1 we were not removing any of those non-paying members during – and we had talked about this in some previous quarters. So I think that the guidance to that mid single-digit comp range kind of reflects how we feel about the quarter at this stage of the game.
Which we think is great. All right, so that’s an opportunity for us to redeploy cash, lot of that stuff is coming off is actually ugly enough pre paying lower rate loans. And so coming off, let's say at 360, 370, 375 kind of thing and we get the opportunity to now take that cash and redeploy it back into higher interest rate into an improved mix of loans on the balance sheet. So we're – it’s double that swing kind of Preeti and that you see it and you might think oh, what does this mean to net loan growth of the institution. But we're excited about the opportunity to take that cash and put it back out at higher interest rate. And in two different ways, one we've seen rates go up on the curve overall, two or three different ways. I would assume we're hopefully at some point and I guess some sort of constructive increased rate levels on the shorter term of the curve from the fed. But three, most importantly we've been able to actually originate assets that are commercial, C&I related assets, that are at higher yield, adjustable rate, hyper amortizing and tied some LIBOR and Prime. And that’s going to bode well for improved interest rate risk, as well as improved earnings going forward. So we're kind of liking getting the cash back in anticipation that rates are really starting to – we're starting see that up tick.
Laura, I think there is one question in the queue.
Thanks, Krishna.
We don't disclose individual client activity. We gave you a number, I think it was back in the fourth quarter of what it would be. We said $20 million to $25 million a year in revenue. So, in the scheme of things for the company, great customer, great win, not only significant for the company, but important for USIS.
Yeah, a couple of things. It was really on the Public side of the business. Public had significant strength in Q4 and in general our Public customers have longer DSOs than the Corporate side of the business. So that was the impact I was referring to; in particular, we had some large deals where payment extended into 2016. You get eRate business for example, which just takes longer to collect because of all the administrative burden associated with it. In your first question, if you're looking at the impact of netted down revenue so to speak, a very high level way to look at that is to look at the corresponding increase in DPO because remember it causes DSO to go up and it also causes DPO to go up in a way that generally offsets it. So at a very high level if you look at the change there, that will be the part that will be attributed to netting down and then the rest would be the mix into Public.
Thank you for joining us for the Q1 results and our outlook for Q2 and the rest of the year. We’re working hard and we’re excited about the opportunity ahead, and we hope that the softness is behind us and we’re looking forward to a better year. Thank you.
That was my goal as an investor before I joined the Board and our whole focus is making this a unique - it is a unique gemstone but it's something making it something that's really out there in the real world in demand. We have a lot of opportunities, you're reading about the collapse of the diamond business where people are no longer buying the sites from to DeBeers [ph] as they were forced to in the old days. You're reading about manufactured diamonds coming to market, and you're also reading about the millennia's which have a whole different viewpoint on their purchasing and what kind of product lines they want to buy today. A lot of that goes back to our decision to hire Suzanne as our new CEO, she really has experience in branding and marketing, she is a great leader, and I think her talents will really help this company get to the next level. And we still have an enormous opportunity but as she vows the strategy for us as a Board, we will listen to her thoughts and we're going to allocate the resources going forward.
You're talking about the bonds that are due in one year?
We are expecting record cash flow this year and our number one, number two, and number three priorities for that cash is debt reduction. We continue to feel that the amount of leverage that we have on our balance sheet is too high for our company, for our market cap and we want to get our debt down as quickly as possible.
Yes, I mean we're going to continue opening new centers. We haven't really given a goal for the year. I would expect something similar to what we did last year maybe a little less. I think the more important -- there are a couple of things that are as important. I mean one is, not just the sheer volume of centers but making sure that we're opening centers in areas where we have a very clear reimbursement pathway. So when we open the center we know what the reimbursement pathway is. The hospital or institution knows it and therefore they're not hesitant to go out and recruit patients because they know they're going to get paid. And then you know on top of that we'll probably spend more of our time and put more effort into our work with existing centers and doing some of our outreach programs and identifying these RP patients that are in the geographic area close to the center. And then making sure we connect those patients with the center, so that the center maintains a good pipeline if you will of patients that meet the criteria for our device.
Good morning.
Josh, they are barely costs associated with intervening with these patients, if you will. And I'll reiterate what I just shared when Kevin asked the question, we are more than just accepting these episodes and continuing to deliver care, as we have in the past. What we are doing is, we are looking at, particularly in the post-acute care side, what services can better ensure that that 90 day episode is an effective one. Now at the same time, we are expending resources, but we also are able to charge on a fee for service basis, those services that we do provide. So net-net, we're not spending a lot of money at this point in time, nor do we seek big investments in order to manage the program.
Yes, it's really going to depend on how the enrollment shapes out really over these next couple of months, really not to be able to answer that. Right now based on the 70% enrollment at the end of April, we look like we are on track to achieve, the study should be complete by year end and it's really got to come down to these next couple of months, but then how we get data out at the end of the year, but slips in the first part of the next year. Now regardless of when that data gets presented we are still very on track for submitting an SNDA for the expanded indication in the first half of 2016 and then hopefully approval with that in the first half of 2017.
Next question from Anish Kapadia of TPH.
I think there’s one more component, it’s really important too, and that is that we’re starting to see certain smaller and even larger companies that are exiting the basins – certain basins. And so from a competitor standpoint in certain areas we’re very strong dominant players. And as others leave, it creates the opportunity for us to go and take market share, and that’s all organic growth.
Let’s say that this quarter it was little bit more to professional services, so we feel it is normally 30 to 70 this quarter it was 25 to 75.
Thank you for the questions, guys and thanks for the call. Look forward to updating you on future quarters. Thanks for joining the call.
Yeah. We, Mitch, only report that on an annual basis. So we'll be reporting that in our year-end results.
So, I think you’ll see multiple players. I think that’s still our expectation, but to the point earlier, we’re seeing a much more measured ramp up capacity for FinFET. I think the leader is comfortable with their position and the other players are working quickly to try to catch up, and I think the competitive dynamics on that front will ultimately drive how much capacity gets added over the course of the year. We think that is what’s driving some of it into the second half, but ultimately I think you end up with multiple players with the capability.
No more questions. Operator is that what you said?
Sarah, it’s Joe speaking. No, there wasn’t. If I can just tag on to what John said about rates, we’re not seeing anything different as he emphasized, now than we've been talking about for the last couple of years. Low single digits, at best. So I just wanted to make sure that that was familiar. But nothing picked up in New Mexico.
Are you talking about Niobec or Diavik?
Thank you, operator, and thank you again to everyone for joining us today. We look forward to speaking with you again next quarter.
I would answer that and say that, I haven’t focused on that in the last month or two that that specific metric. But based on what I’m seeing right now, I would say that, we’re very pleased with what we see. I mean, the numbers I gave to you, when you take the one-time out, those certainly are better than we had expected to see. But, again, I caution you, Brian, and everybody else that, it’s only two months and let’s see where we run in the next couple of quarters. But overall, I think, we’re ahead of what we had anticipated.
Yes.
Thanks Mike.
Obviously, Kannan, we would never, as we don't in anything share the specifics of it. But I think it's well known and I think CBS as well as the affiliates have talked about the fact that there is a sharing of the economics from that. Obviously, the important thing is to see how each one of these activities plays out. It's just incremental revenue to us that we're pleased to have, and we'll see how all of them play out into the future.
I think the investment internationally, at least by Halliburton, we were always sizing largely to the market that we saw. It's a little bit different than maybe what we saw in North America. And so I think that our ability to pull levers internationally in key markets is probably more focused. The - and again, I think the ability to size as we move along will bode well for us.
Thank you.
Sure. All right. You had multi parts to your question. So come back if I miss one or two, okay? First up, as far as the customer, the customer relationship is outstanding. The customer had a billing issue with their customers. We believe and they believe that the issue has been corrected. And at this point, I'm really not at liberty to say who the customer was. But I think the point is that it was an issue and has been corrected and unfortunately resulted in a chargeback of $0.5 million against our sales for the quarter. So that said, as far as how we go about reaching the guidance that we've provided. Clearly, we are looking strong growth from our existing customers. I have alluded to a number of new transactions that are in the works, all of which are important steps and we need help, obviously, from both our cable MSOs and our carriers, and we've got our head down and we are just focused on trying to get that job done.
Well, no, I can’t to be frank, I don’t have it in front of me either.
Thanks, Ben.
Okay, I’m going to take a stab at a couple of those questions and then ask Jim to address the new products. We gave you some insights on the number of technical people we are putting into the markets as part of the reinvestment Jim did this morning. With respect to the rep expansion, we are going to withhold that for now because that’s competitively sensitive, but it’s a meaningful addition that we’ll be going in between now and the end of the first quarter. I don’t think it will have any real effect in the fourth quarter, meaning we have to hire these people, onboard them, get them trained and get them out in the field. So I think it’s more of a 2016 impact at this point, not a 2015 impact. Jim, you have some insights on the new product questions he raised?
So we did book significant number of new customers in our Q1 and they will contribute for the full quarter in Q2.
It’s a different call point because the surgeons tend to specialize in one of the other, there is some – they are specialize in both. Our design team was actually made up of both classes if you want to define them that way. And if you look forward to how we are going to roll it out, our system is designed to encompass the full range. So it will be physician by physician how we approach it. We’ll run cadaver labs obviously that won’t overlap as you are describing, but we’ll be checking on the full breadth immediately we’ll be prepared to that.
Yeah. I think working capital, we're making some progress on working capital. There is a lot that runs through that line, but – and you mentioned one big thing that ran through it this quarter, the Central States pension fund exit. But we're making a lot of progress. It kind of got masked a bit this quarter because of that Central States, but with DPO up 3.9 days and DSO down 1.4 days, it's pretty impressive improvement, considering that it wasn't too long ago, a couple of years ago where we were kind of a 20-day to 25-day difference in the wrong direction, with 45, 47 on DSO and 22 on DPO. We're now up over 30, approaching 31 on DPO and down at 42 on DSO. So that, we shouldn't lose sight of that, that has a big impact on cash.
As first qualify my answer by saying that we don’t have as granular view by all the different end markets as we do when we reach the end of the quarter. But I can tell you that right now we expected to see growth in most of the market.
I would characterize it as a little bit of mix and then the majority of it is investment in new product development and in marketing and other -- advertising and other marketing expenditures.
Do you want to comment on that Kevin?
For high quality medical office portfolios today it’s probably in the mid-fives plus or minus, I would say at least in senior housing and post-acute, the REITs are still the dominant funding source for M&A. So our cost of capital has increased a bit in the last few months and I think that will over time, be reflected in cap rates. So may be they will start to move up a bit, that’s certainly the way we are positioning ourselves in discussion to sellers. I don’t know that we have as much pricing power in medical office. That is also a rapid pretty substantial interest from the investment community at large.  So REITs did not constitute the majority of the buyers in that market place so I think we have less ability to influence pricing. But importantly, we approach that space the same way we approach senior housing and post-acute which is doing things off market and that does lead to better pricing. I think you’ll see perhaps some other institutions entering the space, but I also think we may see some of the marginal players – I think we’re already starting to see marginal players that were circling this sector 12 months ago, have flown away a bit. So, I think those may be two factors are in play here in terms of cap rate. But I think there is some recognition that this is a good sector to invest in.
Waqar, this is Jim. As you know, we work pretty hard on equipment maintenance. So I can tell you that with the exception of things that might be down for periodic maintenance right now, none of our fleet is slated to be retired or should be retired at this point. So with crews and everything else, everything that's not working could go back to work pretty quickly. Big question on overall fleet attrition in the United States, it's a hard one. We all know anecdotally of some companies that have been – pretty much the entire company has been retired and the equipment has been parted out to various buyers, but we don't have a comprehensive list of that. And since so much equipment is not working anyway, it's impossible to know what equipment that's not working could not go back to work, if you'll forgive those double negatives, if there was demand for the service.
Thank you.
Very well. Thank you everyone for joining us. We look forward to updating you again next quarter. Have a good night.
Half cycle economic doesn’t include the facilities or land because it is on land we already own and the facilities are now in place. Over the last 24 months, the company has spent $300 million putting in 65,000 break horsepower, 5 major oil batteries, a gas plant and over 300 kilometers of line. Now that we have the area under our full control and the infrastructure is in place, we drilled to fill and when you’re drilling to fill the actual economics on a go forward basis taken where your some costs are just the half cycle cost.
New entrants are impacting pricing in the larger loan size, yes, and that’s why spreads have come in. The lending fundamentals from a credit perspective, it changes as the market matures but we’re still very comfortable with the credit structures that we are able to put in place and we are not having to stretch to compete full loans in that area.
Hey, Gur, there is puts and takes in every quarter and this quarter – this past quarter in Q3, we had not seen this before. This is the first time that all three factors hit us. So, I think it will be safe to say that we exercised caution in our forecast to account the Q4 guidance.
I’m sorry. Can you – could you speak up a little bit. We’re having a really difficult time hearing you.
I was just going to conclude and thank everybody. I think that Ruckus has executed very well. Our service provider market has continued to – our service provider segment has continued to perform well and the service provider market is expected to accelerate with now Wi-Fi first, as well as Wi-Fi calling. We also have been very diligent in expanding our technology leadership and differentiation that this quarter Unleashed was rolled out and Cloudpath – with the Cloudpath acquisition we expect now that would add a significant piece of differentiation to our portfolio. And the seeds that we planted before with our virtual controllers is now bearing fruits, and we expect that to continue to be significant differentiator for us in the department of scalable networks. And overall, if you look at our execution, we have executed very well in the quarter, even though Asia Pacific was weak due to the dollars. We have managed to offset that. So we are very pleased with our Q3 performance. And our guidance is targeting us at annual revenue growth year to year of 14% to 15%. Just to note, Dell'Oro is forecasting the market this year to be a 9% growth. So we are continuing to plan to outgrow the market. Thank you very much, and Happy Halloween.
Yeah. I don't know that I'd call it more, but I also wouldn't call it less. And so, we know our priorities that characterize the pipeline as robust. We're busy and, I mean, we want to busy then throughout the year. And I've said before, right, you never perfectly control the timing, but we will stay busy. I think this economic environment right now I don't know that it creates more opportunities, clearly not creating less than it would. And if it stays this way for a period of time, perhaps, in time, it creates a few more opportunities, but I wouldn't say that's impacting the pipeline right now.
This year we as I’ve said, we went out with numbers. We knew we could make and we are primarily 95% focused on North America for the numbers for this year.
Yes. It’s mostly on – it’s about every ten news items is the one feed, one advertising feed. So the news feed – I use the word streaming actually feed is the better word. So it’s really the news feed. And then every ten news, then you have a promotion, you have advertising promotion, so one to ten. And the inventory is quite usually up, right, quite high. Yes, its 6% to 70%, so that means it’s quite advertisers, they would really like it. So – and one important progress for our News App, which I didn’t – I think, in the script I didn’t describe it. It’s really that for Sohu, News App is very unique because it provides the two feeds – two kinds of feeds. One is really the editorial content like the content of the feed that edited, produced or presented and delivered by the Sohu’s editorial team. And you can – at the front page and also on the different channels. And then you have this recommended feed, basically recommended by the engine, by the smart engine that’s tailor-made to each person, a personalized feed. So in terms of the recommended feed, the inventory increased a lot in the second quarter because they are just becoming smarter with technology improvement. So the inventory, that’s where we are going to see a major growth, so that for each unique users we probably consume more of recommended feeds, that means more inventory.
I did not job but I appreciate your bringing that. Bob Chapman who many of you all know wo was with Duke Realty for a number of years and today is CEO of CenterPoint in Chicago joined our Board last quarter and he is just a great addition, and we’re delighted to have him.
Yeah. When you think about our business, hazardous waste worldwide, it's roughly $650 million. And we called out that we have project work in large industrial waste customers of anywhere between $125 million to $200 million. So that's that portion of the business. We don't really break out the other portion of the business, but retail hazardous waste certainly is a major contributor as is our healthcare hazardous waste and our SQ business as well.
Hey Joe, first of all, I am glad you picked up that; it was a long list because that’s the way I’m thinking about it too. There is a lot of opportunities. It’s a little premature honestly to try to force rank these. It was a long conversation to make the decision to try to be as specific as I was in the script; because I wanted to make sure that I was able to help you guys see how many levers there actually are for growth I think within the company. I think now that the harder work that we need to do is we need to prioritize; we need to sequence; we need to also spend some time looking at our analytics and looking at the customer and making sure that we’re clear about those steps that we will get rewarded first and foremost towards our journey back to very significant growth in the future. There is a lot of companies that done this very, very successfully. I’ve gotten a chance to be in a couple of them. I am pretty confident that given a few more months worth of time towards the back of this year, we’ll be in a better position to layout a very clearly articulated plan that will have a roadmap for growth in the future. And I am excited to work with this team to make sure that we can lock those in.
Thank you.
I think it’s actually I agree with you. I think again it depends on the jurisdiction of where the international sales are. Obviously the U.S. tax rate is higher than basically all countries and as you say if factoring the R&D outside of that and on the jurisdiction of the sales internationally.
The answer would be yes.
Yes.
I think it’s pretty similar generally to our customer base, it’s midmarket retailers. So I think there is a overlap there. I think the average sales price maybe slightly lower than ours but it’s a different functional system, so that will be expected. So, you see good overlap there in the midmarket. Obviously good overlap in B2C applications, I would say the interesting thing here is, this is such a B2C product that they actually use, Marketo [ph] was their B2B marketing machine that focused on B2C. And I guess the other data point I’d point out and how focus it is on B2C is you look at the internet retailer 1,000 and they’re the leading provider of email marketing to that group of people. So, again highly focused on the commerce vertical. So, it’s a very unique set of capabilities, a very unique focus and a very unique go to market strategy that they have because of that verticalization purpose.
It's stock compensation, and compensation, those things combined for those executives.
Yeah, good morning, Jay. Yes, I think your question is definitely on point and one that continues to begin on real dilution of the current regulatory matters, particularly in Ohio, and to allow then our bankers to begin that process. So, we remain engaged with those that have expressed an interest in wanting to enter into a transaction with us and once we do get this real dilution, then, we’ll be able to move forward at a good pace.
Just after the 1st of March. And we still see more weeks it's installed ago. So the impact of that really is going to benefit second quarter and not so much first quarter.
Erik, it's Rob. Happy to do so. As I said, the capital that we generated this quarter was primarily from business earnings and there was a modest benefit from interest rates. The math is relatively straightforward, if you think about the guidance that we've given before. If you look at our after-tax operating income, you net from that the buybacks and dividends that we provided during the course of the quarter, and the rule of thumb that we use for business growth that has the amount of capital that needs to be put back into our businesses to finance their growth, you come up with a number that's pretty close to the $0.5 billion that we generated. So it comes primarily from the earnings that are generated at the business level. The capital hedge – I presume in that case you're referring to the FX equity hedge, actually did not have a material impact in this quarter. If you recall in the first quarter, we accelerated some of the – locked in, I should say, some of the gains associated with that. And so that included most of what we otherwise would've realized during the course of this quarter.
It’s definitely video processing, and I would say that’s somewhat corresponding to the fact that it was particularly video service providers, traditional pay TV groups. Some of our large pay TV customers are also some of the most aggressive and forward-looking about moving to virtualization. They’re also among the most aggressive looking to move to Ultra HD.  And so therefore, they’re the ones who are really planning actively their next moves, holding back on immediate investment to really roll out something new and special. Put differently, there’s a stronger correlation between our production and play out products and our broadcast to media customer group, and as Carolyn just highlighted, we actually saw sequential growth with our broadcast to media customers. And that reflects pretty strong and consistent demand trends around our production play out products.
Keep in mind, that Gulf was our highest cost, highest interest rate project finance debt in our portfolio.
Hi, Phil, it's Stephen Wright here. It's actually a little bit of a combination of the two. You have to remember that these are investigator-led studies. So each of the investigators has the right to do with their data what they wish. So if they wish to publish and abstract of their data alone, they can do that. But equally, they recognize that the data are more powerful when aggregated. And since the ability to aggregate and database those data sit most readily with GW then we are happy to do that. So data from all sites are provided to us, we put it into a database and then give back to the consortium of investigators the output. And they then convert it into a collective abstract, which is the abstract we've referred to which has gone into the American Academy of Neurology. It is highly likely that there will be other abstracts as well that come from individual sites, as happened at AES in December in Seattle. So I think we can anticipate, subject to acceptance by the committee of the AAN, a number of Epidiolex-related abstracts.
There is a lot of options out there right. The revolver provides the most flexibility to us. Given the trading levels we’re not opposed to capturing the little discount out there, going after the 2021 notes or the 2020 term loan and that's a decision that the Board's going to have to make as we look at these different options and we see where the trading settles at. But the revolving credit facility, obviously it's the closest maturity that we have. But in reality that's with friendly hands or that we think it will be open to the maintaining flexibility right. So when I talk about maintaining runway for maturity profile this is exactly that is, we’re not going to get caught flat footed in front of a $600 million bond refinancing without a plan to do it, right. So a lot of this answer depends on how your markets respond to the Federal Reserve increasing rate cuts over the coming several quarters and how we have access to the markets. If market access is difficult than you'd expect we start taking small bites of that early on and the market access is more available than we can take it in a faster past.
Well, I mean the ultimate rate of decline really depend on how much we are putting in the front end. So if purchase is remains fairly muted like they were this last quarter, that rate of decline is going to – continue to be fairly sizable.
I agree totally. So I think we are in an excellent position where the regulatory bar is relatively low. The regulators definitely want to see these agents come on to the market in my opinion. But commercially as you point out, we are going to have to compete with existing modalities. I think principally, our competition is with MRIs. With 1404 in our Phase 2 trial, we showed increased accuracy compared to MRI. We will definitely include comparative data in these trials, both of 1404 and PyL for exactly the reason that you point out that we want to be able to make commercial claims about the accuracy of these agents as compared to the current modalities.
Well, yeah, I don't know if you were comparing – I mean, the last time, some of it was our fault around execution that extended these things in backlog, and we've significantly improved on that. The fact is that the backlog relative to where we were in the last cycle and projects is lower, so there is less to actually flow through over that period of time. So what you see in our backlog right now is more of a mix of run rate business and aftermarket. Having said that, as you've seen this in the oil industry, last time, oil snapped back relatively quickly, and these projects were – there was still a sense of urgency to get these projects on line. One thing that is different is, we're certainly seeing that these projects aren't running at a pace in terms of delivery that they were before, and even slower than what we saw in the last cycle. So, I think the risk is, and we've seen this during the course of the year, is that the backlog, the delivery can extend, we're not worried that they're going to go away, because a lot of these projects are well underway. But, we could see where customers can push these things from quarter-to-quarter and in fact we have. To your point, what that's going to impact, obviously if – project backlog is typically in almost all instances your lowest margin backlog. If it gets pushed, you could say that that could help margins, the fact is, around the project or the gross margin in and of itself. But it does impact revenues, and this is what you're seeing in the EPD segment is the revenue decline was – it was difficult to offset with reduced fixed cost, and so you lose the fixed cost leverage in your operating margins.
I think the -- a couple of points on that, Mitch. It's a great question. Number one is I think the debt market, and for that matter the equity market, as we've mentioned on previous calls, we see measured underwriting. So we do not see underwriting metrics can in any form or fashion to 2007 or 2006 timeframe. So in general, the market in terms of underwriting risk in a variety of ways we would term as being measured. With respect to the banks and construction financing, I would say that they are becoming more cautious, simply because of the length of the U.S. economic cycle, number one. And number two, just the relative risk-based capital requirements that they see coming forward in 2016, as I'm sure you're well aware of the regulatory overview there. So I think the combination of both the duration of the economic cycle as well as the increase in regulatory cost of capital is affecting their underwriting. Having said that, again it's more measured. There is ample liquidity if the transaction warrants it.
Thanks, Duffy.
Thank you.
Yeah, well, what I would say in the second quarter, we had a pretty significant reduction in the debt footprint, and that happened both from maturity. As an example we had a very big euro bond [ph] that matured in the second quarter and we also did some of the debt tender. So we didn't have a full quarter effect of that. So, the biggest driver of the decrease in cost of funds from 2Q to 3Q will really be the unsecured movements coming down. So you'll see that. Now, when I think about it, longer-term, it really has to do with the growth of the deposit book and continued asset migration into the bank. Today, deposits have about 115 basis points cost of funds, and we're funding a lot of those loans at the holding company through securitizations in an unsecured debt that runs at 12%. So, as you migrate those loans over time to the bank, you'll have further cost of funds reduction. So, I would just guide you to say 3Q will be a pretty nice move down and then it will be kind of a steady move depending on the asset migration.
Thank you all very much. Just want to give a shot out to our -- I made a visit this week to our new facility that will be coming on line in the third quarter. Everything is looking good there. It’s 120-bed acute hospital. And so, we’re very pleased with that. We are extremely excited about our acquisition up in Wisconsin and Dr. Goldstone there and what we’re doing with it. So, just had a great quarter and thank you for your interest in Acadia.
Dan, I'll try not to say Oprah and bonbons.
Yeah. I think you’re right, Michelle. So it will have some benefit but not quite as much obviously, if all things settle in the third quarter.
I just say thank you to all who joined us this morning, continue to ask us questions, as questions come up and I think the four of us who are on the call this morning are always going to be accessible to answer any questions or concerns you might have. So back to you Jamie. Thank you, so everyone have a great weekend.
Around the world.
Good to talking to you.
Yeah. I'm not going to provide a specific percentage. Obviously, as I shared before, our largest customer, we don't have any 10% customers, but as I shared before, we obviously have had a 10% receivable customer in the past. And these three customers are, call that, no one is larger than the largest customer, but customers two and three are not that much smaller. So that gives you some kind of order of magnitude of the size of these customers. And these are almost predominantly, not exclusively, but almost predominantly media customers. So that's largely where you see the impact for our media business.
Thank you everyone, we appreciate you listening today. If you have any questions please do not hesitate to reach out to us, Michael Weitz or Laura Kiernan. Thank you.
Operator, this is Scott Painter. I just want to make one correction. Earlier I announced that we have got Sam’s Club. That is not an official announcement yet. So to correct that statement we, over the last quarter launched 23 new partner auto-buying programs, 14 of them employee buying programs, eight credit unions, one membership organization, AAA Northern California, Nevada and Utah, as well as Safeco, and stay tuned for any other announcement.
Thank you David.
Yes. So, there is a bit of quarterly variance. And so I don’t want to put too much talk in any kind of quarter-to-quarter movement, because of course the utilization of our people is highly contingent on which projects are starting, which ones are rolling off and the timing effects and the like, but absolutely, as a trend, as a percentage of revenue of services, we expect a decline. Now, there is a floor, because as I said in my prepared comments, it’s absolutely vital and we are insistent on this in the sales process that we play a strong advisory or even lead role on the implementation for customers of any size. That’s important for everyone’s interest, I think for pretty obvious reasons. And that leads us to believe that something like – when you marry that with our aspirations for growth in new customer acquisition and new project initiations and the like to something like a 30% floor of revenue coming from professional services. We could be a few points above or below that, but directionally, that’s how it models out. And we have a lot of confidence in our partners and we expect to sign on more and have them do lots of – basically every project with us side-by-side, but we are going to be very insistent on participating at some minimal level for everyone’s interest.
So yes, as I just stated that we are looking for additional operation expense reduction cost saving plan and that could lead us to achieve the breakeven point in the near future. We are doing that; that’s the process we are doing and more detail will be in the Q4 conference call as our CFO stated.  For the productization, that’s always one of the option and our board member is always open for any possibility improvement in the future and that’s what we can comment right now. Thank you, Lisa.
Cash from operations, yes.
Well, I hate that on the scanning side they are relatively flat.
Hi, Zach.
And it is really more from a license standpoint David, from a team. Our regular branded like the Nike or Under Armour or Costa hats has done pretty well.
Obviously, we don't comment on such matters. And you know that, Paul.
Joe, cover that.
Oliver, this is Erik. A couple of things we've launched in the last quarter. Text to buy would be one we're pretty excited about where I believe we're the first to have the functionality where customers can buy through texting with their salesperson. We launched a personalized homepage on our mobile site. We have integration with our loyalty program, we launched an Android app, and we also launched near-store notification. So when you're driving by our store, we have relevant notifications we can send to our customers. Those, I think, would jump out to me as the biggest differentiators versus last year.
Well, I think our sense is that things are bottoming. It doesn't feel like things are getting worse. Virtually all the pundits speculated back in Q4 that Q1 lumber prices would rally $15 to $30 a thousand. That has not happened. In fact, this year the exact opposite has happened. You're now hearing some talk from some of the pundits, they're speculating that some mills are running below cash cost, particularly in interior BC and those same pundits are speculating that could in fact result in production curtailments. Housing should begin to materialize now that the weather is getting better. Virtually everybody thinks housing starts are going to be higher this year and given that supply chain inventories are relatively low, we think they need replenishing. So demand for lumber ought to start to improve from here. We think we're now at the point of maximum pessimism as we speak today.
Well, we have focused on our efficiency ratio, the big driver there is revenue generation. And we made the investments we talk about the growth that we seen in NIR. We’ve seen the loan grows as our revenue grows and it takes a little bit of pressure of the expense side, but we’re working on that, too. If we take all three -- two revenue improvements in NII and NIR, and work it on expense, we do expect the efficiency ratio to drift down but our goals is to get down into lower 60s. 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 lower 60s. So it’s a focus every day.
They are and one of the most immediate benefits they get is efficiency. They can get their work done for less and one of the immediately following benefits of that is what they call mortality gains which basically means doing a better job underwriting. They’re able to – their underwriters are able to spend a little bit more time in analysis and the digital data enables that. They’re having to do less sort of hand calculations, they’re having to do less fewer look ups, kind of the impairments that they need to think about right there and those have been pre-analyzed in conjunction with their requirements in their underwriting manuals. So it’s having a great deal of benefits immediately. And then it also has those down the line strategic benefits, they get the sea level folks excited.
Yes, well we are really thinking about as far as CE marker pursuing that after we get our FDA submission in, there is certainly some international markets that you can leverage within FDA clearance and we’re going to able to do that prior with our spider product that’s going to be our focus on CE mark after submission.
Yeah, that's not the key driver in this quarter. It really is the growth in equity. It’s a [indiscernible] driving it this quarter.
Exactly.
Thanks Craig.
Thank you, Helane.
Obviously the understand of atrophy really just translate to the [indiscernible] event and there was actual loss of brain tissue, it had been used in the past the secondary progressive trials to be suggestive of an improvement downstream in progression. More and more is been learnt and applied from MRI techniques against showing more activity in grey matter and what was really perceived to be a normal appearing white matter, there's a lot more inflammatory activity in the degeneration and so more analysis is being done on the measurement of atrophy in relationship to progression. It's certainly been described and probably the strongest relationships are still been associated with [indiscernible] function as opposed to physical disability. So we think that the data from atrophy will translate to -- and be predictive of change in progression rates. Yes it's likely an assault and at least EDSS will probably remain the primary marker for clinical outcomes in the eyes of the FDA, although as you know companies like biogen have been looking at composite end points now essentially breaking down the key components within the EDSS to achieve a higher resolution of [Technical Difficulty] for measuring disability. So those factors are always moving and as we move forward with our clinical studies and hopefully we will want to select the most sensitive tools for clinical benefit which may ultimately be a combination of an MRI end point as some sort of composite read on subsets of disability endpoints.
Well, we don’t have any results yet, but it is an extension of the same kinds of lands that we’ve put in place in Hungary, in the Pannonian basin. We think Croatia is quite prospective. There hasn’t been very much investment there over the past few decades. We think that we can bring some new things to bear with respect to technology and the types of projects and prospects that we’d pursue. It is in the Northeastern part of the country, contiguous, because some of the blocks are contiguous with the Hungarian border. So we think it’s very prospective and it all fits favorable fiscal environment, in fact, one of the very best in our entire portfolio. So we’re very optimistic, but no results, the award has been announced by the Croatian government and we’re in the process of working on concluding the definitive contract.
Correct.
We are moving right through the process right on schedule.
Sorry, Richard. If I could just clarify, you are talking about in terms of subscribers or revenue?
All right. Give me minute. I got some end of period balances. We had growth, I mean, our annualized growth in end of period in C&I was 3.7% CREwas 6.6%, total commercial was 5%, consumer was 7.8%.
You can. You have to pay a lot -- I mean you pay the price of the options plus the taxes are pretty heavy on that. So, in Tom's case, he sold very little, he held probably over 100,000 shares. He increased his holdings quite a bit. So, Tom increased, he more than doubled his holdings which is exercised and then I have about 50% increase on my holdings. I did hold shares as well. But it's a personal thing whether you have the cash to sign them all.
Yes, that is what we talked about, cents per gallon EBITDA production not includes corn oil which is another $0.04 also a gallon as well. So yes, we are seeing that out on the curve today and I guess some of the – it ranges across our platform and it’s not have to do with as much around technology and size of the plant, but more around location geographically of the plant. As we said, eastern plants have higher levels than some of these Western plants. So obviously lower than we like to see, but more than enough to cover all of our obligations and generate free cash flow returns for our shareholders as well.
Sure Tony. Let me take your second question first, just the definition of the patients on study. All patients entering the trial had to have at least an attempt at resection, but it was note required that they have a gross total resection as the surgeons call it. So that 745 number represents all patients on study, but 405 patients were identified as having a minimal residual disease following chemo radiation. Now as far as the median follow up goes, I can’t tell you the exact number at this particular point in time. But of course we did close the study quite some time ago at this point. So it's certainly measured in years. We have very limited access to the data at this point and we don’t intend to look carefully at all the numbers until we have the readout from the data monitoring committee.
So again, Steve, our philosophy has always been you buy, start, execute, repeat. The good news is of that original $2.1 billion, almost $1.5 billion is complete. Another $0.5 billion, or $600 million, is in the pipeline, excluding Sears development, which we hope to start most of it in 2016 going into 2017. And even though we feel that it's going to be continuous opportunities in the portfolio to grow organic re-developments, call it, $300 million to $500 million a year, we will not start construction on any of them until it's pre-leased. And we've had that discipline even in this market that's been rising. We haven't started any development until they've been pre-leased, except Ala Moana, which is now 90% pre-leased. So I think, we'll continue with our discipline. We will continue looking for opportunities within the portfolio. We're not going to be looking for any ground-up development or greenfield developments. All our products will be redevelopment of existing assets. We feel pretty confident that we can grow that by $300 million to $500 million a year. And we will not start or put a shell in the ground, until those assets are 90% pre-leased, when they are redevelopments of existing assets, which will actually lower our risk profile, even if the market does turn. Okay, thanks.
Okay. So I’ll start and Rajeev, you can jump in.
Thank you.
Good afternoon, Scott.
Yeah, we haven't provided specifics, but it was definitely a handful of deals. We said it's probably more than five and less than 10, but that was already taken into account when we provided our 2Q guidance.
No, that was just the trailing costs, there was in material benefit associate with the GAC settlement on P&L.
Well, I can’t help with you the number per se, but what I can tell you is a couple of qualitative – I will give you a couple of qualitative comments. First as I said January was soft. We do collect Virena data, which unfortunately aren’t available to the public. But we now show not only an increase in a number of tests being performed at those sites. But we also see an increase in the prevalence, seriously this year we are seeing upticks in volume in places and space that we haven’t seen previous, which I have no explanation for. The states that we normally see early and the start of an epidemic now have started finally. But I don’t think that the ordering that will occur will be enough to offset the softness that we’ve seen in January. Even though we know the inventory, the distribution at the moment are quite low.
Well, I think we’re seeing the same kinds of things happened and they are somewhat interconnected, for instance, with Mexico, seeing some of our leaders in Mexico come into the United States and work and build our Hispanic market. We have incredible leadership in Mexico that continues to help lead the charge of a growing business in Mexico.  In Canada, Canada has always been a market that is very product driven and our products speak to that marketplace as we continue to grow. Our product inception, customer acquisition of those who are taking our products has really been fueling what's driving up in Canada. And we have another resurgence, which is part of our strategy when we opened France several years ago, such a strong market in Quebec area, our French and Quebec and many have been working France, but it's got them off the dime, again back in Quebec and we’re seeing a resurgence there in that region, which has been a lot of fun.
Yes, as far as the integration, we are – they are actually quite a well respected, well-run company so we are not going to close the transaction until – till the end of the year depending on when we get regulatory approval. So we are still developing exactly what we are going to do. There is a number of joint ventures in there as well. But based on their expertise they have got and their reputation, I don’t expect any big changes right away. We will run it as a separate group. There is going to be some areas where we have got overlapping capabilities so we’ll sort those out, but for the most part transmission is a new area for us. So for the most part they will continue to run as a separate entity, but we’ll – as we get closer to taking it over then we’ll fine tune that. As far as synergies, I am not going to quantify the amount, because quite frankly until we get into the real detail we won’t know. But I would think the synergies would be in areas like purchasing, if there is utilization of – underutilization of assets if we can be in-sourcing from one company to the other, I’m sure there is going to be some other functions where corporate functions where we can get some – we will have some duplication. But for the most part, it will be in the purchasing and in the operational areas.
Good morning, Brett.
Good morning, Joe.
Thanks, Larry. End of Q&A
Well, a couple of things. We’ve got people in country now talking about the follow on contract, and we’ve talked all along that it’s going to be hopefully a multiyear deal. And we don’t have a contract there yet, but we are in discussions about that.  Additionally, the best thing is the contract is going very well. The customer is happy. They’re getting what they wanted. We’re making decent money on it, and so I don’t anticipate there would be any reason for it not to go forward. Obviously, with the price of oil being down, that’s always a concern, but my view is this is pretty low down the food chain, if you will, and it’s going to save them money. So this is a place where, for a relatively small investment, they’re really improving the efficiency of their grid, which is something they need to do, and something that’s going to save them money.  So we feel good about what’s going on over there. I think we’ve mentioned we entered an order with another utility in Saudi Arabia for a little over a million dollars. Both of those are getting a lot of interest around the Middle East, so we think this should be kind of a nice entry point for us that we’ll be able to exploit with a number of other utilities in the area.
Sure. So if you recall coming out of the recession and getting back into a growth plan, we wanted to have a phase build-up. We wanted to make sure that we built up our infrastructure, and by infrastructure I mean, the ability to go out and source real estate, the ability to make sure that we provide experienced management into all these stores, where we spent a lot of dollars on relo, to make sure that first customer that walks in the door gets a great experience at CarMax, and our buildup over the few years, we opened three the first year, then five, then 10, then 13 for two years in a row. So this is kind of in line with continuing; as the base has also gotten bigger during that time. I think we have added 50 stores since 2011; increased the company size from 90-ish stores to 145 or so. And we opened 13 this year, and we plan on opening 14 next year, so it’s right in the -- just kind of in the range of what we delivered, and we wanted to give ourselves some flexibility. These are big complicated stores, sometimes one or two might slip in or out every year. So we'd like to put a range about it, but we don't plan on opening 10 anymore, so we are -- that's kind of the range we can deliver over the next few years. So its confidence and all the things that I talked about, and that's the reason we raised the range.
Yes, we think about it all the time, and I think the most likely point, which given our leverage target of 3.5 to four times, the most likely point that will be more forthcoming on this is when we announce our full year earnings, and give 2016 guidance at the end of the February.
Let me take a couple of them, in the first quarter we actually had above normal hydro. We have lot of rain instead of snow so we actually had a benefit from hydro in the first quarter, that was offset by lower wind and then with the warmer weather in the first quarter and lower gas prices we were able to economically displace our resources. So that helped us to optimize our power supply portfolio and as a result we’re under the PCAM. As we look through the rest of the year a lot of it will depend on how the hydro shows up, kind of when the market prices, what kind of loads we see in California, whether there is any heat this summer. So there is a lot of variability as we go into the summer season but right now we’ve assumed the hydro conditions that have forecasted going forward in this kind of normal power supply activity.
Okay, well thanks for being on the call today. We look forward to catching up with you at our year end call. Aloha.
Yeah. This is Debbie Ferrée. Good morning. So, opportunity buys, closed-out buys, there are a lot of deals in the market right now and currently our penetration of those opportunities is in the low-double-digit range. I think we called out before on a previous call that we would be happy to have that range go from 10% to 15% in terms of opportunity buys. And that's where we're landing right now. But there are a lot of great deals in the market out there. There is plenty of goods in the market. We have the ability to be a lot more disciplined and strategic about the goods we take. And we found a lot of good opportunities. So, between 10% and 15% is our goal. If that would have flowed a little bit higher, and it was the right product at the right price, that wouldn't disappoint me.
Yes, that's the expectation. That's correct.
Yes, so Brett I would say that important to know that our pipeline did increase at the end of this quarter going into the fourth quarter, so that is good times for our other lines of business. We did note that we expect continued declines in energy, we have talked about that. On mortgage banker finance we also expect seasonal declines. The amount of those declines are difficult to predict. You can see in our appendix the fact that we’ve got quarter-over-quarter movement in our mortgage banker business and in the last couple of years we have seen seasonal declines, sometimes as large as $500 million, but again very difficult to exactly predict.
I think Rick, for the year, we’re expecting CapEx to range between 40 and 50, we are a little bit heavy in Q1, just really a timing. So again overall CapEx to be in the 40 million to 50 million range consistent with last year. Okay, so is it - other than Q1, is it heavy, heavy first half weighted or? I would expect Q2 to decline.
Okay, it was last year but it's a good question, Rick. And I have to first collect my money from the debt on how long it would take to somebody to ask this question. We knew this was coming because I did listen to the conference call yesterday with Mueller. First off, let's deal with the size of the American Water contract. American Water serves 15 million people. If you use the average in the United States of three people per meter, that would imply that they probably got about five million meters in the ground. And if you're using average life of about 17 years that would imply about 300,000 meters per year that they would buy for replacement. And that’s probably a pretty accurate number because when they did their RFP last summer, they had indicated that I think they were doing about 276,000 meters the prior 12 months with Mueller, to give all of the bidders a feel for how big the contract was. So, I do think around 300,000 meters per year is a reasonable expectation of that business. The problem we have Rick is that you correctly reported in a release that you did earlier this week, that when Neptune lost this American Water contract to Mueller, they had announced that it was worth over $50 million per year, is that correct Rick, do I remember that right?
No, he is just saying, we have till June ’16 to do sometime. He didn’t really answer the question yet.
Yes the only thing I would add Charles to that as I think it, -- the acquisitions we've done are largely staying within our focus of growing organically. The difference would be that the organic growth in new plays we’re still able to go out and get ahead of the competition and acquire positions in new plays fairly cheaply. In the Delaware Basin it's a very mature basin, it is a lot of ownership, legacy ownership has been out there for years and years as everybody knows. So one way to gain entry into acreage that we see quite a bit of upside is through these tactical acquisitions and I would add to Bill's comment we’re being highly selective in what we acquire. And so we passed up several opportunities that have been transacted that we just passed on and we did focus on these three tactical acquisitions that we are very encouraged with and as a matter of fact we already have drilling operations going on, on the acreage that we acquired. So we’re going to stay selective and continue to grow each of one of these plays in whatever manner we feel like we can.
Sure, Michael. Yes, MGT is in the upper Midwest, and the facility connects with the Chicago hub, and it is bidirectional. You have 600 million a day going south and then 500 million a day going north. The facility has been very strategic for some of the Utica and Marcellus producers to access movement of their molecules into Chicago via some of the other pipelines that interconnect with MGT. We are looking at a couple of expansions. One is announced that will move 125 million a day into Chicago from the Rockies express interconnect, and that is under construction currently. And we are also evaluating additional expansions and visiting with the same producer community in the Utica and Marcellus to access more capacity on that facility.
We have been looking at – as we replaced equipment in the mills to use modern equipment that can be used for optimization in the future with computers –
Bill, it’s Seph. So listen obviously I’ve talked to our vice president of sales and stay close with the field and those parts of the country. And obviously I can't quantify it for you but I think absolutely we have had customers that are somewhat sitting on the sidelines while they wait to understand how this was going to shake out. And certainly I think we’ve had some customers that may have adjusted their volume of testing until they saw clarity here. So that was an important market dynamic and I would say that our results in the quarter were achieved in face of that. So we are excited about the development here.
[Foreign Language] Alicia, so right now we have over 30% of a search traffic share on PC. But only have, like I said earlier, at the end of last year, let’s say, Alicia, 6%, 7% probably in the first quarter we move up to, let’s say 8%, maybe. So there’s still pretty significant gap. That gap will be gradually narrowed by our continued improvement our backend monetization system and continue expand our customer base and further deepening the penetration into those valuable verticals, including healthcare and other existing verticals there. So that’s the sort of the methodology we’re going to use to gradually narrow that gap. If we achieve our goal, we said there, if we do the math for this year, it’s probably looking at for sure more than 100% kind of a growth in search. In terms of whether we’re a number one, oh sorry, number two or number three, I didn’t really look at exactly number for the - for some of our competitors particularly the one that’s close to us. But I would say by, if we’re not number two right now, probably by sometime pretty soon, we will become number two in this market in terms of revenue basically. Thank you.
This is Tom. Look, all of this is new business, so there are no recompetes that we have had protested. Our win rates thus far in FY '15 is 100%. We've had all of them adjudicated in our favor. We're actually planning on slightly lower than that number, Bill, as we look at our -- Ed, as we look at our plan going forward. But we've got 6 contracts values in $100 million to $200 million range that we're actually -- need to follow through on.
Thank you.
And we're still comfortable with our guidance for the year at 3.5% to 4.5%.
Well, we have, I would say, in this chart, if you look at the deceleration of some of the growth, I have mentioned a couple of the markets that were unfavorable. So all of South America, including Brazil, was unfavorable in terms of volume and several other emerging markets. And I gave the example of Russia, as an example, where we saw a contraction here in the first half of the year. I would say that our volumes in China and India continue to be positive. Although, we have seen with this discussion on automotive OEM and a few of the other industrial markets, we've seen positive volumes in China, but certainly not at the level that we had last year. So I would attribute this more to the negative growth in a couple of emerging regions, but China was also lower overall, especially on the industrial and construction related side.
Yes, so I mean obviously hopefully it's not missed on everyone on the call today, that while we've had continued improvement in top line and through tighter management and focusing of our expenses on improved bottom line performance, but in addition to that, improvements on our debt structure, our overall capital structure of the company and our tax rate, just looking back to this time last year we nearly halfed our tax rate. And a carried forward number for the year that's probably somewhere around that 30% is probably right. And forward from there, a normal high sort of mid to high 30 range is probably right for us understanding that the majority of our sales still go through a U.S. domicile, and we do for some of our ex-U.S. sales have product sales going through our Swiss entity, the mix of which gives us that number. Brian, any other questions?
Hey Brad, this is Mike Garone. Actually we announced a couple of years ago that that was one of the milestones that was prepaid when we received $10 million I believe at the end of 2013. We are entitled to future development and sales milestones, although those amounts have not been disclosed, they are confidential. So did that answer that question?
Yes, absolutely. So, that affects mostly the Muse product maybe marginally the Halo product line. But for the Muse product certainly at least initially there’s usually a curve of pricing being higher especially when you get a significant compression, efficiency advantage for the operator, same thing for the higher formats like a 4K format. So initially we totally expect higher price. Today for you to compare for example HD, still commands a premium over SD encoding. Meanwhile, MPEG 2 and MPEG 4 at the end of the day are in the similar price ranges today, but obviously it’s been over five years that MPEG 4 has been deployed. And so, we initially think HEVC and 4K will command a higher price.
I would say, it’s still bad luck there, although there is still awful lot of competition out there as we talk about earlier. So, again we’ve got a still lot of orders, so we’ve got - we’ve got to participate at whatever level. So, ideally when the script selling price goes down, the buying price ought to go down in accordance or more, that’s always what we try to do, whether we’re successful at it, I guess we’ll have to wait to see in June or in July.
Well I just like to say thank you to everybody for your time. We are available for questions so please feel free to reach out to us if people have additional questions that weren't addressed today and thank you very much.
Well, we expect double-digit EPS growth for the year, but just specifically answer your question about whether or not this first quarter growth rate will carry through for the future quarters, I don't think that's the case, I think you will see that double-digit growth rate moderate here in the second and third quarters. As I said, I think to some extent, we are benefiting from a low comp last year in the first quarter, I don't want to take anything away from our results, but that's a fact. And so that largely is what drives my statement about seeing some moderated growth here in the latter part of the year. But still very good growth – I think that's about as much as I can probably narrow that down for you, Kevin.
Thanks Andrew.
Okay.
Yes. I am looking forward to being able to announce updates on all those cities and potentially new cities. There is not anything tangibly that we want to talk about today on the call other than we continue to be in dialogue. We continue to make progress not only with Chicago, but with the discussions with Boston, with Washington as well as a number of others.
Primarily fully realized, there was a little bit of extra cost in the first quarter because of the employees staying to help with the transition, but for the most part we're set there and the cost have been, cost saves and synergies have been realized and we're looking forward to that unit, getting back into the market and being on the op end and growing contributing to our growth going forward.
Thank you.
This is Shane, good morning. I our assumption again is average downtime of 12 months to date we're four months, so I think we've exceeded early, both in relative timing and comps. I think we have strong activity on the remainder of the space we've taken back today. But I think the expectation is a few of the boxes will certainly push through into beginning of '16 in this case.
Francesco this is Mike. We’ve had decades long relationships with walnut, pecan growers and peanut farmers. We expect that to continue. We do believe there is an environment out there for increased peanut acreage especially with given the lower corn and cotton cost. And we do expect to expand the amount of peanuts we show as a result of that. There are -- continue to new plantings on walnuts. You know even buy our existing grower base, and just as we witnessed this year we’ll probably see whether permitting increased quantities there.
Yeah, Nick, this is Sean. We are at sort of the upper-end range on that metric. It's running around 22%, which is within the band of history; but certainly, at the upper-end of that band. So, there's no question and we need to continue to see income growth to support rental rate growth in the future. So, we had a certain deceleration in income growth for whatever reason, which is not what's expected. And I think we're seeing that throughout the economy now, in terms of pressure on wage growth, then there would become greater constraints on pushing rents further in the future. No doubt about it.
The downturn in the headwinds. So, yes.
Tax exempt interest.
I am really not sure.
Hi Bonnie.
I think we can, we don't really see an issue of a lack of available crudes around the refinery where that's coming from reserve pipeline like you're saying coming into Louisiana or directionally coming from West Texas through one rather another. So I think we have not found the barging to be an extremely expensive solution to get crudes from Texas Gulf Coast into Krotz Springs but they do come directly to the refinery.
I think we're looking at – specifically, we want to go to long term care. We're looking at all of the products annuity and other products. And as we evaluate it there are a lot of positive elements within it as we look at different factors. Certainly, one of them as you're aware is the interest rate, which will be part of the evaluation. We've made no judgments at this stage, certainly where we thought the interest rates would be at this time last year is certainly lower, and we will evaluate all those factors. But nothing pops out from the standpoint that we are concerned about other than just looking at where the interest rates are at this stage, all the other behavioral aspects, certainly our price increases, other things, we're very confident that's what the actuaries are doing right now.
I would tell you that in a typical retailer enablement campaign, the closed rates have been relatively consistent. I think the one thing that's helped over the last few years is when we go and test somebody, that's almost the beginning of the next sales cycle and we're getting a higher percentage of large customers either directly or through partners to become customers. So it's not necessarily in the moment of the enabling campaign but that allows us to start a sales process and over time we can convert those testers as we call them to recurring revenue customers.
No, actually, FX was a drag in margins in the quarter.
Yes, I think we could, we’ve looked at it, I’m just not sure that once again we need to do it as quickly, what will be continued to monitor is the customers to LTE capacity bounce [ph] and as you see we’ve already got pretty good penetration already and I think that we will - once we feel like we’ve kind of at that tipping point, I think we can go to [Indiscernible] very quickly.
Yes, I appreciate your comment.
No, we will have update there once we have it fully baked out.
Okay, I think the way to look at it would be just to go to the supplement for that particular line and look at the current accident year before catastrophes which there wouldn't be for casualty -- any catastrophes and just multiplying that by the premium that would be the pick for the ultimate.
Thanks, Joanne. How are you? Listen, I'm very, very excited about home hemodialysis, first of all. It is what I call blue ocean for the company. It is a great clinically needed innovation. It is not a easy market to get in because the technology has to be absolutely perfect for bringing this therapy to the home. But we think we have the right technology and working very hard to refine technology. Right now we already have kicked off our U.S. clinical trial for VIVIA, and we're excited about that. In Europe, we have early patients and we're learning very quickly about our VIVIA platform, and the use of this device is proving to be well received in Europe. So we like our technology. It is an area that I will call is a strategic bet and why is it strategic? Because it's high end market growth, potential for good revenue per patient, but more so the therapy itself is absolutely fantastic for the hemodialysis patient to be able to do this at home. So we're going to continue to improve our technology, and we will try to put some momentum behind accelerating the U.S. trial as much as we can and work with the agencies and CMS and see if we can get this technology at a different level.
Thanks for joining us this evening. RFMD is a primary beneficiary of the exploding demand for mobile data, and our growth opportunities are expanding significantly as our content and customers' devices goes from dimes to dollars. We are confident in delivering revenue growth ahead of our underlying markets, gross margin at the top of our industry, robust operating leverage and EPS growth that's well ahead of our revenue growth. Thank you, and good night.
Thank you.
First of all kids is about 15% of our total sales and I am sorry I said that and listen there is nothing I can do to stop that so we want to compete, so we'll compete. And we've had people enter the lifestyle athletic business and we've had people grow their athletic business over the last five or six years and that's probably as competitive of business and all our businesses have done has got better and grown more rapidly than what we think the market has grown in our channel. So, I don't see us doing anything different than just doing our job of having great assortments in our stores and our customers have been shopping with us for 50 years. So, I think it's going to be one of those things that we'll take our chances, but we think we can compete very well.
Yeah I think -- we saw units up some in Q3. But I think the year-over-year compare probably tells the tale a little bit better. We were down 14%-15% between notebooks and desktops when you compare that against what the third parties would say happen with the TAM, they are kind of down in the more high single digits. So I think we undershipped a bit, relative to the overall TAM. And when we go do our test of inventory, we come back with healthy inventory levels, if that's what you're getting at.
I guess I would add to that the continued growth of FIFA Online 3 in Korea, China and FIFA around the world in general and mobile FIFA Ultimate Team, which has rolled out, as Frank mentioned, continue to contribute to the growth of the FIFA franchise, which we see as very important for us.
Good question, Marni.
A lot of the schools that we do usually do a first phase and then there is additional follow-up business. So, we have expected for most of the school jobs that we have been announcing.
Farha, we are also seeing positive evidence on the export markets, especially on the Middle East, which is taking away some pressure of the Mexican markets, especially on the Northern part.
I think, it's – Danny, it's Tim. I think it's somewhat a different quarter. We've got more outages. Seasonally, it's different. So I think it's going to depend. It's always a difficult quarter for us to gauge on operations. Last two years, we were impacted by weather. So far, we've kind of gotten the pass on weather. So I think the best thing is just to let us tell you about how it went when we get to the end of the first quarter.
Sure. I think any one of them that’s not concerned about the precipitous price decline is probably not shooting straight. So we have folks that are saying when we are having active dialogs, we talked to these folks weekly or bimonthly. It’s obviously a volatile environment where first lien on our positions, the average multiple is 2.3 times EBITDA, and that EBITDA is $38 million. So you can count – you can think of a company that has a reasonable revenue stream diversification, a good position in the market, good customers and a good prospect looking forward in the course of this year, but everyone is concerned about excess supply price volatility et cetera. As we’ve said in the past, our observation is that they’re acting prudently to control costs, and in many cases, looking proactively to take advantage of the dislocation that is having perhaps a more profound effect on smaller or less well positioned companies. As the first lien provider, we’re obviously in dialog an important partner of these folks as they look to protect their balance sheet in their business over time.
Yeah. That's correct. Obviously, as George said, we've been very happy with the impact in our Lakeland facility. And our team did a wonderful job in executing that without any interruption of service to our customers. And we're beginning to see that flow through into our new Hartford facility. And we will complete more of that work as we move through the year this year.
I think it was related to some advances we got at the end of 2014 related to the financing. And so I think it was basically that was the reversal of some of the financing we got as part of the Buckingham transaction.
I don't want to comment on this. We don't know the competitive specific numbers.
Yes, that's true. And look we had a couple of customer accounts that moved into that 60 day window and we have a little bit of loss small numbers now right. So if 412 aircrafts become a problem, we can swing that percentage by a pretty good chunk even though it might be two airplanes and $20 million makes a big difference from a percent basis. So, I don’t think there is any fundamental underlying change there. I mean clearly some customers internationally, because of some of the issues around U.S. dollar and currency and what not, those payments have got little expensive. And so obviously we’ll work through that and in general I think we’ll be fine.
And going forward it gets a little tough too because Darin pointed out the one example we have or Sabers coming in as an ASSP that will take over the FPGA in the USB side, so there is some mix going on there were we had forecasted potentially longer FPGAs, while we are going to be Saber now. So those kind of opportunities are starting to show up. So we much rather look at this going forward as a combined company and not start splitting the hair, so to speak.
If you look at the reconciliation to North American Coal operating profits, SG&A for the coal business is called out, it’s the last page in the earnings release. I believe it's called Page 13 and you’ll see there is a very explicit number there for SG&A.
So when you look at the volume, the majority of the volume is more Northeast based. So in terms of where -- because -- but keep in mind we do not have a New York state license. So we could not focus on an area where we do not have the license we could perform the test. So if you look at where the volume is, it is based in the large metro areas, if you look at where we were putting our reps in, it’s where we had core volume and core payer penetration. That is where we put the reps initially but in terms of going forward we’re going to be focusing on the larger states such as New York, New Jersey and of course Florida, but the initial push was those specific regions and then going forward is going to be those larger metro areas.
This is Dominik speaking. So this was related to social security costs. We had already, 10 years ago, a dispute with the administration for social security in France. We finally won the case at the court and, therefore, received last quarter this amount.
Well in the CapEx number you've got both investment, there's investment on multi-client as -- excluding the investment on multi-client, we’ve spend very little money on CapEx.
We were compliant in the third quarter; we are continuing to evaluate as we go from here.
Both northern and southern coastal, we are not going England. South Bay, East Bay of San Fran, LA County, Ventura County, Orange County, Northern San Diego County, if you can get it is going to be within 20 minutes at the Toll town.
Local was down in Puerto Rico, LA and San Francisco markets.
Yeah. Thanks, Matt. We've talked over the last two or three quarters about how we changed our pricing strategy and now that that's been grandfathered I think the biggest move that happened this quarter is a lot of those pricing moves that we made in mask in the second half of the prior year of neg ramp [ph] following through. So we've seen pricing stabilize. The AirFit range of masks continues to compete very, very strongly, I would say especially in pillows and full face. The nasal market has always been the most competitive category of masks and continues to be quite competitive. But our volumes are up and our pricing is stabilizing. We have a very strong position and we feel confident we can maintain growth.
Yeah, I think we very much like to take the portfolio approach in our own model between the spot business and the annual contract freight and I think what we’ve said is half and half and sometimes it goes to 40:60, sometimes 60:40 over the last period of time, and what we have found is and as you know we continue to have the ability, we are routinely turning away cargo every week and are really limiting our customer bookings in trying to find the balance between achieving the best rate we can in this environment and filling the ship; and that process goes on tactically all year around and that goes into some of this thinking, but I think it’s in now best interest and then our approach is to continue to have both types of cargoes on the Matson vessel. Okay that's helpful. Thank you. And one more and I’ll turn it over. Obviously, with lower bunker prices I know you’ll had our a little bit of the benefit, even as you’ve adjusted your surcharge down, but given kind of where bunker prices settled in the past couple of weeks is it - with all else being equal is it fair to assume that some of the maybe a near term impact or a positive impact would be relatively meted going forward?
Good morning.
That was -- we are very protected in Canada with our Disney deal. We'll always look to exploit their content in any market where they feel there is a window that’s available. In the U.K. market it’s a kind of content assortment that includes the closing of DVD box sets and library movie of the week and some branded content, but it’s a library play for the most part. When we were talking to Disney about our opportunity in Canada I know they were evaluating over the top strategies versus going with a partner such as us. They've been with us. We've a longer term deal. We're very confident that what they're doing in foreign markets clearly is their strategies, but will not negatively impact us in Canada.
Yes, I think you’re arithmetic maybe incorrect. So the $100 million…
With regards to what? You’re talking about cash flow conversion?
Yeah.
Hey, Michael. This is Frank. We don’t have any restructurings planned for this year. So the realignment that you saw last year on to commercial organization, which by the way we highlighted in our prepared remarks, has really worked out excellent for our business. We’re not planning on doing anything like that coming into 2016.
We'd like to be able to give you more information on a projection for Q4. But not only would we not normally do that, but as Mark said earlier, we just don't have a lot of visibility on what's happening past Q3. The customers' tone has changed in the last six weeks since oil's moved from $60 to $50.
I can. For AMERISAFE, our frequency was down in 2015 and that was not something that I personally was expecting. I thought it was going to be flattening and I still believe that going into 2016, but frequency was down.
Pressure pumping decrementals, were they worse?
Yeah and Cosmos Tony here. Actually we have we rarely do factoring the large component of the resources. In this case I just point to the fact that there are very high quality resources is both Bill and I said in our prepared remarks. And in fact the lot of those resources were on in the reserve book just a few years ago. And Barrick had talked this morning in their press and in their conference call that they're looking to extent the mine life by expand and tailings facility and has a potential to convert a lot of those resources into reserves. And we believe it's the same, so it's for us we look beyond just the reserves there to get our return because of the quality of the resource in this particular case.
I’m glad to hear you think it's undervalued but I think we're starting with a $1 million and that will be spread out over roughly a four quarter period. We felt that was the right balance given cash, the need to fund the business and go forward.
Just to add to that, Ken, we track what both Boeing and Airbus do. And in Boeing’s report, they showed modest growth, 5% or 6%, in their first quarter deliveries of 737s and a nice growth in Dreamliners from 17% to 30%. And we parallel that pretty much, there was a little extra 767 shipment. So those 8% to 10% growth rates that we experienced between 2008 and 2014 in the industry are going to slow down to 3% to 5% and we feel real comfortable that we could hit the top end of that range on a sustainable basis with growing with the market and increase content for some of the contracts announcement we’ve released recently.
I definitely think that’s the right way. I do want to make a correction, that we’re – that a it is not fore gone conclusion that we lose these customers. We do want to openly discuss that possibility here on this call. But as we transition, but we’re obviously going to be working very hard to preserve the revenue that we can out of that customer base, however on having said that, the company is firmly focused on providing a solution of marketing automation solution competing in that space and in our customer segment in that space is SMB customer. And graphics main has a set of consumer and what I would refer to as micro businesses. That may not be ready for marketing automation. We’re pretty confident that our user interface is very, very ease of use. And so we may not suffer the attrition, the numbers that I spoke about earlier in the call. However, all of those customers because they are less sophisticated, because their micro business is they do often require some handle and when it comes to tax supported. That sort of thing, so yes, I would think of these as potentially less profitable customers. And we’d really expect to see the synergy between the teams. So at this point in our business, we have two development teams working on two different products that have very similar functionality for example, they both have what’s referred to as [indiscernible] import and export tools, this building so on and so forth. We can now bring those teams together and accelerate our development on the short sprint platform. So we will without a doubt be significantly more efficient moving forward with the transition.
In the end, we expect overall our returns in China to be above the fleet average again next year. We have a significant capacity increase, 60% plus and around 60%. And so we - it's a unit growth story for us in China. So we are anticipating that while yields may come down a bit on balance, our returns are going to be better than the fleet average and overall, we are very, very positive on the China market.
Oh, small.
And, Michael, you look at – we've been scratching our heads on this a little bit, saying, is it the U.S. economy driving this? There are some areas and we have talked to some of the clients about, you know what, why we're seeing more volume and people are still trying to sort this part out. But there are more – there seems to be a lot of volume of waste out there in Q2.
Yes, Ben. Yeah, in terms of the chemistry in particular on the margins, as we mentioned, overall, our chemistry sales were very strong through the year, and which put us in a position to with our suppliers in terms of our rebate programs that we have. So we had very good performance against them, which allowed us to basically have consistent margins year-over-year from that standpoint. And then on the fertilizer side, again, very pleased with our margin performance this past year, especially in a declining market and definitely in the last quarter. And just a reminder, if you take a look at our fertilizer margins, yes, we have the underlying commodity, but we do provide a lot of services, everything from blending to applying of the fertilizer, as well as our nutritionals as well they provide a lot of support for that underlying margin as well.
It will be approximately $200 million, Krish
Not really. It might in the next quarter or two, as we transition some of the stuff in Asia.
Thank you.
We're not expecting one in base rates, no.
So, confidence in the pricing, look, when you look at the interest rate environment, if you look at the LIBOR curve is something along those lines, there does not seem to be anybody that’s anticipating a significant increase in the interest rate environment over the next call it year or two. And what I think we’re seeing happening here with the residual market is it used to be a lot more esoteric than it is today. So, as a function of the search for yield, investors have become more used to investing in residual. So, it has become a more routine transaction. There are regularly residuals sold in the auto finance industry for example. And residuals for student loans have become more common place. So, people become accustom to doing the analysis and investing in residuals. I think it broadens the investor base and it has a tendency to bring high yields down over time. And also this was again sort of a first mover transaction. And I think it would be become, as the investors would look at this transaction who are looking at the student loans for the first time, become more up to speed on how the asset perform, I think that will help broaden the market and hopefully help pricing improve in future. I think you also asked who participated in this transaction; it was actually a pretty diverse group of investors; there was that I would call real prime buy and hold money managers that are by nature of their business investing money for pension plans for example. So I would say that that type of money was involved and there was also obviously hedge funds/alternative investment type of investors participating in the residual as well. So there is a very diverse of our group of investors across the board.
You're welcome.
It’s a good question Mike. I don’t know that’s really a shift in strategy I think we've always been open and looking at acquisitions i.e. brought new technologies or good cost synergies. What we find in our space is you have – you kind of have companies that are either owned privately or family run and or parts of bigger corporations and we are now owned by private equity and it really depends upon when these companies become available. And I would say most of what we've done over the past several years have been opportunities that people decided to sell the business. And our approach by the way to acquisitions is that we tried to keep up relationships with a number of companies throughout the world and even as they’re not ready to sell, we try to keep those relationships up and then when they get ready to sell and then they hopefully come to Quaker Chemical. And it just so happens I think most of them have been bringing these new technology areas and so forth. So lot of the ones that would be more cost synergy have been in play and who knows that doesn’t mean they’re going to play in the future either, but I just was kind of showing or indicating that we’d like to try to do more of those type, but it all depends upon what becomes for sale.
Hi Molly.
Sure. Let me see if I could provide some indication, Stephen, that could help clarify the point. The industry has historically worked with inventories at about five months. We believe our service could reduce that substantially by going just in time. And overall, in our experience, we've been able to service these just-in-time agreements with about a month's worth of inventory. So, that's point number one. But, then also, importantly, in terms of cost and more cost savings, the system aims at changing and eliminating embedded elements of inefficiencies. Today, this is five months' worth of inventory on regular basis, requires inspection services, returns, obsolescence, damage. And this is ultimately what we intend to change, to an extent eliminate. So, there's a time element. There's also an inventory management aspect which translates on, in our opinion and experience, important savings. An example of this is, during the quarter, we extended our existing sourcing agreement with, for instance, Pioneer for both the Eagle Ford and the Permian regions. And there, we're going from, say, a pure sourcing into a full-fledged service, where we'd be delivering the pipes at the rig site.
Well, I would say that we’re -- that’s still ongoing with us. We’ve had extensive conversations and movement in different directions what we try to do in the Netherlands and we’re exploring some different options to leverage that. I would say that operating in Europe compared to RGP and the U.S. culture takes more time than we would like to see some time with some of the environment over there, and it’s something that we certainly see the big opportunity for us to get that area back into a highly leveraged going position.
We don't expect there will be much wage benefit inflation...
Well, the cost reductions really come across everything. We are looking at all costs, whether it be staffing levels, whether it be office, whether it be IT, whether it be travel, training, et cetera. So, it really is a comprehensive approach and we're not trying to break it down by individual categories, we're just looking at the totals. What I can tell you is, the majority of which is occurring in the businesses in terms of percentage, it's embedded in the gross profit number that you see, but you get a lot more visibility into the G&A line which is pretty transparent in the financial statements. So – but without question and unfortunately – the majority of the costs related to reductions in total staffing. But again, it is a comprehensive approach to cost and we are encouraging people to come up with ideas, suggestions on how we can accelerate this, be more efficient, and we've gotten some very good responses from the staff as well.
I appreciate that. Thank you.
Certainly. In terms of visibility, the company writes an order book in advance, and that gives us a significant amount of confidence, in terms of projecting our revenues for the future. So we have a strong order book, and we are excited about the potential there. Obviously, our wholesale customers would be buying more, if the weather had been better. But we're confident in our ability to foresee the future, based on our order book. And that would include both for the Columbia and the Sorel brands. Regarding price increases outside the U.S., if you remember, a large percentage of our business outside the U.S. is dollar-denominated through our independent distributors. So those guys take the risk on the dollar change. And I think if the U.S. dollar were less strong, we would probably, again, have a bigger business in those markets. The price increases that we have taken in our direct markets have been well received, especially in Europe direct, where we talked about our expectations for significant growth in the fall, and the balance of the year, for 2016. Those are all with price increases attached. And then as it relates to the retail business, as we said before, we're not a retailer. We're focusing on our wholesale business. So we don't typically release the typical retail metrics that some might follow, but I can tell you that we're going to be opening a modest number of stores next year. And that it's not really -- it's an improvement in our business, not necessarily an improvement in square footage, or increasing square footage.
Yes, and that was the comment around Dessau. Dessau's margins, they have a lot of transportation work, which is a lower margin business. And at the same time, we've been working through the integration of their projects to make sure that we're appropriately recognizing revenue, which did have a bit of drag on gross margin. It's not really a performance issue it's just how we account for it. But the Dessau and Infrastructure does have slightly lower margin business.
We are also seeing, Brian, a lower levels of cash on the different businesses that we do business with and that’s because they are trying not to leverage themselves to invest in their different operations. So they are using their access cash to kind of invest in their operations rather than going out and borrowing. We are seeing that on several different industries. But in general, I think that the economy is not falling off the cliff as I said and it’s going to be very much dependent on how the next couple of quarters or months the central government liquidity shortfall plays out and that’s what concerns us.
No problem. Okay. Well, thanks, everyone, for joining us today and appreciate the questions and look forward to speaking with you on the next earnings call. Thank you, operator, as well.
Yes. I agree Larry when I add up all the pluses that we have in the hopper and we had also lot of pluses last year in 2015. Although there is not opportunity for us, people think there is a gloom and doom recession but with all the unknown that we wanted be in a position to exceed expectations in terms of our guidance and exceed our forecast in terms of our profitability and that's why we put together a very conservative but I am saying to you Larry, beatable in our mind forecast. I never would have expected that we are going to drop $39 million, $40 million in cold weather but that's the fact of the matter that it did. And traffic is still concerning in terms of traffic we belong to shopper track so we see mall traffic for everyone that's in there, I think it's everyone from Walmart and Nordstrom to Niemann's and traffic to the mall is down and our leads on benefit from increased conversion and higher transaction value but traffic to coming tomorrow is still a concern and that's why we tampered conservative forecast even with all these pluses that we actually do have in the hopper.
Believe me, the pipeline looks good and it’s a – we are very bullish. Obviously the big contributor to that pipeline is the big data center partnership we announced along with the other data centers that we are working with today. That’s the bullishness when we talk about a pipeline. We certainly have big solar opportunities in there.  Moving out of the solar, you don’t make the margins – you know, you don’t make the gross margins, make decent operating margins as a percentage of the gross, but the magic ball when it comes to putting big growth on EPS is in the DG and the data center is the key spot there.
Yeah, Matt, this is Steve. Our guidance does include cars that are currently being produced at our Georgia facility, but it does not include any potential incremental increase in demand from a regulatory change.
Yeah, it's interesting. Clearly, the NextEra purchase of HECO is being reviewed in Hawaii now by the Hawaiian Public Service Commission. And just recently, I think the discussion of LNG got included with that review, so it’s all wrapped up to a certain extent together from our perspective, Paul and so I think you had to watch both the NextEra acquisition of HECO, that file I think is going to contain a lot of information as we go forward a year as to whether our project with HECO continues to progress. You know, we are optimistic. There is a significant benefit for Hawaii to do this transaction, and we’re not talking small dollars here. There is some substantial savings in Hawaii for this deal. But it’s for Hawaii to decide obviously and the Governor has made certain statements about his view of this and those are the things that HECO and NextEra are working through in Hawaii and we are hopeful that they will be successful in convincing the regulator and the governor that this is the right thing do for Hawaii. So we are supporting wherever we can those efforts.
There could be different drivers, right. And so the example in – I will use Japan as an example, right. So there is – they have got the Olympics in 2020. And so one of the things they are going to want to do from just PR standpoint is drive 5G deployment of some sense in Japan and use the Olympics as basically a platform for doing that. So there are things like that, they can drive deployment. There is actually a couple of those things around the world, where there is sort of – it’s event driven. I think it can be driven as well we have seen in the past capacity needs, right, can drive it as well. So because this 5G comes with new spectrum and that’s what you really need at the end of the day to deliver the services then you are going to want to deploy the 5G technology faster than otherwise because you want to get access to that spectrum. So, there is a bunch of factors that can impact the pace of 5G deployment around the world. And I think what we are seeing is definitely an increasing level of activity, because I think people are now – there are viewing 5G as this is not just an enhancement to the existing networks. There is a big need among first – both from a capacity standpoint, there is also a big need from an M2M standpoint. There is lot of re-architecting of the network that has to take place that deliver IoT services, M2M services, so depending upon the appetite for those services in particular regions of the world that can also drive deployments. The net effect though is that the worldwide standards begin to move pretty rapidly.
Thanks, Scott.
Current enrollment numbers are pretty small and as Rob said, we're not going to really break that out until it gets to the – of a more material size but typical programs are they have full time, day time programs that run anywhere from 8, 10, 12 weeks. They also have part time evening programs. The daytime full time is their sweet spot today and they’re offering these programs anywhere from $8,000, $10,000, $12,000. It’s not title for eligible and the value proposition as reported by the students is very high.
Good morning, Ross.
Hello, Joe.
Yes, absolutely let me start with again. Kathryn did a pretty good graphic with three scenarios of adding types of books of business that we are talking about and that too is posted on our website on the Investor Relation's tab.
Thank you.
Are you talking about Citi Field, the Mets upgrade?
No. I mean, we're continuing to invest more of our liquidity. We've got commitments to invest more in real estate and we'll probably sell some of the real estate that's been developed already. But, we're continuing to invest in that. So if anything, there'll be some increase in our real estate allocation. But, not really a consequential one. If we invest $500 million or more in real estate, that's just 2.5% of our portfolio.
David, it’s Jeff. I think it just continued good execution. You know we have a newer management team up in Canada in the last year. I think you are starting to see the fruits of that reinvigoration of the sales channel. We are very pleased with the new initiatives that we have in Canada and I would say you know financially for the quarter and outlook for the year, Dave that Cameron expressed that we have seen a higher retention rate and some of those actions that we had taken through I think good management up in Canada than we had seen historically. So I would say more stickiness Dave is probably one thing I would point to and better sales execution.
Right. We still have room to go out there and to hit our long-term targets.
Yeah. This is Rone Baldwin. The clarity on that is still not accomplished with the state. Again, the program will not be effective until July of next year and the expectation is the membership to the fourth MCO will build over some time after that. So it's not clear at this point.
I really appreciate the question and it's a recurring question. Actually, way back in '03, '04 China's coal-to-olefins projects were looming large, especially with the oil and gas price structures that existed back then. Look, we have been part of it. We have actually assisted one of our partners there to actually move through the approval process. We have one point-in-time even considered participating ourselves. But in our view, despite the variable cost comment you just made, it is unlikely to be any new projects being brought forward. These are very hard to run, highly polluting projects, very water-intensive. They're all in the wrong place. And we believe that their ability to operate even is suspect, as already witnessed by the one that's online. And if you throw on top of that that there will be sub-world scale on the derivative side and actually be mostly in the commodity areas like glycol and gas based, commodity-based polyethylenes and polyprop it will have little or no effect on the value chain comparisons to either the Middle East production, which we're part of or the U.S. production, which we are part of.
It would have to be something that not only it would have to be lot lower than we were now, it would be have to be something that we would believe that’s going to be sustained for a long period of time, because we do have substantial liquidity in the company, and very low to cut dividend and obviously the large shareholder kind of like that decision, all those employees – shareholders are, but I would add to it, I’m not going to give you specific number, but it would be a lower oil price that we think was going to be sustained for a long period of time.
Yes, I don't think it's going to be our practice to announce which contracts we get for competitive reasons. If anything, if something really significant occurs. I may say, we've gotten a new contract but I won't give you the details as to who it is because all of these contracts are very, very competitive and we're not entirely sure we want the world to know.
Yes, and let me start by saying -- I'm looking at the industrial fork truck orders. And I know when you read about the Europe and how bad things are over there, but the fact the matter is when you take a look at the trailing 3-month average versus prior year on just the fork trucks, it's up 16%. And as I said, we're not at 16% increase. We're about half of that in -- in fact, we're actually down on our motive power side in Europe even though it's increasing. And as I said earlier, it's because of product availability. We didn't have it and the second thing was because of pricing. So the product availability side will be taken care of, and I think that's the bulk of it. That's the big reason for the miss that we had were the numbers between the new fork truck orders don't exactly correlate with our battery orders. It's because of self-inflicted problems that we have that we've -- as I said earlier, we've put behind us. Now on the reserve power side in Europe, it's just the opposite. The problem that we have in reserve power in Europe, we just got flooded with orders for thin plate pure lead, which is great news. But when you have machines sitting there at a certain capacity, then you've got to man -- and I'll make number up, it's 70%, and also when you've got to drive that capacity utilization up to 95%, that means you have to add people and train people. It takes time to do that. So the good news story on it, orders are strong. We have the capacity to meet those orders. We have to get people hired to get them in place and get our lead times down. So I'm really happy with what I'm seeing in reserve power in Europe in the first quarter. I'm not happy with what I'm seeing in motive power in Europe in the first quarter. But most of what I'm not happy about in motive power in Europe is self-inflicted that we have since fixed.
The RIN prices or the EPA rolling?
It’s way too early for us to really have any assessment on the impact on us from a surety perspective. This is just starting to unfold. What I will say is that we’ve great confidence in our people down there; we’ve got great confidence in our underwriting; we manage our gross and net exposures pretty carefully; and together with our partner and our local team, we continue to watch it. We don’t have any reason at the moment to think that this is an outsized problem for us but I will reiterate that it’s early and we’re watching it.
I think within the Wealth Advisory and Boston Private Wealth segments, most of that was captured within the investment management segment, maybe you know half of that was captured just due to the client, there’s some lag there.
Yeah.
Plus the benefit from all the projects we will complete in the second half of the year that aren’t part of those numbers yet, yes.
Yes, sure, I can take that. I think largely Tim that you’re right. There is a bit of seasonality. Q4 is a very strong quarter for us traditionally and a lot of that has to do with our newer cohorts. So we’ve got a big cohort of SMB renewals that come up every Q4 for renewal. We’re pretty focused in terms of making sure that we’re executing well with those customers but that tends to drive a bigger number in the fourth quarter than what we see in the third, and I think we just generally see the year end traditional budget flush and things like that where people want [indiscernible] in Q4 and a lot of vacation being taken in Q3 certainly on the SMB side. So it tends to be a little bit wider for us.
But the -- what we kind of see right now is that probably the peak of the adverse experience of all it expected probably going to -- would be and maybe in like 2017 and that as those years, the 2015 consolidates its contestability period. So we kind of see that has been the low point as far as direct response to margins is concerned and then being able to improve after that.
Good morning, Wilkes.
Yeah, let me take a stab at that Tim. That is an important segment for us and it isn’t just that one customer, but that market really is going through I would say with a lot of change as you know that the growth rate in single serve coffee, especially beverage was extremely high for a while, that market’s facing lower growth today and that’s had some pretty significant impact on the supply chain and inventory. As you know, we do not participate on the coffee part of it. We participate in the specialty beverage part of it. Some of the players have come out with new machines and I think those have not typically met expectations the industry built-up some inventory for those new machines that haven’t played out as expected so that only exacerbated some of the supply chain issues in that marketplace. So, the market’s really gone through a lot of changes and some challenges, but we continue to see opportunity for Balchem in the marketplace from our unique formulated products to even the new agglomeration unit that’s an important segment for us going forward and it should be good for us. We’re also interested in the cold [ph] platform. It’s not currently in place but we do see if that is successful some opportunity coming out of that for us.
Recall Tom first quarter of 2015, we grew frac sand shipments, coal was still relatively healthy, grain was healthier than what we saw as the year progressed into later quarters. So markets have really changed pretty dramatically from the first quarter of 2015.
Yeah, sure, Nicole, it's Mike. Cash is $42.768 million and debt is still $0.
No. We haven't gotten into that detail. I mean, when you look at the CapEx, obviously, we've talked in the past about how much we expect to spend on WorldView-4. OpEx is mostly post-launch when you're talking about just telecom costs and things like that.
And so just one more sentence on that, as a way to look at it is we went from a wholesale-retail arrangement with our carriers to a pay-per-piece arrangement.
That’s a full year.
Rich, I don’t know that I could say. The number of discussions I have had and they had been all over the Board in terms of percentages of workloads. We’ve got some of the examples I gave you during the last one that had the big follow-upon hardware is a client that was going to move a 100% of the workloads to the public cloud. And when they got in discussions with us about how they might do that, we discovered that what they really wanted was a cloud compute consumption model that they didn’t have to operate. And so we built them a private cloud that we can operate for them. So it’s been extremely difficult to peg a number on the percentage of your workloads, because clients are working very hard to determine what workloads really belong in a public cloud, and they’re repatriating those that don’t. And so we’re seeing a lot of shift back and forth. I can’t give you an accurate read on that.
No. No, we assume nothing. That’s why we feel very comfortable in terms of the $7.5 billion because there’s a lot of things that will happen. In that respect, there’s one product that we do have a built-in [ph], Luminesse, which we know will get approved, correct?
Actually we have had fewer franchise sales people, but the ones we have are more productive. That’s the result of putting in a call center about a year ago using less expensive people to arrange appointments for our salespeople themselves and that has proved to be very, very successful for us.
That is outside money, it's not our money.
Hi, Chris.
Yes, sorry the last part of your question was compared with other online.
Hi, Tahira.
Next question?
And that's where you get excited about the spacing and the stimulation up-side.
David, there's a couple of factors driving that. If you look at the consumption data versus the shipment data, there's two reasons for differences there in the first quarter. One has to do with strong growth in the non-measured channel right. I realize that Nielsen covers most of the business but there are some large customers and meaningful channels that are not inside that data as we're seeing some very good growth in those businesses. Secondly, a lot of what's happening is driven by the phasing of innovation year on year. So last year innovation went out in the first quarter, this year innovation for Snacks is much more mid-year. And what's happening there is we'll see that innovation go in Q2, that will give us more of a consumption drive and a little bit more of a shipment drive too as we fill the pipelines for that innovation. Last year innovation went in, in the first quarter which means that supplies usually ships in Q4 and so we actually burn through inventory in Q1. We get good consumption coming from behind that innovation in Q1 last year. So a little bit of a timing issue within the year that's driving what you're seeing there. We do expect better results, I would caution on some of the April data because the shift of Easter can distort one week versus another but we do expect to see improving consumption trends in our Snacks business over time
We’re going to take them all Todd. And quite frankly the more properties we have in the market, the more power we have in that market. And I would much rather have an asset in close proximity to one of our assets that we control pricing and promotion than having it be in the hands of someone that may not be rational in their behavior.
Well, yes, I mentioned tubular product is one example. We trade in a whole range of long and flat products, long products including tubular products and we do that really everywhere. It will vary from market to market which products are most attractive for us to trade. In North America, it is a combination of flat and long products including tubular and some SBQ as well as other products, so it isn't just one thing, Luke.
Well, now, we’re not going to experience a depreciation, Jason, until July through December when we’re up and running. And in addition to that the startup expenses although they’ll have some in the first quarter, it will be mostly in the second quarter, as we continue to recruit personnel to perform these operations and simultaneously training those personnel. And then as our volume continues to grow, so dip kind of in the third quarter and kind of stabilized in the fourth quarter, but blend 46.7% for the year.
Sure. The opportunity we were pursuing was in West Texas. It was oil. It was a very attractive opportunity. Just disconnect between us and the seller, which was surprising to us at the end but nonetheless it didn’t happen. We felt like it would provide us with a runway of drilling inventory that was economic at substantially lower prices. So yes, it was a very – we thought a very nice opportunity but couldn’t get there with the seller at the end. Joe, any other comments on that?
So I guess the primary driver is – and I think we talk about this on a last call is that we are outworking with customers and ranging between a subscription type of a license versus a perpetual license so to the extent that folks start to lean a little more heavily towards a subscription pricing that’s going to impact top line because that will be relatively over a green period whether it’s 12 months or 3 years versus a perpetual license where by that will be revenue in the period. So that’s really what’s driving what we’re thinking there.
On your question on sponsored data, James, I think it's important to think about what we have assembled here. And so between DIRECTV and our Otter Media relationship, we think we have the best premium set of content available to anybody anywhere and we're getting the rights secured to allow us to begin delivering this over whatever platform the customer wishes. If the customer wants it on a tablet or a smartphone or on a TV and we're getting to the place where we can do that. Now if you think about the most premium set of content, whether it would be sports programming, whether it would be binged type programming that has stacking rights and [look-back] [ph] capabilities, whether it would be movie libraries or whatnot, it's just a very, very robust set of content that we're piecing together here to be delivered. I think one would just have to assume that sponsored data would be a critical element on how the customer would take advantage of this. And so we haven't developed or announced I should say, we are doing a lot of work right now on how we come to market. We have not announced any plans but I think it would be reasonable to assume sponsored data would be a part of how our customers would take advantage of this kind of content library.
Yes. So, I would say in the non-credit -- sorry, just to clarify the comment on oil and gas, we said they will not necessarily translate into losses and we’re not going to predict which ones will or won't. On the reserves, for non-credit impaired portfolio, we are continuing to see improvements in charge-offs as well as home prices albeit a little bit more gradually. So, I would still expect there to be more reserve releases over the course of the next 18 months in hundreds of million of dollars in total, not billions any longer of course. We have $1.8 billion reserved right now. In the non-credit, in the purchase credit impaired space, clearly that life of loan model and so we’ll continue to evaluate that model against parameters that we have and expectations. So that will be what it is at the time. And in Card we’re not expecting any significant reserve actions.
Good morning.
Yes, 3.82, 3.83, right kind of splitting the difference there actually. Which again was a still a healthy increase from the linked quarter a year ago?
Megan, it’s Marc again. It’s all three things combined.
I certainly think that's realistic. As we think about M&A and the opportunities that that presents, I don't think it's unreasonable to have a target to get to that level of market share.
Yeah. I think it's a good call-out, Andrew. I think one of the things you probably caught in my remarks and a little bit in Rod's is that as we're shifting from the core transportation services that are associated with the ins and outs in our storage business to some of the new service areas, a lot of these new service areas are project based, which is also the reason why we said we expect kind of a downtick in Q1 in some of our service revenue as those projects have a lead time in terms of the sell and onboarding those cycles. And then they come through it in the next quarter or quarters and that's what you've seen actually in Western Europe. What you will have seen is there was an investment earlier in the year, and then that project revenue kind of flows through. So that's part of the new services. It's less smooth than say the transportation side of the business, so you have these ups and downs. So what we tend to do is we look at it over the course of the year and it just so happened that in Western Europe, you saw that spike as part of that normal cyclicality of these projects.
Yes, Roger. I think in previous guidance we given, we said that we would expect to start up sometime in 2016 and that’s what I repeat this morning, that is our expectation. We haven’t been more specific than that and I really can’t be more specific than that today. So we are continuing to develop the project. In terms of the origination of the crude, I think we’ve also mentioned our facilities decide to receive and handle both heavy and light crude. And we intentionally decided to have the optionality to handle heavy crudes fearing that for some of the refiners in California, that might be more needed and attractive than the light crudes. But the users of the crude will determine where it comes from. We would typically expect that to come from the northern tier because the cost to get to alternative markets are highly from the northern tier than they might be say from West Texas.
Yes, couple of elements there, Judy. First of all, the pricing environment is quite healthy. We felt terrific about pricing in the quarter and we expect that to continue going forward. Two other drivers, obviously advertising and marketing was up a bit in that for the quarter and that’s timing of the curve. That's one of the elements. The other elements are some of the timing on spending with our Latin American bottlers that drove that number. So – but we certainly expect PAB margins to continue to grow over time as they have been.
Yes. So we’ve got a yield of 36, from 29% last year. The interest rate depends a lot on where the funding comes from. Some of that doesn’t come out of the U.S which has a hitch overlay on it, which probably averages at around 14%, 15% that must direct, which is lower. It all depends on whether we are -- how we’ve actually gone about the funding be securitized one way or another as well. So it’s a mixed average ratio of getting and then obviously we want the rate as low as we can so we can increase the net interest margin which drives more values at the bottom line. So we are very aware of it and part of the structure that we’ve put in place at EZCORP is we’ve put a treasurer in place here for the first time ever, and we have one in Grupo, so that there is a strong focus on the debt management side of that business that is managed both here in the U.S and in Mexico.
Yes. But I would just say that mix is clearly a factor in that, so just be careful in your analysis to factor that in.
While all our markets are really strong. As we've articulated today, and I think as we've shown in terms of our earnings. Portland and Southern California are the two markets on the West Coast that have come of the recession later than Seattle and the Bay Area. So those are the markets we’re seeing a lot of pent-up demand and a lot of growth as it relates to our rental rates. Portland is continuing to so that growth. And as I look into the certainly the second half of the year or certainly the balance of the year, I see this continuing even more even stronger than it's been. Again for Portland and primarily Southern California and of course Seattle and San Francisco just keep going. I mean there is no let up from what we can see there in terms of overall tenant demand and growth for the rental rates.
Yes we are encouraged with the proposed regulations that the IRS put out this week and believe that our saltwater gathering system would qualify under those ranks as drafted keep in mind that those are preliminary and subject to public comment I think that ends around August 4, but I think with the direction that's going we feel good about our chances to receive a PLR, I'll refer you to the S-1 that is on file for a more details on that business.
One of the things that's driving that, Andy, is that you have such a dearth of content in Q3. And if you go back and you think about what's kind of happened in the last three quarters, right, each quarter has been a sequential decline in box office. So all of a sudden as you get into Q4, right, you are up to a lot more titles, right? You are up to over $3 billion in content, right? You've got a number of blockbuster titles that we talked about, four of them present $1.8 billion. You've got a very heavy November release slate that's coming out; and we've really built up over the last couple of weeks a number of very good titles that have come. And so it's really how do we get consumers to come back to that. And we feel that we've got the right level of range and again coming out of something that we hadn't seen in four years in terms of the content release schedule, we think this is the right expectation for those numbers.
Good morning.
Correct.
No. We do everything in USD. The most part.
Good morning, Brian.
Well, I think you have to look at total Newport News and we will stick to the 9%, but I will tell you in terms of the volume that you are talking about, so in 2015 you have the volume of CVN-78, plus you have the volume of CVN-79 construction planning, so and if you remember that was like $3.3 billion of awards of that contract, so we have been doing a lot of work on that. When CVN-78 leaves, you will only have CVN-79, unless, and I do not think this it is going to happen in 2016, but unless they start CP on 80, you are going to have a little bit of volume mix and VCS going full-fledged into two subs years pick up a little bit of that.
And in the U.S. life would be where it would show up geographically. And then, Alex?
I was referring to the legacy FFDA portfolio that traded or the trust REIT portfolio that traded.
And then with respect to the Q4, in many ways when we look at the backlog coverage that we stand at today looking into that quarter, you feel pretty good -- when we look at that and then the anticipated orders in the current quarter and then the, the risk usually revolves around what some amount of terms business that we always have in any quarter and the current build-up shows a relatively modest level of terms business in the quarter so we feel pretty good about the demand side. Having said that, there's always risk we're so far out and then part -- I think part two of this whole thing is as we came to realize that we weren't able to pull some of this revenue into three, which we obviously tried to do but customers are customers and we have to respect their needs. We started building ahead on inventory and got the factories oriented towards above in Q4 which we're used to if you look back historically, but it will be larger on a percentage basis than it has been historically. And then underneath that is we are shipping a larger percentage of high SP products this quarter, meaning the large Titan class units in particular, so therefore the number of units increase is not proportionate to the dollar increase which gives the factory a little more flexibility to achieve the targets.
Absolutely. I think one of the other things is maybe, Vijay, to answer your question around longer term is how we in the longer term leverage now the strength that we have in the hospital and begin to follow that into new care settings that are being driven by payer changes, right, as patients are moving into lower cost settings. So we think we have optionalities going forward that maybe we didn't have in the past.
Thank you.
Good morning, Will.
Yes, correct.
I don’t think there’s been a single surprise. I think the process has gone exactly the way we thought it would go. We are right on schedule with what we thought we would do. I’ve been happy with the results that Office Depot continues to generate in terms of the synergies that they are taking out of their merger. So no, I don’t think there’s been any surprises at all, despite the rumor [marring] out there on the streets.
Michael, I never thought of that. I never thought of it.
Yes. We built in some incremental increase in the prime rate during the course of the year, but not a lot. We are not looking at the same thing that we think we are hearing from the Fed at this point. I will speak and that Gerry never told me anything.
As I indicated, it's going to be tough, Akshay, to do that because there's overlapping categories and the overlapping categories are going to start to get kind of merged in how we look at things. So some of the condiments business, some of the snack businesses. So we're going to lose that identity, so I'd rather not kind of get into that because I'm not going to be able to give you an answer next quarter as to how those margins are actually doing for the old business because we're going to kind of be one, if you will.
We are stuck with the amortization of those costs. I mean, no matter what you do, you are going to pay for it. The only way in my experience, Henry, you can deal with that is to extend the whole financing structure out, which indeed is another cost which exactly hit you and that becomes more cash prohibitive …
Good morning, Walt. So agreed, the margins were good in AeroTech for the quarter and that the first thing I would point to is we just had base productivity gains from the RCI program that we're working on, that's been very helpful as they streamline their shops floors, there has been lot of activity at both, the Jet way side and on the mobile business in Orlando. And as I mentioned on our short cycle business which is more the mobile products, we did really have a nice quarter and that really helps us on the utilization of the overhead. So, if the volume continues at that level we would expect that type of margins to be sustainable and obviously we're going to continue on the aftermarket growth and on the pricing programs. So, we're fairly confident on where we stand on now.
Its actually really good question. One, we haven’t been able to broadly publicize it. So we're not getting unsolicited fizzle [ph] at least yet, we're working on that. I would tell you that’s clearly giving us credibility when we're in other customers and talking about our capabilities and been part of this Pan Country rollout for this customer. But I would tell you its not – it won't be of the same impact as if and when we get to announce this large North American carrier that for every other carrier around the world as we looked at this carrier as a thought leader. And so we're very anxious not only deliver for this carrier but to get them to talk about this publicly or vice versa and I think that will create the pull that you're referencing. I know you are asking about MediaEngine, but I've given you the example on FlowEngine that would be maybe more appropriate for what you are referencing.
We still have capital going into major projects that will reduce significantly as we go into next year. So I think the easiest way to think about it Ryan is the $2 billion sort of number that we've been talking about in terms of the average capital going into major projects this year that's rolling off next year. So I wouldn't get too hung up on the run rate in the third quarter but more think about it as that sort of amount of major project capital rolling off from ‘15 to ‘16.
No. I was just going to say Shannon and obviously towards the end of the year as we get close to actually the legal separation of these two companies, we’ll be very explicit about the balance sheet that each company has and the earnings, revenue growth, free cash flow of each company. So, as we head into 2016, we’ll be able to give you the kind of guidance that we gave when we were one company, we’ll just do it for two.
Yeah, Dave. First of all, I do expect we will have some more cost savings that come out of the fact that we're 100% now on our new contract. We're on a new cementing contract with Permian here shortly. And we're still putting pressure where we can, albeit, it's relatively limited amount of pressure we can put, as low as the service costs have gone. But I think we can get some reductions. Perhaps, 5% cost reduction. We don't really have that baked in today, as much as we expect that to be in the future. So, with the numbers I gave you in my comments, 7.5, 8 million Permian wells is what we expect before any cost reductions that we can further extract. And so, from that standpoint, we're not really baking in any cost savings. By the same token, the majority of the wells we'll drill, what we focus on is a million to 1.2 million barrel wells. That's the kind of range we talk about. As you have seen and we have talked about, there's quite a large number of wells today which we think may exceed the 1.2. But the guidance we're utilizing and what we have baked in, depending about which zone you're talking about, 1 to 1.2. We hope to be able to exceed that, of course. As you know, we tend to be conservative, because it's just the way we kind of put numbers out. I appreciate that. That's great color. And then, one of the things in the past you talked about doing more Wolfcamp A wells in 2016, and while the percentage is going up, it seems like you're referencing maybe a larger percentage of A's then B's in prior commentary. Not to suggest that sticking with B's is high grading, but can you maybe walk through whether that's optimization for infrastructure that is causing more B's than A's, or if I'm misinterpreting something?
There were no new companies. One of the non-accruals from last quarter was one of the losses in the quarter, that’s what changed from five companies on non-accrual to four companies on non-accrual. Outside of that, there was no movement.
Thanks, John.
Sure. So when it comes to glargine, we're anticipating launching in Europe late in the summer of this year. And in the U.S., as you are aware, we're subject to a 30-month stay. We do have a trial happening later this year in the month of September. Assuming, of course, that we have a favorable resolution of that trial prior to the 30-month stay, we would be launching earlier. But the 30-month stay basically takes us into Q3 of 2016.
It's a big question. We don't see a big chunk dropping into the Q1 FY16. It's going to be more linear and I think that’s primarily a location intelligence business and the getting to the VSOE and the timing of orders and mix of the customer base. So we don't see a big chunk of that dropping into Q1. It's going to be more linear from what we see at this point.
Now you have got us all laughing.
This is Herzog, no it does not. But the home transaction there would be units in addition to that's been described in the sources we spoken to you earlier.
Yes there have been.
Selling down, POS is down 2% quarter-over-quarter, POS is down 2%?
Sure. On the second one, it will depend upon the facts and circumstances of the FERC ROE order, whether or not we would reflect anything associated with the ALJ recommendation or whether we would wait until the FERC final decision which we expect in the third quarter of 2016. We continue to believe that the base ROE that was allowed in the first complaint 10.57% is well within the range of reasonableness going forward. So we would hope and expect that the FERC would come to a similar conclusion. In terms of the effective rate, as I mentioned, this year we expect to be between 37.5% and 38% and I'm going to not provide a number for 2016 until we provide our guidance in February.
I would expect it to maintain on a high revenue base.
Yes. Jeff, this is Bryan. It’s really more just a shifting on timing as obviously we’re just trying to optimize the timing of our spend and that’s where you saw that a little bit of shift.
You know you take a look at market in wallet share on any individual quarter. We try to look more at market share in longer term trends. We are continuing to add market in wallet share especially against our focus clients in both investment banking as well as with our markets business. And we see that as a strength of our franchise but I can’t tell you whether we actually took market share in a particular business during the quarter. I don’t track it quarter-to-quarter, I tend to look at more trends on a trailing 12 months basis.
So let me also clarify. I think some of the articles have come in public domain as well. You see, in -- when a turmoil of this sort hits Russia, and in Russia, people have seen -- this is not the first time we are seeing a bit of a turmoil. There is some bit of forward buying by -- directly by patients, anticipating price increases and testing. So overall, we don't have official data. But there is good secondary movement because [indiscernible]. Now will it -- how long and how well is it surging? We'll have to see. A part of that has been contributed by forward-buying medication. Also, we -- our portfolio is very rich in body ache, cough and cold fever area, some of the OTC products are very big, some of the Rx products are very big. So these are not at the top end of high pricing -- it's not that much affected by these devaluation aspects. Some of those have played out. We'll wait and see. I mean, there are a lot of questions on Russia. I fully understand. We are also waiting to see how things pan out. So far, so good. I mean it is going okay. Of course there is a hit. There's a big hit, 34 to 65. Who can make up everything? No way possible. So it would help -- this will be more and more as we go through the quarters. But overall performance is robust. I think broadly based on that, I think you draw your conclusions.
Well, we don't provide [ph]. But go ahead, Barry.
No I wouldn’t be surprised. We were at 960 million last year, so you know we’ve I think we have kind of proven that we are in – we are kind of capable of that at that range and as you said the fourth quarter historically tends to be the quarter that you guess so. We’ve seen a lot of reasons there seem to be those year ends transactions. So -- but you know one of the reasons we don’t give guidance is fourth quarter is a long way away, and you know we’ll continue to access the market and if we can make accretive smart investments and it works with our capital structure then we are going to make it. But would I be surprised if we were a billion? No, not after hitting 265 million in the first quarter.
Today we monitor our wages across the United States as you can imagine. And what we’re very proud of is that, we pay a very, very competitive wage in all of the markets that we serve. In saying that we continue to watch as wage pressures in some areas are on the rise, but I have to tell you that our operating team in hiring our ROE employees have done a fabulous job. And we are competitive where we need to be competitive and we’ve seen virtually no difference today than we have in the past year. So we will continue to watch that, but rest assured [ph] that we’ll be in a position through [ph] all of our efforts here including our cost containment that we talked about, to be able to reinvest wherever we need to, to be competitive.
In non-core or core?
Yeah. Hey, Tim, thanks. I mean in terms of where we're using our cash or how we're using our cash, we're looking at everything from open market repurchases of bonds to our capital program to acquisitions. And so I think nothing's off the table, but your observation of an accretive way to delever is, it's certainly out there, and we're looking at it.
Right.
Depending on what mix is and where the volumes actually are that's a fair assumption, yes.
Sure. So, 3DMT Group as you know consists of our 3D Material Technology division as well as advanced tooling concepts. A big part of what was been driving the growth of that has been the integration of ATC which has really started to gel for the company, so that’s been one element – one key element of the driver. The other being 3D Material Technologies which we’ve been making good progress particularly on the additive metal side, so we expect to see continued improvement in adoption there. But as we mentioned there continuous to be significant investment into that, so it’s still fairly early days on a Metal Additive side but there are some projects that if we win it could be material but for the large part what’s driving 3DMT Group for the time being is ATC where we have a lot of our tooling and advanced tooling assets as well as some of the molding side of our business.
Some, yes.
Thank you.
In terms of the second question, yes, absolutely, this would be a concern on especially larger projects that have to PTO in time for the ITC. This will have to be included into our guidance and has to be built in as we look at selling. The way we would look at it, however, for most of the projects, this is more applicable for the commercial projects that don't (26:51) without it, but for most of the projects that we were deploying, we will continue to just install and have a $0.60 per watt economic value creation instead of over $1 but, yes, we'll just continue.
Yes so just to clarify the approach that we are using here Jamie is that for this first wave, we limited it to two existing customers, we have basically went out to our installed base and said that if you are an existing voice customer, you are eligible to have the Vocera secured texting offering as an add on to that core voice platform that was already in existence. So it would be fair to say that 100% of those customers that have signed up for the secured texting offering were existing voice customers. Now in some cases, with new customers because we now have this program in place when we are going out talking to customers, new voice customers we will talk about the fact that the secured testing offering is part of the bundle that comes with the platform and that has certainly changed the dynamic of some of the sales conversations but the vast majority of those are existing customers.
Imaging and game segment, for each segment. We compare the forecast versus the actual and for each quarter, we make the forecast. We do not disclose the original forecast. So this particular question, I refrain from making specific answer. But as to this Game segment. During the first quarter, there is a very good performance so JPY 20 billion upward revision was made and the as to the impact over the ForEx fluctuation, there is a negative impact. But PS 4, the name, it sells it's very smoothly progressing, installation base is increasing for this PS 4. So network profitability I think is going up and very well. As to the software, the hit titles observed. So very smooth progress observed. At the beginning of the term, the game performance expectation was announced. As to the PS 3, the decline compared to the previous year was mentioned. But about the PS 3 and for the special software for PS 3, the profitability did not really go down, as we had expected. Thank you. We're in short of time. So this next question will be the last question. It has to be the last question, so please raise your hand.
No, we would be selling loans that are on our balance sheet this isn’t just slowing and we’ve initially new origination into it. We would be taking existing loans off our balance sheet.
Yes. Thank you. If you have additional questions, Ross and I will be available later today. Please call me at 205-969-6175. Thank you.
Yes, because that is when we need -- we will need more centers to enroll more patients, particularly when we intend to expand through their asset design into the 40 patients.
But we are always looking and we have got things that are on the burner right now.
Debt-to-EV. Yes.
I’d like to thank you all for joining the call this morning and look forward to reporting on Q2 results in early August. Thank you.
Basically fair market value. But as Rick said, we will follow-up with you on that. Great. And then just switching gears to Brillion for a second. Obviously a lot of upside here if you can redeploy that capacity to another market. And you've mentioned light-vehicle the past. And Rick, I know you know that market well. Looking across at some other players, some competitors, you've got guys in that space that are generating, just as the past quarter, a 13% EBITDA margin. And they're focused on different markets. They're focused on light-vehicle particularly. And I'm referring to Grede. Is there anything in - I know Grede's a bigger business and it's not easy to break into light-vehicle. But is there anything about the equipment at Brillion that it wouldn't be able to achieve those kinds of margins, if you're able to win the business?
I mean, we sell everything...
I don’t think it had any influence whatsoever. I think we were the first mover, we saw the opportunity, we listened to customers, we created a differentiated approach with our differentiated technology. I think the industry is trying to scramble to catch up. I’m really enjoying quite frankly the number of people who are introducing products and I’m really enjoying the amount of time some of our competition is talking about how their product is going to be a lot better than ours. Right now, if you want it, a lot of these guys want it right now, you can get it in one place. And we are enjoying that and we are not having, to date, a problem with selling against somebody who is going to have something. It’s going to be an explosive market and when they do come out with things, I think they will have opportunities too. And that’s when there will be a more competitive challenge.
Negligible, Budd, had about 10 basis points negative impact. End of Q&A
Thanks. So, two quick questions if I may. And the first one, I was hoping you could maybe talk about utilization just in the U.S. diabetes business. And maybe how the impact is being felt in patients just from the focus on quality control and the manufacturing process. And if you're seeing any kind of difference in reorder rates or maybe a little bit higher utilization from that. Sure. Tom (28:54), this is Shacey. I haven't seen differences in utilization rates that are material this year in 2015. We have seen in new patients as I mentioned a higher reorder or retention rate. But in our total patient data, the utilization rates remain pretty steady. Okay, great. And then just one quick follow up. There was an announcement from one of your major partners in the Drug Delivery business, that they announced an agreement with another manufacturer of on-body devices for drug delivery (29:19)?
No, I mean I think you got it. It’s the lower volume, the unfavorable mix with distribution being down more significantly than we. And then the inventory was you know as I commented on probably 100 bps in the quarter in terms of building inventory last year versus taking it out this year. You know the bad debt expense I mentioned would have been - obviously would have been another factor. But I think you’ve - and the currency but you know obviously we had the currency last quarter as well. But I think those are the bigger drivers.
Yes sure. As you know the Peerless team has been doing very well. There is a lot of streamlining that has been taking place a lot of the plant consolidation and all those good things to help us run a lean asset like business. Some of that has not been -- those decisions have been made, those costs have been taken out, they're now working their way through the P&L. So in Q4 we still had some of those costs baked into the business. Going into Q1 some of those cost out and manufacturing improvements are now falling into the P&L but that's kind of why we had little bit lower operating margin in Q4 because our SG&A, OpEx to your point was around 22% and as you know our model is usually around 18%. So I do see that coming down a little bit in Q1 and Q2 maybe a point a point or two throughout the year.
Buck it went from - buying house went from 18.7 to 18.8 of move-out, I mean it’s just flat and it’s not moving and it’s staying low honestly, same on move-outs to renting.
We would expect that -- we would expect EMEA in the second quarter to show growth. We have a lot of activity. We would expect quarters two and three to be particularly active this year given what we know in EMEA given some launch of some new products that we have got planned. So, to be honest with you, Q1 was not a disappointment to us, but we haven’t got quarteritis and we don’t get quarteritis. So the things -- the two things that are confusing us at the moment is the impact of oil in foreign currencies. The underlying trading in the business, we have a very good handle on it Linda and feel really good.
I was going to say that we're -- got about $1 billion left to deploy excluding reserves and Fund 4 and at the pace we're going we’ve targeted sort of starting towards the end of the third quarter beginning of the fourth quarter but that's, you know it’s obviously dependent on the opportunities in the market place and that's -- at our current pace that be a logical timing for a turn on of Fund 5.
So in terms of the categorical, I can give you picture of where we stand at the moment in terms of the markets, which we read and we are exposed to, we have seen overall growth in the beauty industry of 1%, 1.5% which you know, I would say Skin & Body growing less than that, color growing faster than that and fragrance being more or less in line with that. In terms of within fragrance, prestige is growing faster than mass. Mass is declining in some markets, not in all, but in some markets. So if you look at the growth rate that we are exposed to, market growth rate, you can see that, on net revenue growth is somewhat less on a total basis, our power brands clearly growing in line if not faster than the market growth rate, but our overall growth rate is somewhat less, which reflects in part A, in fill and in part reflects that we have given up some ground between growth sales and net revenue growth in terms of discounts and allowances. Does that answer your question?
So just want to -- the performance-based pay was down for the quarter, $2.1 million. I think at the end of the third quarter we also announced that it was down for the whole year. We don’t give out specifically that number, but based on the performance of the company this year, we did not have any performance-based compensation.
Right. It was for the full year. But if you add our Q4 actual performance, we came in higher than what we guided. So I think if you use our estimates for Q4 and go back to 50% to 55% to get the absolute numbers, then you’ll get back to that percentage growth.
Well, we don’t have any closing remarks except thank you all for listening and we’ll see you again next quarter. That’s the end of this call.
Yes, we still think that we're finalizing that process and like I said before because of the system that we have, because we're going out to the well-head, picking it up by our truck or we're directly hard piped in there, we can really control the quality of the crude coming into El Paso which will help just with their overall reliability and their ability to have the maximum yield. And like I said, we believe by the end of the year we'll be buying 100% of our crude based on crude that we control from the well-head and we can pick out the crudes that make the most sense and as we build out some tankage and some other things, we'll continue to get better at that.
Right. You know, the – an entrepreneur who's got a business that's performing relatively well, gosh, there's probably no reason why he wants to or she wants to sell that business at this point in the cycle. But as was mentioned earlier, we are seeing more distressed opportunities. And those would involve probably paying off some debt on the businesses with cash. It could potentially involve willingness to give some stock to the current equity holder as a way for them to potentially see some recovery in the future.
Yes and that's why we tried to track it exactly as we did in the details. It's funny, we had this exact same conversation in the board meeting earlier this week. A lot of the adjustments that we made and the adjustments we took are cash related. So using GAAP earnings we felt was probably the best way to look at.
Yeah, Kevin I think it's too early to put metrics on it, but simple fact is that we are finding patients that otherwise would not have gone on to study had it not been for Trailblaze identifying these patients. So as an example we have enrolled patients into the STARTRK-2 study as a result of finding gene rearrangements. We also have identified through Trailblaze patients that also qualify for other studies that are within our pipeline so that really as were you start to see the qualitative synergy of Trailblaze and the RXDX approach of having our own in-house diagnostic. I think over time we'll be able to put metrics to that, but right now it’s a little early.
Yes, in the spirit on the SG&A side of the Renew Blue cost reductions. We have obviously taken substantial cost out of the company and of course they have slowed I mean the 40 million is less than it was in the previous quarter. The place that as you know we have not included in that billion a large percentage is of the returns replacements and damages, we within the numbers we’re reporting on our achievement of Renew Blue has an amount associated with returns, replacements and damages but it's actually very slow to-date. And off that as you recall let’s just all get grounded. We said we’re losing over -- approximately 450 million and we expect to lose a 100. So we see a 300 million to 350 million opportunity there. It's very structural and how we go after it, we’re going in the fourth quarter you will start seeing a lot of that online inventory show up and then Hubert in his prepared remarks to help give you guys more visibility to some of the other things that are happening in the company because while showing the inventory online is very important and quite frankly getting those viewers and getting that population when the majority of this inventory is sold online anyway is critical but there are other operating things happening internally right now and plan is being put into place and changes in operating procedures happening that we think are going to accelerate that for us as we -- this would be a 2016 opportunity for us as well. So that’s where I see it coming from Alan going forward. We will continue, however there are areas operationally in the company, I would speak to our services areas and some of our other what I would call tasking related activities in our stores and some of our replenishment processes where I think that there is higher efficiency to be garnered but again many of these requires structural system changes, so are slower in coming.
Sure. There is no hospital deal in the $1 billion pipeline. In terms of skilled, I would say, one, just to reiterate that we are looking at them more than we’re before, just because we have gotten our skilled exposures down so much and we want to take advantage of the yields. But in terms of increased competition, we really haven’t seen -- it’s hasn’t changed much. There has been cap rates compression. But the competition hasn’t changed much. The Ventas Spinoff hasn’t closed yet, so we haven’t seen them in anything that we would expect to certainly see them at some point in time. When you are doing the spin, as we found when we were doing ours, it’s hard to get deals done before the spin actually closes. We certainly tried in 2010, doesn’t mean that the capital makes it more difficult. So at this time no additional competition. And actually, when you think of that because Omega acquired Avid, the Ventas spin just kind of replaces that. So before we’d see, Ventas or not Ventas, Omega, Aviv, maybe NHI or LTC but non-trade, we trend to look at bigger deals not the smaller deals. With CPEs on the senior housing side, we don’t really see them to a certain extent on the skill side. So basically, Aviv goes away and share capital comes in. So net-net, there is no change there.
Good morning, Dan.
In what sense Sam.
Look, I mean, I think that there is a number of difference. There are number of different scenarios. Look, we do think – look, our core view on the current landscape is we think the Fed really wants to go. We think it’s more likely than not they go in September. However, we also think that the global economy in particular is not very strong. And we think that the U.S. economy is somewhat overrated as well. And against the backdrop of a Fed tightening, we think the dollar improves. That makes it even – that creates another headwind for the U.S. economy. You couple that with weakness again in China and other places, which we don’t think go away anytime soon. We just don’t see inflation being a real issue. And the bottom line is, while a central –while the Fed has to think about both – obviously, both employment and inflation, and right now – and employment is obviously moving in the right direction and had moved a lot in the right direction. I think the Fed is somewhat hoping on the inflation side and I think that the act of tightening will make it even more difficult for the Fed to hit their target on the inflation side. And so, if you play all that through, I think the larger goal scenario a year from now is we’re probably 25 to 50 flatter. But in the short-run a lot of things can happen.
Well, with the low commodity prices obviously, royalties are on a sliding scale, so you're quite right, they were single digit and we would expect - if commodity prices would continue on their current trajectory that we would expect similar royalty rates through the third quarter.
We’ve got about of the -- we’ve got about 40 million in it.
You know Catharine its actually margin accretive to us simply because it will be part of our existing license cost with BroadSoft and so because it’s a much more capable solution we will less frequently have to go outside which depresses margins when you have to bring in a third party.
A couple of hundred basis points lower, Jordan.
Thanks, John.
Thank you.
Thanks, Adam.
Good morning John.
Yes. I’ll comment first, and then, maybe have Barry add color to that, Preeti. We had given guidance early on. We would say, single to - or mid to upper single-digit growth throughout the year. We didn’t see any in the first-half of the year, commented at the end of the last quarter that that was a result of some unexpected pay-downs and failure to fund loans that had already been booked. But in this quarter, we saw a lot of those loans start to fund along with additional new growth in the portfolio. So that’s the third quarter story kind of seeing catch-up. And then, as far as fourth quarter, we continue to see solid opportunities within the pipeline, things have flattened out down in terms of where we are with the overall pipeline, but still very strong levels. And so, we would anticipate somewhere in the mid-single digit growth for the fourth quarter. Barry, you want to add any color as to where we’ve seen the growth in the second quarter come from.
I'm not even getting a question, I feel like I was just ear candy for the prepared portion.
Yes. [Joe Orfus] [ph] runs our multifamily business and the entire CRE business over in New York. And comes out of some Wall Street experience. He has a lot of experience in that area and is certainly a great resource to us.
On the tax credit front, we are actually gaining some momentum in Washington. The Navajo have joined in, in the effort to get this credit extended or made permanent. There is other Native American tribes that are doing the same. It’s been introduced in a couple of different places in both the House and the Senate. I am optimistic that something is going to get done, but I think if it gets done, it’s going to get done the way that’s done last year, which is got done at the last minute. It didn’t allow us to monetize it, but we certainly cumulated the credit. I am bullish on it getting done. I just wish you could remain permanent, so we could enter into a monetization arrangement. And I am sorry, what was the other question?
Yes.
Yes, that is correct.
Thank you. I’ve nothing more I can say on it, but I can try in other way to say. Go ahead. Sorry, David.
You are welcome Dave.
Well, traditionally, September capacity was about half of July capacity. So we've always been a very peaked carrier. And particularly if you look at day of week, Tuesdays we have almost no operations as compared to a fully allocated fleet on Sundays. So there's a long way to go. And we're really talking about just changing capacity allocation at the margin. So when you think about growth, I mean, we'll always be a carrier that responds to demand patterns, and that means flying more on Sundays than on Tuesdays. So there's no condition whereby we're a flat carrier; fuel goes low enough for that to happen. We're always going to be a peaked airline. And that's in responding to the demand environment of our customers. So I think really kind of what you're asking is when are we going to see the unit revenue declines lap themselves. And I would consider that to be in the third quarter of next year, where we have had sufficient time to adjust the current schedule to the current fuel price. We launch schedules about nine months in advance. It takes us about a year, maybe more, to adjust as we respond to the conditions. Does that answer your question?
Sure, I can do. For Q1 2015, we have the printers 34%, e-Readers 61%, and automotive 5%. The - and if you sum up for six months, you will have printers of 42%, e-Readers 51%, and automotive 7%. So you can easily see that the printer and automotive is gaining share in a more flat, say, E-Reader market.
Hi, Rosemarie.
Well, I actually think we've been much more consistent than certain other competitors who I think went from not doing any to doing a bunch and saw a runoff and then saw big increases. We've actually been pretty steady. So I would say that we'll continue to appropriately increase lines, but I wouldn't call that out as any dramatic change for us.
Good morning.
I think I would probably want to leave investors with the emphasis being on we've stated numerous times what our objective is. We've also stated numerous times -- and that's the return to the 45% to 55% payout ratio for SCE earnings. And we've also stated that it will take -- it's not going to happen all in one shot. We've made a very large kind of move last year. We want to continue to make solid moves in order to get back to that payout ratio. So that's where I would want to put the emphasis. To say that we will do that come hell or high water -- you never can say that. You have to take into consideration capital requirements, take into consideration all of these other proceedings. But at least as we see it today they all look like they are manageable within the context of continuing to make progress and deliver on one of our core objectives of getting back to the payout ratio of 45% to 55%.
Got it. So, in terms of synergy, again it takes generally we are very disciplined about, completing the integration within two quarters and so we see the full synergy realization in the third. So, for MegaPath we've reported one full quarter, 2Q we’ll see more in the third quarter and more in the fourth quarter so we feel very confident we said before that we’ll yield more than $10 million in incremental synergy use five times better as we said. We are probably further along that we might have been, I think we realize some of those synergies little bit quickly but we clearly have more to achieve, as Mike just noted we see also this is very much being a 25% EBITDA business so and most of that will come from some of the incremental synergies that overtime that we expect to see coming out of MegaPath and future acquisition so I would say probably little ahead were we sometimes have been historically and we think that the well sort of honed integration playbook that we have is playing out very nicely in this one such that, we would feel comfortable potentially during out of the one this year. To your questions…
Peter, we'll have Steve Dyer address that question for you. Go ahead, Steve.
Yes...
I think that's probably on the low side. I think if you look at this year, it would be somewhere between three to five run rate and next year would be five plus.
We didn’t. And to-date, we haven’t purchased any. I mean our stock is trading okay, on a relative basis compared to the pack. And unless we get to a substantial – and I’m hoping we don’t, but if we traded at a substantial discount in book, then we will deploy capital and do our share repurchase. But in the meantime, if we find investments that are great for shareholders and will help us maintain and grow our dividend over the long haul, I think that’s the way that we are thinking about the company.
Thanks Mike.
Mitch, it brings in 100 relationships, many of which we have already, 100-plus relationships, but many of those we don't have on a contractual basis. So as you know, because of the skill of our business, we do business in one way or another with most companies around the world today, but GWS had large contractual relationships with a substantial number of corporations that we had one-off relationships with, so very, very different relationships going forward and a very important part of this deal.
And, Tracy, I just want to add one more thing. This is probably one of the first years that we begin the year with our capital team all experience in place. We don't need to hire new team members and wait until they all have experience. So that's really a new thing for us. Everyone is in place with a new VP and very energized.
Yeah. So Rich, on the expense guidance, I don't have a precise breakdown for you in terms of the, on the guidance, what is FX and then what is operational. I think it's something we can provide supplementary to you. On the Corporate Solutions element, I don't think that the re-categorization had any significant impact on the overall margins. So I'm a little – just a little puzzled in terms of what you're seeing on that front, but we can maybe understand that a little more clearly.
I think that would our hope. If you sit back and send a return on investment, I think this is a vital program. We think it has great growth potential in terms of the demographics as well as the orientation of Medicare itself to be more towards Medicare advantage, so this gives us opportunities with respect to benefits and I think it should translate to greater growth and that's why we're making those investments here.
Again, I'll go back to what we discussed previously in the call. We are now dealing with adjusting the cost structure. I don't think that the EPS in Q4 represents any run rate if you can assume looking forward. There will be actually very low impact on 2016 from all the activity we are taking now. But those will impact 2016. And again, once we discuss 2016, we finalize the plan and discuss 2016, we discuss in detail what did we do and what will be the EPS run rate for 2016.
Matt, the other thing I would add, we tried to make sure that we hit it on our prepared remarks is that the second quarter comp for us got at pretty tough. So our organic sales were actually up from the first quarter to the second quarter but last year we, as you may remember we had a really strong both organic and acquired growth rate for KIT in the second quarter 2014. Now the comps don't get very much easier for us through the balance of the year. But we were pleased to see that the team at distribution was able to deliver positive organic growth from the first to second quarter despite as you know some really tough markets out there.
No, not necessarily. You’ve got DTS:X for example which is coming to the home AV market, has experienced some silicon related issues as we mentioned in the script which has impacted people's ability to ship certain products in the back of this year. So I think it's really a blend and what you have this year in terms of the guidance change, you have a lot of small things across the entire business that are kind of adding up to contribute to the guidance revision. Yet when you look at kind of where the business is in terms of positioning ourselves for continued growth in the key network connected markets in ‘16 and beyond, we feel very good about that.
Michael, one thing that I want to point out that I think others have - our peers - that those specific reserves are done as impairment analysis. And so it’s basically the equivalent of the market ability of those properties today. And we don’t necessarily expect those kinds of losses if and when they occur. I know you’ve heard that already, but that’s the way that impairment analysis works and how we end up with those specific reserves.
Well, we're constantly – even in a tough operating environment, I'm really proud of our operators around the country and the work that they did in a tough volume environment managing labor. There are pressures that we're feeling, but none that we don't think we cannot manage through. And everything that we see coming in 2016 is reflected in the guidance on a same-store basis and in our consolidated numbers that Leif laid out a little bit earlier.
Yeah. It's a great point, Bob. Thanks.
Thank you, Doug.
And Paul, it’s Andy, what it does do as well is it reduces the total amount of inline space, when you do an H&M deal for 22,000 square feet, which means you’re able to better drive higher rents throughout the rest of your mall as you have less space to work with. So it’s really – if you look at the mall-wide favorable impact on H&M and Forever and just the numbers that we are talking about. And in terms of the impact from having to have the downtime to put the H&Ms in, I think you’re correct, it’s not just this quarter, but we had some of that as well last quarter.
I think that based on the revenue mix and the drop in last quarter it's fair to say datacom average wise have a higher, better gross margin than telecom.
Alright. It doesn’t look like anymore questions. So appreciate everybody’s time this morning. We look forward to keep advancing the business and updating everyone with as our strategies coalesce particularly around our NEXAFED opportunities. Thanks everyone.
A goodly portion of our recent order input has been a part of bigger tonnage. It’s noticeably increasing more than the forward tonnage. So, yes, we are getting higher margin where this problem starting to come in and more of them.
We saw what Annie's ultimately sold for, so we see what multiples are out there. When I step back today and when I'm visiting stores and I say what should we be in and where are the categories and as you look at the frozen category moving more and more to fresh, as you walk down the aisles in a Whole Foods and we've got over 2000 SKUs within there where we're, but from a standpoint, personal care is still a big area for us to focus on. Color is a big area for us to focus on. What we're looking at is more and more into the fresh category and where millennials are going. It's amazing what's happened with our snack business. The growth within there is amazing. What we see in the fresh. We do have a meat-free business. I don't think we've grown it to the capacity and the ability that consumers looking for meat-free. I was looking at some numbers yesterday. The amount of consumers, not that are just vegetarians, that looking to reduce more and more, eating more and more meat. I've never seen a category in growth like protein, today and where do we expand that area and we're looking at some things there. Scott, the other thing is we're looking at is the ethnic market because eating healthy is also moving over into ethnic markets and ethnic consumers. We've see that with our Queen Helene and our personal care. As I look at Hain, there's a big field out there of health and wellness. Today, we're in food, we're in personal care and where else do we go are many, many thoughts that are going on. It's just not all the aisles you walk up and down the grocery store. Whether it's yoga, spinning, there are big opportunities out there today that enhance lifestyle. Where that focuses with Hain is what's happening as we tie our social media together today. We have 12 million mothers a month or fathers that we bring within Hain that we can introduce to other health and wellness lifestyles. A lot of opportunities out there, just not in food.
Absolutely. So, I would say starting in the second quarter, we will see improving margins; we won’t see year-over-year improvement but we will not see the decline we had in the first quarter. And a big reason for that I would start, is with the promotional activity which I mentioned cost of probably in the range of 70 basis points. So, we will not be repeating that. As we go beyond the second quarter and I see opportunities to improve margins in a couple of areas. One, I do expect to see improving sales. As I mentioned, some of the sales impact that we’re experiencing currently are short-term in nature. And as we look beyond the second quarter, we see the trends should improve. And then coupled out with the Nutri-Force business, we expect that Nutri-Force will be a contributor to margins in the third quarter and fourth quarter.
No. They will certainly come closer together, but it is important to note that there will always be the maintenance and support element, which will be recognized in future periods. So I think that they'll always be a slight elevation, but they naturally will with sustained bookings and revenue gravitate closer together, yeah.
Sure. So, we had several basically components that in Q4 were -- the deals came in, that’s a good news but the problem was that some components that are significant to the assembly of the products and to get it ready for testing and everything, we’ve received them with some defects; we couldn’t release it to our customers. What we’ve done in 2016 aside from the technology also, we’ve also done some new faces to the product, which was also something that’s received very well by the customers. That means that we went into the manufacturing with our suppliers of new molds in China and we needed to do immediate fixing to the molds. Our suppliers needed to fix the molds because the injection, the plastic injection came out were not very -- not in the quality that we will release the product to the customer. That’s basically the main reason.
Operator, with that, now I am going to take one of our calls from the -- or one of our questions from the webcast participants. And the question is with regard to our expansion in Mexico. Under your current expansion plans in Mexico, can you give us any more detail why this is relevant? And Frank, would you take that question?
Yeah, this is Greg Goff. I mean, we see absolutely no changes in the market environment from overall what’s probably more important on the West Coast is that the overall market environment, the fundamental drivers for the refining marketing logistics business continue to improve and look very favorable when you look at the healthy demand in the environment, the high levels of employment, the high levels of vehicle miles traveled, and the refining industry in particular running at relatively high utilization rates. So the overall marketplace looks very, very favorable on a go forward basis. Now this is kind of the culmination of growth over a number of years and recovery from the financial crisis and new competitor has no impact on the marketplace.
Good morning.
You're welcome.
No we don’t believe so. What we have done is that we have been forced to - and its always negative when you are forced to reduce headcount and take out people. But in this case we have taken out temporary work force, and we would expect to take that back within a short notice if need be.
Thank you.
Well there were actually different terms there. We had a couple of different offers out there. Generally speaking where those CD offers are maybe 20 basis points, 25 basis points above treasury yield curve.
More from an operational commercial perspective is that your focus Fulvio?
At this point it is.
Yes, Jeff, we have a 100% of wind and we have virtually 100% on our next pad as well. And in our second half of the year, we’re working on swaps on some other things right now. So we’ll try to give you more clarity on what net wells will look like sometime in the middle of the year.
Once again I want to thank everyone for their time and patience this morning. We covered a lot of ground and we all look forward to reporting on our continued progress in our various meetings and conversations that will occur over the next couple of months. So thank you again very much.
Appreciate it.
I would say, Jim, that what we’ve seen as far as our new business wins is truly a good broad mix. In fact, some of the programs that we are engaging in are early engagements, very broad opportunities such as industrial that have a very long lifecycles that we’re excited about. And then likewise, we see some other opportunities as we spoke to in the network and telecom, [they are just] different. So we have a good blend of new opportunities that we’re excited about and I think that’s the important message that we want to get across to shareholders, it is portfolio management, it’s not that we prefer one versus the other. It really takes a blend of business to allow us to operate most effectively and efficiently. And we’re seeing our go to market allow us to balance the portfolio in a manner that we’re very happy with.
Yeah I would agree with that I mean I think we’re going to be spending time with our commissioners, with our legislators and with our environmental departments of both states to work on these kind of plans. It’s going to -- one thing is clear is that CPP is going to require investment, the time frame as it is will require potentially significant investment. And our ability to work with those parties to manage that investment in a way which has the least or best impact on customers, I think is in front of us and we’ll have the ability to talk about ways to do that because regardless of the outcome unless the rules are rolled back we’re going to have to invest in potentially a lot of renewables.
Yeah. So on that side, on the embedded, we follow the largest blade server vendors. So we've had a relationship with Huawei for years. There's other partners that are emerging really across the globe that look at Fibre Channel as the key component of technology required to participate in the enterprise market. So as much as we can, we're diversifying our go-to-market. So as there are transitions or other changes within the partners that we can diversify our go-to-market partners as much as possible.
There's two metrics that we see that I have looked at over 20 years that I do believe are relevant to lower prices. The first is people upgrade from regular gasoline to mid-grade and premium. I think there's a recent study from one of the banks that did some analysis on that. We've seen that every time prices go down. And we see an equal and opposite effect when prices go back up.  We see something similar on tobacco products, as well. People upgrade to more premium brands. As so as you see the shift in the product mix, you do see a higher range on the tobacco products. What is difficult is to then attribute other factors, given that you're making improvements to your store, you've got other competitive dynamics taking place. When you look at the amount of savings, how much is putting to savings and paying off credit card debt and spreading it across lots of merchants, it's hard for us, given all the other promotions and initiatives that we have, to isolate some other amount. But we definitely see the upgrading of product and that's a trend that's recurred over time. You also see the opposite effect when prices skyrocket.
Ted spoke about Williamsburg and the format. We expect to have that sort of format in all of the stores go forward, not necessarily the dividing walls and features, but we are really defining the shops really well. And looking to use the floor space coming with different points of view with products and our trends and our look and our stories. So you won't walk into Urban Outfitters and feel a run-on sentence. You walk up into the store and feel different areas that are compelling that would draw you through the store and delight you as you're walking through it.
Well, our sweet spot is 18% to 20%, and we're at the low end of that range right now. So we're very comfortable with where we are. In the past, I think, the lowest we've been since – in the last five years is about 12%. And once we get to 12%, we feel like that's low. And even 12% to 15%, I'd say once we get to that range we start thinking about ways to bring the debt-to-capital up, but we have a ways before we get to that level.
Thank you all for your time today and your continued interest and support. We’ll look forward to speaking with you all soon. Have a nice afternoon.
$600 million.
Yeah. I will go first. Okay. First, I would say, Glen, we’ve got about $70 million left on our three-year program. We fully expect to use all of that and so we are not backing away from that. On our last call, I said typically it’s -- we've looked first to what we can do with our operations, reinvesting in that and then buyback and then M&A. And I said, I think M&A activity has now taken a front seat to buying back shares and we’ve been actively looking at a number of acquisitions that we feel would be long-term and short-term successes for Sirona. So that’s really what’s been going on and so we are not backing away from putting the $70 million to work, but we think there should be some opportunities for us on the corporate side.
Good morning, Abe. What are your thoughts on the market's reaction to a competitor issuing equity last week and does that inform your decision making at all? I think you're referring to...
So, Matt, it's Gerry. Let me take a first shot at that. We're just estimating what, as Rick said, was an exact science. If you think about our seasonality, actually at our Investor Day, we said seasonality is minus 2% to plus 2% for this quarter. So I don't know if you picked up on that, but if you look at our...
Any other, any question, John?
Great to hear from you Howard.
We haven’t seen much change at all. We know that we have more gas or higher GOR as we move south across our acreage plan, but the variation is pretty small. We go from term like 2,500 GOR to 5,000 GOR. So that’s all been factored into our type curves and it’s all been holding up really well.
Art, the other thing I'd mention, too, is to not lose sight of what's transpired here over the last few years in terms of our commercial organization being incredibly successful on stretching term and capitalizing on an incredibly strong lease rate market. And so you don't want to lose sight too much of the embedded cash flow in the business and the leases that have been put to bed for a very long period of time at very high rates.
So I will take the first one. We are determined to become among the most effective marketers not just in our category but across the content provider landscape or television landscape whatever you want to call it. And I think there are increasingly interesting ways that we can accomplish that. Recently a small team of my colleagues and I were up at Facebook and had some terrific conversations with them about how we might become more effective in reaching to people that actually have Starz or -- and our potential audiences with some of our shows and people that might have even be potential new customers for Starz.  One of the big obstacles in premium is that the Starz subscribers are customer of our MVPD partners. So in many cases we don’t actually have the information but new technology is going to provide us with opportunities to be able to accumulate that information and as they become more effective marketers and know more about their own subscribers they can offer us opportunities to reach those people much more cost effectively. And thenI would also saythat one of the benefits and one of the reasons for our strategy of targeting specific demographics is that social media, not just paid ads or not just us reaching out to people but social media among peer groups is becoming a very important way that we’ll get to talk about the show which is why multiple seasons of shows are increasingly becoming things that make more sense. Because those fan basis become almost year round marketers for the show to their friends or to other people in their chat rooms.  So we have enough money to market these shows and we are very pleased with the execution of our consumer campaign when we launched them but there are other things that we are working on and that we think can help us to be even more effective. Scott, do you want to talk about the cost?
Okay. Thank you.
No. I think we’ve deployed and have accepted all the previous deployments and now these customers are upgrading and adding new features to these Adrenalin roll outs. And we talked about this quarter we have two design wins we expected and those are going to come at the end of this fiscal period.
I think we are doing a bit of both, we are trying to prioritize as good as we can on our returns, as Billy said before. But we see opportunities as you we both in our current set of clients and also clients and channels that we haven’t even penetrated yet. So it’s a mix strategy.
I can't give percentages and probabilities. We announced the MOU, we are continuing our discussions. Worldwide Touch has been a partner of BIO-key for well over a year, year and half. So this is not a new relationship. So we've been working together for quite some time. The other part that's critically important to understand here is that it is almost from a strategic perspective, forget about the investment, we really are a very good match because they have really good capability in building hardware truncate devices embedding sensors in ILT type things, they have great, great capability there and we have great, great capability in the software side of things. And so we really are a very good combination working together I think we are going to create new and innovative opportunities and work in new markets that we couldn't-- wouldn't have even been able to touch today on our own. The other critical and really the third biggest opportunity here is access to the specification market. I mean the market there is growing in leaps and bound, I answered the question about fingerprint card; they are dominating the space right now for embedded fingerprint sensors. Most of those devices that they are delivering are going to the Asia market, that the population is huge. The internet of things again a core key type thing, whether you believe it or not putting a secured device on your toaster or your refrigerator some of its crazy, but at the end of the day there is a very, very good market for connected devices and that also our relationship with them also put us in a very good position to address those particular opportunities.
Yes, we will see the sales and marketing and the G&A being roughly flat and then we’ll see the R&D coming up reflecting that we are delivering on our new product introductions if these products are beginning to roll out into the market place and getting into production in our factories. So that’s going to show a little bit of an increase in R&D.
Sure. Now it's I would say it's a great question, it's one that we're obviously paying very close attention to. We very much like the quality of our portfolio which includes the quality of our equity portfolio and given the M&A environment and I will tell you M&A is driving both originations and repayments. And so any projected repayments if they involve a sale of a business and we would hope to participate from an equity perspective at least in most of our portfolio companies, and so I do think that's going to be part of the equation as we continue to move forward is at least right now as we look at M&As driving a lot of the market, the outlook looks pretty good. And so our hope is continue to participate in the market from that perspective.
You also have to differentiate between activity on the capital equipment side of the industry and the consumables space. So as our customers prepare that ramp and as they start those ramps, they’ve invested in CapEx in the preceding quarters. And so the capital equipment suppliers have seen that and there’s a lot of discussion and dialogue about that. From a consumables standpoint, it’s a wafer start [ph] driven business. And so we’re going to enjoy the benefits of those ramp as they ramp, and we’re early in both of those ramps.
Okay.
Yeah. Absolutely. So, C&I commercial accounted for about $75 million in gains during the quarter. And then $56.5 million was driven, and that’s primarily indirect.
Come on, Bill.
I would like to add, we do expect when we add new business, that that’s going to perform at least initially at a higher loss ratio and that as that becomes more tenured, it begins to perform in the range of where our tenured business is. So when we have said that everything is in line with our expectations, that’s exactly what we mean, we assume certain things about how the book to new business will perform, and it’s within those garb rails, we just started going through our renewal cycle with the first of the Quantum book, we expect that to even perform at lower levels of loss but within planned expectations. So I agree with Jay, we are not seeing anything that’s systemic in the environment but our view of new business is it gets to the returns over time and we expect it ---
Well, I mean, the fully competitive market different people will focus on different segments of the market. So, the market itself is served. As I said we are absolutely serving that overall marketplace. But if you look at the ARPUs of prepaid, which in the country probably run, let’s just estimate under $20 probably that range. If you look at our total operating cost plus depreciation – or proxy of depreciating for our CapEx intensity, it’s about $43 a month per customer just to breakeven. So, we probably have a hard time with the financial community justifying a focus on an ARPU like that and so that’s really why our focus continues to be most in the postpaid and consumers of course want the products that are on postpaid because of the incredible access to the networks they get.
No.
Well we want to be involved in some of that and I’d say some of it because we want to be able to have a relationship, we don’t want to be the place where excess deposits stay and you don’t be able to build any sort of relationships there. So yes we see a great opportunity, but not to be a depository just for excess funds.
Most of those wells are drilled. It's just that they aren't all completed yet.
Again, I think it's incremental. I think our guidance is consistent with what we think the environment is. It's surely incremental on new investments. We will have average -- we will have pre-pays and we will be able to reinvest those in higher spread opportunities.    If we are able to and we think we can raise -- if we are able to and we think it's accretive on a book value basis and on an earnings basis, obviously you will be able to drive higher net interest margin on new capital raised in this environment. As you know, the challenges with the BDC model is often the best environments to and the highest return on invested capital environments are those where it's difficult to raise capital.
That’s a good question. I think, that the CENTRIA coating business is a bit more niche, and is focused on the parts of the market that that probably do benefit a bit more from mid-rise and high-rise growth as well.
Well, I'm saying that I'm going to not be apt to jump into the market until I see something with a [indiscernible] handle or lower.
When you look at the maps on the quarter, probably around 10% of the net loan growth was the net purchase volume, so it's quite a modest number, at this point.
Sure, Gregg. This is Donnie. If you take a look at our slide 104 of the fact book you can see the EBITDA guidance. And as you clearly indicated, the fall-off in prices, we reflected that in our open position. We're down about $3 there. But we've also lowered our costs, especially our fossil fuel. We went back and took another hard look at some of the things we'd done in CFIP. We were able to lower that. Net of those two things, the lower revenue from the decline in the open position, net of what we've been able to do on the cost side, our commodity margin's only down about $15 million, which is well in the range of our EBITDA.
In UMC's case, we think it's possible, but we believe we have different formulas to define that capacity utilization rate.
So given our structure and where our assets are located, our tax level should be consistent with the previous quarter so around 36.5, 36.48 percentage of effective rate so nothing meaningful change there.
Yes. We can.
At Brothers, we’ve got this space. If you recall, we didn’t increase the size of any of our stores. We simply allocated a little bit of space for Brothers, and majority of those stores are in the back of the store. So, initially maybe we’ll just use that space and move clearance back there and be able to clean up the floor and make it more attractive. But over time we’ve got a lot of ideas we’re thinking about. And we’ll keep you posted but right now it’s just going to give us a chance to spread up the existing forward space.
Good morning, Michael.
Let me go ahead and start with the second part of your question, where we are actually modernizing our fleet. So we’re getting rid of very inefficient fuel burning aircraft of high maintenance to a newer fleet, better maintenance, better reliability, better fuel efficiency. So we’re balancing our fleet in the United States and around the world and that’s part of our profit improvement plan.
Thanks Rick.
No, I mean, the Chevron deal is, it’s obviously a major deal and we’ve said pretty much as we can. But nevertheless it's still a pretty small part of Pembina and it's not going to influence our dividend policy. If we keep growing our dividends 6% to 8% a year with our guardrail of 80% fee-for-service and we expect our payout ratio to keep dropping over the foreseeable future to the point where our dividend payments are entirely come out of fee-for-service. The Chevron deal won't change that. It's well within the guardrails of staying on track.
I’m sorry, Tim. We have -- as of January -- 1st of January, we had a new Marketing Director, our new Compliance Director and new Chief Auditor because all those people started January 2nd or whatever was that around the end of the year. So that’s reflected in those numbers, so it’s a good run rate, I think.
Yeah. There was nothing one-off inside the third quarter as it related to programming. As I mentioned on the last call, we did have a large one-off in the second quarter of 2014, which caused the growth rate in Q2 of this year to be elevated, so the percentage growth rate to be elevated in Q2. This one is a normal quarter and also reflects the addition of some more significant content at the beginning of June through last year. So, we don't usually get into the mode of providing forward-looking guidance, but the rate that you saw is at in Q3 is a good run rate from where we are today.
Yes, the mill has been operating at the efficiency rate.
Hang on a second Mike, somebody got to -- needs to turn their speaker off or Ian, Ian can you hear, I am assuming you can hear us, it helped, I was going to go forward with the answer.
You're talking about the one-time events through the financial statement? From those marks, it was right around a $1 million.
I think there's a couple of answers to that question and I think the most important one is we’re seeing the changeover in the generation stack that we expected to see with retirements and low gas prices and you’ve seen the heat rate expansion that we have been talking about for some time. I think in addition to that, I think what you’re going to see going forward is increased volatility and both upside volatility and downside volatility. And I think that has an impact on load following contracts because you need to make sure that they are priced accordingly. So we have got the benefit of, I would call it, lower load serving cost in the first quarter and they’ve come down on a mark to market basis for the balance of the year. But our expectation is given that market volatility we would expect to see that that would pass through to continuing to see appropriate risk premiums in our load serving business and appropriate margins.
In line with expectations and depreciate the first quarter that Matrix had but don’t want to extrapolate from that first quarter any additional increases over the course of the year. We still maintain our expectations for the year.
I agree. You're right. Actually, I agree. I think we have great opportunities. And the thing I've said is, the way we measure the effectiveness of our innovation process, one of the measures is the number of hit products, $1 million sellers in the first year of after first year of being on the market. And I think you and I have been in this conservation that we were four, five – in the last couple of years, we were four times, five times what we were just in 2006 and we keep pushing that envelop. It's not so much – I think we're getting better at doing that. It's not so much a number counting game it's getting better and they're having more impact and they're driving more sales and they're doing better things. Like – just like, I'll tell you what, it sounds like not so important. But the idea of the combo ratcheting wrench that will have a low profile, 25% more – 25% more strength, 95% more life, will get in smaller spaces, that one is going to be a great product for us, and people are so excited about it. People are saying that's the kind of thing we're – so I think we're not only bringing out a lot of them, bringing out better ones, because the whole product development process, we're more effective at it.
It’s over 50% growth with the current market from where Expedia is right now.
Sure, this is Humberto. The shareholders meeting basically approved to give in the power to the side of the board. And that -- I heard in the shareholders meeting basically we were making these tool for board to evaluate permanently when there is an opportunity and the buyback program would add value to our shareholders. I mean in terms of pricing and size and everything that is something for the board to return. Like I said in the shareholders meeting we are not in the need of a buyback program. All we are planning for our shareholders to give the power to the boards to decide if there is a chance and an opportunity that makes sense for the company through a buyback program. So whenever the board thinks that the conditions are good for that, they’ll do it. But like I said we are not in a middle of buyback program at all.
Yeah. I would say on the earnings volatility, it's been a pretty good, consistent long-term increase in the earnings in that business. The business has done real well. It does get a little bumpier quarter-to-quarter and it is a more seasonal business. But the overall long-term trajectory of that business has been very solid. We don't see that necessarily changing. I don't think we need much in the way of capital down there. And in terms of returns, this does meet our typical hurdles that we always look at in terms of we want to earn 9% after tax within three years, and this will do that.
Sure. We’ll let Rob answer the cash flow question but I think to be fair as to preserving all of our options, we try to address it as best we could in the press release and our prepared remarks. We recognize this is a very difficult environment for the downhaul tools. We’ve reduced the headcount there by over 30% from when this year started and we are continuing to look at ways to further reduce the expenses. The fact that we were able to outperform what the drilling rig count was in the fourth quarter I think speaks to the quality of our people. But we’re keenly aware that we want to make sure that the performance on the chemistry side of things is not unduly affected by that segment and believe me it’s got the focus. But Rob will give you a little bit more clarity on the cash flow.
I would say in the new states we are seeing a response to our presence in those states and it’s a much more competitive retail pricing environment and therein lies part of the reason that we are seeing lower margin gas margin in those states relative to our other states.
Hi, guys. Well, thank you. So I think coming back to that question, I am three weeks into the job. I'd say it's a little bit early or you can tell if you look at the results that we've seen, very successful with the approach we have. And I would like to compliment my predecessor, Bruce Fleming, on the kind of parameter he had set up, very clear longevity on brand assets and on communication. Yeah. So I would say, this isn't broke. This is a winning formula we currently have. Obviously, we all look at ways of optimizing. I will do that in due course, but currently I would say it's a winning formula. There's no reason to upset the apple cart, it's not a nice American expression.
Yes, Matt, yes thanks for the question and I appreciate the interest in this. What I’ve said before this is a huge precedent-setting program in NASH it is breakthrough within the FDA meeting that it's been elevated to the attention of senior leadership tutor who have been involved and it is a large complex program and recall that what I have said in the past is what we are hoping to do here is a placebo-controlled outcomes trial with the nested interim analysis at the same time point is FLINT to read out on for accelerated approval. So there is a lot of ground to cover with the agencies that there are program like this multiple interactions, ongoing interaction very happy with those interaction and like I alluded do on the call we are still on track to complete the discussions necessary to finalize the program this quarter and we do intend to come back to you at that point with the relevant details of the design.
This is Scott. I mean, that's – I mean, I think that's easily the case. I mean, if you just take a look at...
Andrew, it won't be one individual acquisition. It is absolutely focused (20:47)
Yes, we are not going to try to guide you to cash flow 2016, but I think we’ve talked in the past of the big drivers, it ends up being the level of capital, ends up being the investment in non-recurring programs, it ends up being the pension contribution. And then the one other variable out there is taxes and we still anticipate becoming a cash tax payer in fiscal 2016, we still think that’s at a roughly a 10% cash tax rate for the year.
Well, it’s a good question Aaron, and the answer is this there was many answers they’re workload types, because, it very much depends on whether the workload takes the best advantage of flash efficiency. I guess the best way I will hearken back to a comment that, the Joe Tucci made in one of his investment calls, because he has a broader base of statistics to look at. But he said that that in equivalent flash implementation versus spinning disk could be as much as 30% less than the cost of spinning disk, now that number can be 5% that can be 40%, but that’s what he had said and I usually quote that number, because I think he had a fairly broad study to get it from. And we have experienced workload where 30% is the right number and we’ve experienced workloads where it’s only 10% depending what the clients do. And I think what we end up doing with flash and is that normally we’re selling flash to clients. What we have to be able to do is add to that flash a lot of services. We have to have data migration services often times so that flash is being used as part of a replatforming of datacenters. So, we have data center services, so what we have been doing. And one of the added benefits we’re having a much broader services business in total. And so we can counter some of that downward pressure with higher-margin services revenues wrapped around the implementation of not only the flash, but more importantly the applications of the flash is being used for. So when we look the total sale we can hold even when services are added, but if you look at hardware to hardware I think the best answers is the one that Joe, had given.
There’s not any marked seasonality to the expenses. The clinical trials will be going on, so we don’t really see that much variance driven by any particularly notable factor.
Hi.
Yes, it’s interesting, because labor becomes a real topic of conversation at quarter end and certainly it did at year end. And as we mentioned in our prepared remarks, given the weather bottleneck, it certainly impacted Dallas, Denver, and Phoenix, given the volume. The stat that I like to share, because I think it helps articulate really what the industry is dealing with is if you think back to the peak, we’re probably about 50% back in skilled labor and we’re probably about 50% back in starts, excuse me, from the peak. If you think about skilled labor and the actual bodies around the company, we’re about a third of the way back. In addition to that, we’ve just had an aging out within the trade base and the average plumber/electrician is in their mid-50s today. So you’re not back on bodies and you certainly aren’t back on expertise is that you’ve actually given out some of your greatest expertise. So this shouldn’t be a surprise. Having said all that this is what we do is work through this and we’re working on some pilot programs, for example, we’re working on one in Phoenix right now, where we’re doing a job match helping our trades really being a trade partner and helping them match skills with garden reserve vets in the marketplace that are out of work. So we have a lot of different initiatives in place today that some of them will have an immediate impact and some of them will help us through this cycle and the next to rebuild the infrastructure.
Thank you.
We feel very good about things. I of course can’t comment on HC2. But we feel very good about our proposal, how our stock is traded and the investor receptivity from both sets of shareholders.
The core drivers on the cost side, I mean we have negotiated new pricing structure with basically all of our service lines on the drilling side from submitting operations to mod to basically all of the service directional drilling. On the completion side, a big negotiation, we have been having are with the fracture stimulation groups on pumping costs, on sand, on the logistics to support the sand. And on the operating side, we have really driven lower our labor and our chemical costs as well as some of our saltwater disposal costs.
Not in the existing line utilizations but one of the things that we have seen is that the credits that we have extended over last two quarters we’re seeing those funded up as we had expected so we put a lot of new C&I customers into the bank over the last few quarters and we are seeing growth in lines of credit and total outstandings because of that but overall line utilization has stayed pretty consistent.
Yes. I said inventories are pretty low. We haven't really seen that much pre-buy. Really, what we're seeing in our customers, we have some very large customers that do not participate in pre-buy. But also we're seeing just durable demand. So, in which we find that encouraging. So, as I said earlier, there's some parts of the country where inventories are very low and the capacity utilization is very high. So, for example, in Texas, we have customers that probably we would have a tough time having any type of surge because we're busy.
Yes, nothing that we have was already renewed.
We remain very confident in those long-term targets, Ross.
All right. So...
Not really. We’re not doing anything out of the ordinary in promotions this year that we didn’t do last year. The incentives we achieved last year were one time rebates based on inventory purchases to help certain vendors move product through their channel while the mom-and-pop channel was clogged. We knew those were onetime rebates. We took them as one time rebates. We knew they wouldn’t occur this year. As it relates to the normal ongoing flow of our business, we have done absolutely nothing different in terms of margin or promotional cadence of promotional strategies this year than we did last year.
I'd like to add to my colleague's comment on Yanacocha that one of the technical reasons why we're starting the ore - as you know the Yanacocha ore transitions from all size to sole type [ph] and the technical analysis now have to face a new technology, well different technology than the one is being used in the process, basically floatation but in addition to that there is arsenic with the ore, with the copper ore which brings additional complications to the quality of the concentrate. So basically those are the issues that we're analyzing in Yanacocha but the potential is there.
Thanks Greg. Just to reiterate, obviously here in the short run, we're doing everything that we can to ensure that we continue to preserve the strength of our balance sheet, and as I said in the call notes, the old cliché goes cash is king in this kind of a business environment. When we start to see a recovery in oil prices and you suggested in the $50 to $60 range, it's absolutely our intent that the things that we're doing right now and actually taking advantage of this environment to continue to drive our productivity upwards to drive improvements that are sustained in our capital efficiency and our operating costs will really set us up for significantly improved sustained free cash flow in higher price environments that you were describing. I've always viewed that a dividend is an important form of capital discipline, it is a commitment to our shareholders, and I would expect in the environment that you were describing that we will have a pretty robust business model and margins will support us having an appropriate balance between dividend and the potential for returning to dividend growth as well as allowing us to allocate capital to the growth in the high quality oil sands assets that we have. So that environment expect us to really be focusing again, once again on total shareholder return.
Sure. We can hear you fine.
[Chinese language spoken]
Thanks, Manny. I do want to thank Dillard Watt for your question. I want to reiterate our belief in the company's plans to depreciate our receipts, that's extremely important. I think we're going to see lower lead times, more consistent quality and better product value like we've already seen and customers are excited about this, because they’re excited anytime they can deal directly with the factory and they know that the people they're talking to have some trouble over those things. We have lot of opportunities ahead in attracting what is really an elusive millennial consumer for many of our customers and traditional channels and we just got to execute our overseas operations, plans and everything to produce growth that Stanley should begin fall into place. So we thank you a lot. We're looking forward to the future. Hope you have a great day. Thanks, Manny.
$15 million, this year compared to $12 million last year.
Rebecca, it's Alex. There has certainly been a lot of - a few interesting things going on in the power markets. I think from our perspective, as I said, we're really focused on opportunities that are going to be in line with our strategy, with the regions that we have competitive advantages in and we’re looking at opportunities that are going to be accretive to our shareholders on an EPS basis and a value perspective and I mean, never say never, but we keep looking, but we are a long way from - a fair bit of way from anything right now.
Thank you.
Absolutely. That's absolutely the case. And what we're seeing is that we used to talk about as being in midmarket, but we're seeing a number of small kind of tech businesses in B2C that are also having, what would fit in our small business side having bigger relative databases as compared to the B2B compatriots.
Well first of all I’d like thank them for endorsing our spending to talent. But the truth of it is the only reason we can in their own work and John’s own words have shock in outspending for a series is because we get shock in our viewing on that series that Dave expected that David said earlier, the efficiency of the content spend has been great meaning that we are spending a lot on great shows and they get a lot of yielding relating to licensed programmed or relative to other programming as well. So we’ve been excited about it as part of and I think it’s a competitive market place and overspending is relative, I would say if the show like “The Get Down” like “The Crown” which are relatively expensive shows are successful it’s money where spent the way was for “House of Cards” and “Orange Is the New Black”.
The first one that I mentioned, Townsend, we're hopeful of delivery sometime around the end of the year range, we'll see. These are fairly complex products to build and whatever our optimistic completion date is, we're obviously going to miss them by a month or two months. You have to run a higher margin in these in order to get your returns because they're more capital intensive than building a home on a lot in the suburbs. So when they do hit the market, typically it'll be a higher price and a higher margin, no different than our prior experience, which I believe you too heard last year out here, Alex (52:22). And I share it because it's an extension of a business that we haven't done before and we stuck our toe in the water up in the Bay Area. The initial response has been very strong. And again, it's a natural extension of the things we do here in the States. So we're looking to expand our penetration of this type of business on top of the other things we do.
Yes. Just to parse out a little bit on the market growth here. About half of that growth, we see coming from security, from the additional security products, specifically some of the DDoS and other capabilities we are adding to the product, as well as the portion coming from cloud. So cloud infrastructure basically updating the VEs to run across different cloud environments we are adding badger. It’s actually part of the list and there is a lot of things we are doing with auto-scaling and other capabilities on that side, a bunch of things in service provider. So being able to support the mobile core better, adding capabilities there are a number of functions and also enhancing the firewall, the S/Gi firewall components or the firewall components.
Absolutely, absolutely.
Well, it’s going to be a bit of a maturing process. So yes, I would say it’s a good year out before we’re really going to see a lot of the benefit.
Yeah. I would just add to that the numbers that we've talked about over time I think are still meaningful, those are benchmarks, benchmarks that we see as representative of the way the businesses can perform based on a marked view of where we've been and how the industry performs. Let me be clear, we incentivized our team to be better than the benchmarks and that's our core part of the strategy in the company. But as Ken pointed out, there are pressures in both directions whether it is the mix of development and production that we have pressing in one direction or the growth in international pressing in a different direction, but it's our job to manage all of those things. And as I said we measure ourselves on how well we do and that goes directly to the way our incentives work.
Yes. This might add that it’s a combination of things so it’s often a -- things, there’s some very large industry deals that are now back in the shackle I guess where they are looking at these kind of at what they’re doing in the space of managing their safety and efficiencies and we have seen a trend up in the number of large yields that we’re either receiving request for proposal from or we’re in active mid to late stage discussion with.
Good morning.
Thanks. Next question, please?
I think there is going to be some volatility there because in addition to the additional warehouses we also are expanding our product offering continuing to expand our product offering in furniture and as that product flows into the warehouses and gets to the floor and takes time to develop a sales rate that will also slow turn rates. So I don't know that we're going to see a short-term change there but if you look a layer deeper and you look at the turn rates other than furniture in our legacy markets the turn rates there haven't deteriorated at all and we've seen no deterioration and inventory aging or issues around inventory generally really just reflects the expansion of the business.
Yes, they’ll go live in ’16. They are not drinking from a water hose; they are taking it slow because it’s a dramatic change. So I don’t think you’ll see the numbers that you – I mean, I know we won’t see the numbers we’ve seen so far. They are in good shape. They are doing a lot of testing.
All right, thanks very much.
Yeah. Jairam, I think their technologies are complementary. What I really like with the addition of NexPlanar is that we’re able to offer a full suite. So we continue to support our D100 family of pads, our D200 family of pads and now NexPlanar. So for me, it’s really offering just like we do on the slurry side where we offer solutions across different applications, different technology nodes. The same for pads. This kind of rounds out our pad portfolio. So I wouldn't look at it as one or the other. We've had success growing our pads business. They’ve had tremendous success, growing their pad business more recently. So it’s a good combination.
I believe our leverage is about 2.2, 2.2 and I think we’ve said in previous calls, we can see ourselves going up above 3, 3.5. We have the ability to go even a little higher, but right now what we’re looking is we’re doing share repurchase. I think it’s in a good program. I think we’re doing acquisitions we’re investing. So, we will continue to do a balance of our capital. And we’re also taking a lot of input from our largest shareholders that have voiced opinions.
Yes, you should. That's just a reversion back to, not where we were, but we would still have leverage. I just want to highlight again, we have found ways to continue to do things more effectively and more efficiently. And what we're starting to see, on inside risk assessment, is opportunities to re-imagine our markets a bit. And, we're going to places that we think there's opportunities. So, we're going to put some talented resources in place, to try to grow the business in a couple other spaces. And, we're excited by the opportunity there. So, you should look to that. And, I think we would continue to see some of the growth in risk assessment continue, that is above historical norms.
I mean, the business as a whole is becoming ever more fee-for-service oriented. Absolutely, the way we’re running it now with some pretty significant hedging, I think that’s taking volatility out of the business. But the original asset base we bought when we merged with Provident and that cash flow stream that character really hasn't changed too much. What's changed is everything else around that business is diluting that volatility in our overall cash flow streams.
I think what we said all year long, is that for the year we expected approximately 3% and if you do the math on 2% to 3% for the fourth quarter that lands at about approximately 3%. So, we tried to give a range there that is consistent with what we believe for the full year and nothing has changed for us, so that's where we believe we're going to be for the year. Obviously, the initiatives we've put in place, we feel great about and they’re in front of us in the next few weeks, and we'll build -- obviously, report back from here, what plays out. But I think November as you allude to was, it was our toughest Frozen comparison and that's now behind us. And all the initiatives I talked about on every call have been setting us up to have a great December.
No. We don't really disclose sales headcount by business unit. But you can assume that it is growing at the same in line with kind of the overall sales headcount growth of plus or minus little bit but not as -- as Jan said we are trying to grow our sales headcounts call it between 2% and 4% and then try to achieve the rest of our sales results through productivity improvements.
Let me tell you a couple of things. One is that in our Europe business as an example, in Q2 about 93% of all the terminals we sold came with NFC versus about 87% in the first quarter. You heard MasterCard coming out earlier this year saying that new installations of terminals must support NFC after January 1, 2016 and infield terminals out by 2020. So you are hearing the networks certainly talk to the fact that they support this NFC thing, they think it's a good thing. A lot of them issue cards with NFC chips. And so even if there isn't the wallet, consumers find it very convenient to just have their NFC card. If you talk to the quick service restaurants in the United States, they would love that because there is concern for them that an EMV card takes a bit longer to process than a traditional magnetic stripe card. So I can see that there are good use cases and I could see that people are pushing forward on that. In the US, NFC sales in Q2, about 80% of the terminals we sold in Q2 had NFC, about 74% were there in Q1. So that's sort of moving. The big opportunity in the US for us working with merchants is that a fewer of those NFC devices are turned on. They are able to access that NFC chip, but the software work has not turned on those devices. So Apple Pay, Android Pay, Samsung Pay and everyone else starts to bring value, we could see that there is an opportunity for those to be turned on. As far as the rest of the world is concerned, it's a little bit of a mixed bag. You've got certain countries that have extensive NFC, there are certain countries that don't have very much at all. And if these wallets and if NFC touch cards become what many hope they will, it will provide a really nice wind on our back for years to come.
Thank you.
Yeah. That comes a bit further down the road for us. We need to have a larger fleet out there. Right now, they're working on a lot of the operational issues, the seating issues with those aircrafts. And the opportunity for us would come down the road.
Well, we have a very established program in place, from a remuneration point of view, which consistent of base salary annual bonus and long-term incentives. On the annual bonus side, we are very much incentivizing people to drive top-line growth, bottom-line growth and cash efficiency in the business, we are very much focused on net working capital as Patrice highlighted before, so there is a clear incentive scheme in place to deliver targets. To balance short and long-term, in addition to the annual bonus programs, we have long-term incentives to make sure that people don't just optimize the end year results, but also the long-term results. Clearly from a JAB point of view, we are very much interested in a steady improvement year-after-year to make this much more successful global beauty company and we do believe that our incentive targets are aligned to that. Having said that, we review this literally every 12 months in depth to make sure that that is the case and we will have another review on this in the next couple of months.
Yes, so the way I would frame it up for you Andrew is the a lot of the service progress that we have made clearly around just the on-time delivery, fill rate and structural improvements, a lot of the things we’re referencing were due to planned consolidations and their very structural nature. And we have made a lot of progress, but we have more work to do. Kind of the, what's new in the way we’re defining it is the overall service with our customer, clearly on-time fill rate those are important, but the way we interface with the customer in everything that we do to strengthen that partnership with them. And that's really what we’re getting at here is beyond those very service metric type of things, the overall relationship.
That's exactly right.
That's correct.
So the biggest I think the hit in form of the delays Nexium as I have -- we spoke about it we did the transfer. Beyond that it is very, very significant the answer is no. Of course we are assuming that reasonable time spend we’ll be able to sort of get back.
A good question also. Look, we are extremely well-positioned in China, as we have made that point a couple of times already. With the joint venture partnerships that we have that gives us just great access to most of the car manufacturers. What I would say here is that our business in China in 2016 will be driven more by new product launches than by production volume. A significant number of the product launches that we have indicated in this deck actually came in China. And although production volumes growth matters a lot, and we are certainly hoping that the 5.4% level that is predicted by IHS comes through, for us new product launches will be more significant than production volume itself. We hope to be able to see the growth. Even though the production may dampen some of that growth, it will still be a good growth. And as per your question regarding whether the sales are being pulled, it's hard to tell. It's just one month of data in the year that we have. January was reasonably good, and so I think we'll need to wait out a little bit more before we can say what's going to happen for the rest of the year.
You’re welcome.
In Spain -- in Spain. That's been announced that's not going -- its going to go down and not be replaced.
Well, we all have our opinions. I think you have to look at the fiscal halves and the calendar halves. As you know, our fiscal half is -- we end our fiscal year in October 31. My belief is that the second half foundry is stronger than typical, as I said, before. We think memory is stronger in the first half although I think there's a little upside to the memory outlook quite frankly. So I don't think memory is going to follow off if you look at pricing. I'll give you another data point. Utilization across all the fabs is running pretty darn high right now. So that I think that the forecast is pretty good, just timing and mix issues really.
Yeah. So I'd probably argue with your fundamental assessment. So while we can see and Lloyd talked to the fact that we're off in fiscal 2015 or kind of flat to 2% growth rate for SAN, that's not our longer term view of the growth rate prospects for the market. We haven't changed off of that growth rate there, and we're looking at a year where we're going to refresh the portfolio, begin to refresh the portfolio with Gen 6. We remain quite bullish about the prospects of Fibre Channel in the growth and the cash generation. So I would argue with you against that particular assumption. The number of dynamics as we move forward, and also we're quite enthusiastic about the prospects that software will bring to our business in terms of driving higher profitability, certainly through gross margins because that business is relatively nascent today but will grow and add quite a bit of value to the business. And then within the dividend, we've committed to investors to return essentially a minimum of 60% of our free cash flow. We've done most of that through our share repurchase program. The dividend is part of the free cash flow, it's a very small element, and we kind of monitor investor sentiment and decide where we want to take the dividend. And that's really driving the increase at this point. This is kind of on the anniversary of our dividend with our share appreciation over the last year, the yield had dropped below where we felt that we wanted it to be, and the board agreed, and we brought the yield back up to essentially where we were when we initiated a year ago.
And just to build on the first part of that would be promotions, Simeon. So, you'll recall that a year ago, we were weaning ourselves off of what we've called excessive promotions, right? So, we're putting big pieces, big portions of the store on sale. And as we pull back on that, we've got the product margin improvement and that's been critical to the transition that we've gone through, obviously impacting the comps in the near-term, but actually improving our product margin. What we're saying now is from here, there is a role for promotions to certainly play. And we're figuring out how to make them profitable promotions, and the one that we talked about that we did in December and a number of others are now proving to be effective and we're figuring out how to actually use them. So, from where we are right now, we're saying we're not predicting continued product margin improvements. There is a little bit of acquisition cost that we do see a little bit of benefits from some of the commodities, but remains to be seen, whether the market sets that, that goes back to the consumers. So, we'll keep a close eye on it. But right now, we're being conservative in saying that we expect flat product margins.
Thanks, Matt.
Well, I mean, I think now it's executing. As Jeff said, these are major initiatives for us that we've always described as sort of midterm drivers, Ross. So I think the positioning on orthopedics is really good. By the end of this year, we're going to start to see some of that flow through the system. The move into cardiovascular, interventional cardiology, I think, was really exciting for us. It's doing well, and that bag will begin to fill. And then as we think about wound care, that's a really interesting area for us. And as I mentioned, we are talking about 250 launches that are sort of in process. So I think now, it's more about rolling it out, executing, and we're really excited about these programs.
Thanks, Rand.
Well, I think – I’ll talk about 8.3 in a second, but I think overall the ramp of Clustered ONTAP has been pretty gratifying. I think in the early days of the ramp, it was primarily brand new to NetApp accounts moving into new workloads in existing accounts and now it’s becoming clearly a lot more mainstream in our larger accounts and a predominant selling motion by our sales force. So I think the ramp has been quite good. A year ago we were talking about feature parity and why you getting 7-Mode and Clustered ONTAP and not having nearly that much of a conversation at this point in time. And on top of that, the transition tools that we’re in the APAC to release are being widely deployed and helping customers make the transition from 7-Mode to Clustered ONTAP as well. So 8.3 has got things like Metrocluster. It’s got a whole bunch of other performance enhancements. Metrocluster is a product that we use for higher availability and disaster recovery. It allows us to compete with recovery times that are basically superior to all of our competitors including the frame arrays that are something that we use to basically sell to enterprise accounts. So it’s a clear differentiator for us and this will not necessarily be the Metrocluster of Clustered ONTAP. It will actually be a brand new set of functionality that will deliver that capability and a lot more. So that’s probably the big payload component of 8.3. We probably do have some customers waiting for it, but we’re certainly not in the category we were a year ago where we had a substantial amount of our customer base waiting for feature parity before they move forward I think for the vast majority of our customer base certainly on a unit basis, those days are passed and the migration has begun.
You're right, ,human nature is human nature. You get hungrier. For a while, we have definitely seen, for example, people who build oil platforms and use some of our high end fasteners. They're purchasing people who are asking for 15% price reductions, just based on softness. And that does permeate the industry. We are high share in a very narrowly defined set of products and so we're not quite as susceptible to that as some, but yeah, those price pressures are there and sometimes you got to make the choice of would I rather run lower volume than way lower margins.
Sure, sure. Neil, so at the end of 2015, the mark on our cross-currency swaps was approximately C$800 million give or take. About C$200 million of that will actually be realized during 2016 maturities. So it'd not make any sense to monetize them as they're actually going to monetize themselves this year. But a further C$200 million to C$240 million comes due in 2017. And so, again, that will be naturally monetized. The opportunity you're probably speaking to is the post 2020 cross-currency swaps, and the mark on those is in that C$400 million range again. And there would be an opportunity to look at monetizing those. And at the end of the day, you're trading future dollars for today dollars, but it can help bolster liquidity and help bridge the funding gap, if there is any, during the Horizon build-out. So that is one of the tools in the toolbox that we have available to us.
Yes and no. What happens is that they have really wide platforms that you can add things to and there are a lot of small niche businesses that can be helped by joining up with either an MHA or Sunquest and they are very well known to us. So there is a long list of things that we could continue to build out, but we are also building the human capital inside both these businesses quickly. So we've added the people that are running Data Innovations and software and Strata. These are really great people. And so they bring with them the ability to make bolt-on stuff and get it integrated much more effective than some of the other businesses we’ve owned in the past. So that's helpful and there are a lot of small players. I mean we've invested $900 million in the last nine months, but we’ve done six deals to do it and our general ammo would be we would have done $1 billion transaction like an MHA.  So having the leadership teams at MHA and Sunquest makes the acquisition -- capital deployment investment situation easier for us. Now that said, we are still doing it here and so we will bring those management teams with us, but the decision around capital deployment is going to remain at the headquarters.
I'm going to let Ann Daly answer that.
Yes, I think the pharma marketing budget continues to move towards digital, away from traditional TV and feet-on-the-street. I think there is greater and greater emphasis on measurability and proving that the programs work. We see a lot of interest and excitement around our gain share programs or pay based on incremental script lift. And I would say that the other trend that we’re seeing a lot is desire for partners like ours to be tied into the overall performance of the program. So, you see that in gain share, you see that in ROI program that cuts across both consumer and professional. In general our customers want partners, not vendors, and people that can service them across the entire spectrum of their products.
Yes, I mean, I think we - consistent with what we have said the last two calls that means we are actively looking at building up the platform around DelStar. And as we mentioned this morning, with the two bolt-ons, and the fact that they are trying to get some traction themselves, we have expanded the technologies and the market segments of interest. And I think as we said, since February, we have a bias this year for maybe larger-size deals than the ones we executed late last year. So we are making progress. But we maintain also our strategic focus on how we build the advanced materials platform, and the best way to deliver on top- and bottom-line financial growth targets.
Yes, if you kind of understand that what we are talking about is whether prices in the market and as low as they are really was not beneficial for us to continue to work with Navopache on wholesale contract that begin to move that generation. That was previously allocated from the retail rate base back into rates so we can serve our customers. And coincide that, we negotiated to coincide this with the 2018 plan, two unit shutdown and Palo Verde coming in and also plans for the gas peaker. So really does balance out nicely for our overall plans and work towards getting out of the wholesale market and allowing these resources to be dedicated to our customers in serving reliable and power further going forward.
We are talking constant currency as called out in our press release, and yes, fourth quarter, typically is a higher volume quarter, so that – if you just track, as you know Bob, from following us for years, as we've grown in a more diversified way, less reliant just on U.S., there are lot of other holidays and seasonal things, so the drama of that fourth quarter isn't as great as it was say six years ago.
We don’t like to give guidance quite that far out, I think we are going to be in the $2 billion a year range in midstream through that that period of time. So the things we have in-flight today are pretty clear to see as you start thing about 2018, 2019, 2020 I would say there is probably reshuffling of the project deck and you will see is more NGL more refined products, more crude things right around our existing assets as we sort through where the drill bits going to go, but I mean our view consistently remains by 2017 and 2018 that really sort itself out and we are probably not $50 crude environment but we are probably not $100 but somewhere $60, $70, $80 in that range. And so I think that one sent drilling and we will see a pickup of infrastructure back on that side. I think our base view at this point we have the juice in our portfolio so to speak that’s going to push us through that period of time.
Hi, Matt. Good morning. During the second quarter we’ve been planning to do this for a while. We actually executed the transfer of the IP in all ex-US rights to Ireland. We also have operating subsidiaries setup in several different countries throughout Europe, and this is really just the first step of what will be many steps to make sure we take advantage and optimize our overall global tax structure.
Thank you.
No, I meant $0.5 million in total, so about $250,000 for the overland conveying system and about $250,000 for -- let’s just call it major maintenance.
Yes, good question. For clarification, we feel like we can mitigate the stub in terms of our fiscal year and then we are fully committed to being a great partner to different manufacturers going forward and that will play out over time. So, I think it’s too early to say right now we will mitigate the entire impact in the next fiscal year, but that would be our intent and that would be our strategy.
That’s impossible to gauge David. There is a tendency to think of the health plans is being like the casualty plan, because they are both self insured. But they couldn’t be more different. We – there is nothing that we can really do that’s going to drive the level of clients, that’s just going to happen.
We’re exploring that right now. We’re looking at data, we’re doing testing and we’ll take that as we go forward, but I think you’ve pinpointed a key challenge for us.
I would say that the discussions we've been having over the last 12 to 24 months, the majority of the conversations are centered around our technology platform. And I do believe that it is our greatest single competitive advantage in the marketplace, right now. All of the work that we've put into the development of our global VALO platform and what's its able to accomplish is significantly more advanced than anything else that we've seen or our current clients or prospects have seen in the marketplace. So we've been talking about it quite a bit more on these calls. And my guess is, as we think forward to future calls, we'll be hearing even more about our technology platforms as it pertains to the integrations that we're having with our clients.
Yeah John, I think with ASH, you could expect to see some updated data on elotuzumab from the ELOQUENT-2 data. And I believe we're going to have some updates to the data presented last year at ASH for Opdivo in Hodgkin's and non-Hodgkin's lymphoma. Can we go to the next question, please, Jonathan?
Certainly in terms of growth, I don’t know in terms of number of ROs. But yes certainly in terms of growth. A lot of the recall activity is just the inspection of a vehicle, and you’re bringing in and then there is no repair required or the parts aren’t available. So, there is a lot of traffic on recalls that doesn’t necessarily generate a lot of gross profit dollars.
Yes, so there is a modest guarantee that was in place before the announced transaction with Indigo to put forth about $80 million of cash and marketable securities that are at the HGI Funding level and with the successful completion of the Indigo transaction that number will go down substantially to about $30 million and you’ll see that detailed in our 10-K that will be released in the next few hours.
We sell SOP in a number of different crops, but some of t hose that might be a little more sensitive to substitutability would not be the fruits and nuts and the produce crops would be more of the crops like potatoes and tomatoes and some of those types of crops. The other crop that’s significant in some of these markets is also alfalfa and some of the more turn products. So I think that’s where we’re seeing a bit more reticent on the SOP side.
I think that one other thing that it is very important as some of these large jobs get laid; the packaging is becoming a much more important part of that decision process. So the highly engineered solutions at 3PI is capable off is really to driving force behind the acquisition that we had. So what we’ve done is we’ve reestablished all those relationships and we’re driving the company to be a more highly engineered company and for going some of the commodity type packaging that drifted into the equation. So I think we’ve reset the business. I think we’re now in a good position to establish with some very, very solid customers and I think there is some significant partnerships that we have and that we’re going to announce in the near-term.
Good morning, Brett.
I would say it was in kind of our field-of-view. We've been working accounts very hard and this one we were able to pull forward a little bit. The customer saw the value in our matting technology and felt that they were ready to move forward. So it's one that we saw but we were able to accelerate.
Thank you, Tahira.
We have a very big customer, enterprise customers. We have many government subscribers and the big companies because we have a very trusted brand and a very strong team on the effort to acquire and maintain our customer – enterprise customers. So we still keep the leading position on the market.
No...
It was about $1.6 million I believe we had in our release for the year-over-year for the fourth quarter alone. It was larger than that each of the three previous quarter, I think north of $3 million. So I think overall for the year it was closer to around $0.30 to $0.33 a share of impact to us.
Yes. Actually, John, let me just add a bit of color to that in total.
So we won't see those go until the latter part. But the - one of the comments that we've gotten and some questions we've gotten on this swap. This swap really wasn't driven by criteria. It's really driven by looking at different markets for both Kindred and Select are strong and where they want to concentrate.
Talking about total net customer cash flows for PI, during this year we put $9.3 billion in comparison with $13 billion last year. If you're putting this comparison in a constant currency basis, it's a minus 5%. And we're comparing with our record year in 2014. So I would say that the most important part of these differences at currency we had we were facing a 30% depreciation on average. Talking about Brazil, I mean, Brazil continues performing very well. We put a $6.9 billion in net customer cash flows. As Dan mentioned, our JV with Banco is going very well. We're going to continue facing some volatility and some headwinds, but all-in-all, all our companies and the fundamentals of our business out there continues very strong.
Yeah, those notes are callable – this is Brent, on November 1 and given that our subsequent three issues are in the sort of average range of 5.5%, I think it's clearly our intention to call those notes and rebase our interest on that roughly $100 million of debt associated with the 12.875%.
Yes, Jason, I mean – because like we've said many times, we sell in dollars, so the direct FX impact has not affecting us, but what I'm kind of referring to is an indirect impact of the exchange rates. We are just less competitive relative to Japanese or European manufacturers right now. And holding inventory, helping, we suspect customers are going to bleed inventory down to the bare bones and hoping they can bay at a better rate.
No. I think what you see the low run rate, right now.
You want us to do the whole presentation now Bob? Everyone is looking forward to the trip to New York.
The only thing I would say are probably in a better position than anybody else.
Great.
Thank you.
I think in general, we still see quite a bit of fragmentation, quite a bit of players out there in the core hosting space. Obviously, as we enter other spaces like marketing and online marketing services that opens up other opportunity for other acquisitions in the future there as well, but we still feel like there's a lot of subs out there, both getting them directly by marketing into it, and also by acquiring both bases of customers and moving them to our platform. Both those opportunities feel intact with at this point. And so – and I think one of the earlier questions you had, Jason, was about again, the subscriber versus ARPU growth. We still will keep indexing towards subs and that part of our strategy has not changed at all. We still feel good that that's the right way to think about it long term where – especially when you see those vintage cohort charts that we provided, I think it makes clear sense as to why one should index more that way if you can.
All of those cars are on lease and serviced.
Yeah.
Yes. Yes, that's true. We are fully backward-integrated. So, yes.
Yes, it will be in Q3 and its $300,000.
Thanks.
Hi, Steve.
We’re not going to spell out the business. I mean obviously as you look at it, its magnitude relative to the overall size of the class. We don’t get into that detail and business of that size and certainly its growing. It’s one of the areas we called out previously and it continues to be a growth area along with prescription drug monitoring and certainly HCB, our special laboratory services there. So BRCA continues to provide growth that we’re not going to give any granularity at this point of sharing the actual revenues.
Great.
Sure. I think as we probably talked in the past, we believe that the underlying business proves us the ability to open the way to have [ph] a conversion factor versus net income of at least 1. And we do expect that to be the long term dynamic. We haven’t provided any context as it relates to the near term but I would suggest to you that certainly the trailing 12 months is a pretty positive number where we’ve had a conversion factor of net income to free cash flow of 1.4x. So certainly that’s not going to be the number we end up for the full year but certainly we have the ability to do that. And that will be our expectation to drive towards longer term.
Yeah. With regards to the segment, we will clarify that in the first half of 2016. The initial thought as of now is the security business is going to be broken out as is through our 10-K and then we will definite how we want to handle that with our 10-Q in the first quarter of 2016.
Well, we're still driving to the 34%. We highlighted when we missed it because we're not happy about that. So we're still driving to what's coming in. I gave you the LTM rate, we're not giving guidance for next year but that's the number as you can calculate yourself. We're trying to drive our initiatives of growth to see what we can do to beat that and we'll be looking at that as we give guidance in the fourth quarter. But we're driving to that 34%, and we're not driving to hit it but we're driving to beat it, that's why we've got to accelerate our cost actions, and that's we're working on. But we also want to – we've got some margin actions on the products etcetera but for the modelling, we take that 34% and we drive to it, we manage to it, so that's what we're shooting for.
I think it's just as competitive if not more competitive. There is certainly a number of investors who are pursuing our sector and I think some of that is reflected in pricing but we remain excited about some of the opportunities we're seeing and that's probably as far as I'll go on that.
It looks like that’s all the questions that we have. Thank you participating. Please let me know if there is information you’d like to see us cover in future calls. My contact information was provided on the press release.
When we say large payoffs, we -- you might want to --
Murat, anything you would like to add.
Again, the only piece of that that could be lingering as we talked about likely be in the energy sector. But the energy book for us is 2% of the SNC book, I mean it’s small. So, it’s a small piece of the overall pie. And again, we’ve booked all of the results from the SNC exam, all the ratings, adjustments, were all in the second quarter. So, we don’t expect any material changes going forward from that exam.
Let me take the last expect first. I think we said in the remarks based on our initial estimates. So there’s always the prospect and possibly there could be more to come. I think, this is -- this doesn’t begin and end with the fact that we’ve now closed the merger and people are sitting in their roles. I think overall those typing is something you do everyday and you think about how you can make your business more streamline and more efficient and I think that very much is synonymous with the way we are thinking about. So this sort of range right now could in fact, obviously, improve overtime depending upon how we move forward. As far as the range is concerned, look there’s a lot of things in here, there’s some balance sheet management and what we do and how we did some things, how we think about some things, there’s probably at least 12 plus categories of cost that fit into that overall bucket just on the cost side and within then there is a significant amount of subset within each of those categories. So that’s what ends up giving the element of a wide range at $65 million of sort of low to high I think -- we didn’t think it was incredibly wide. But, nonetheless, I think, we thought that it was reasonable and appropriate and what we think it reflects our expectations.
Well I just like to thank you all for listening in and your good questions that you asked today and since you have any more questions, please contact our Vice President of Investor Relations, Noel Ryan and thanks again for the participation today. We will see you next quarter. Bye.
Yes. There is a macro and a micro question there. I would say that the macro is, as the organizational design and approach to how we go to market, the right one and do we want to make changes and then the micro being are there key regions even personnel that are not living up to the expectations and standards. And I would tell you starting with the micro aspect of that we have managed through and I like to think quickly dealt where people and circumstances that we have a felt like we needed to make changes. And I think that's an evidence of just how far and how long we would go before we feel like we need to do it. We have not chosen to do up to this point is to deal with the macro pieces of about how we are going to market and that we will continue at least for now doing that. I do think there are some opportunities for us to even strengthen further the leadership. And if you are going to see some news around that in the coming months I think that we have an opportunity to slightly modify how we go to market in specific regions. And these are opportunities that we had executed on it. We feel like we can. So long answer than you are looking for ambiguous probably at best. I think there are some things we can do. There have been some things we have done. How far and how long we will go with the current structure. There are some changes that are probably pending.
Sure. I think we ended the year at about 13.5 between the two operating platforms, about $8.5 billion within the OneMain branch network of about $5 billion. We said it's going to drop modestly with the sale of the $600 million, and then we expect it to grow in the mid double-digit range this year, is sort of what we're talking on a combined basis.
We do see some positive trends in the marketplace. I think that most importantly there are a few programs of record for small robots that we’re quite interested in which are hundreds of millions of dollars in scale. And whether or not they become material in 12 months, well they wouldn't, but out beyond 12 months we could see them driving some significant growth if we are able to, as we are working to, position ourselves to competitively respond and win those contracts. So that is the biggest news that, if you are willing to go and be a bit patient, we see a bright future. In the interim we do see just a general lightening of the mood, a general uptick, excuse me, in interest in robotic systems that makes us feel like the path to get to that future inflection point has some brightness to it.
So, we certainly are working towards maintaining an AUR. We haven’t talked about what that AUR is, but this is about taking a balanced approach and that’s continues to be the key element of our pricing architecture. So always looking for those access points to the brand and we continue to be extremely successful in using that as an acquisition tool, those crossbodys at the $198 price point as an example and continuing to balance that with these price buckets. The ones I was indicating in terms of the micro-assorting, we are talking about things in that $400 to $600 price points, but we also have those aspirational price points up to $1,298. And so our goal is to basically maintain a steady AUR to make sure that we continue to excite our core customers and acquire new customers.
Yes, very briefly Mr. Mittal and Tim, we did have some challenges as far as ACIS is concerned by way of the currency skew, especially with the weakness of the ruble. And also we had the impact of the Chinese prices, which are driving low. But we have taken actions, and in South Africa there are actions with regard to engaging with the government for getting fair trade measures. And also we are similarly engaging in Kazakhstan for reducing our costs, and also engaging with the government on certain measures. So given these things, these external developments in terms of the fair trade and internal actions that we are taking, we are expecting improvement going forward. So I think overall it is a positive outlook on this.
There's still infrastructure that we, as a course of business at this company and prior companies, we think that there is often advantages to thinking ahead. And the company has spent money over time such that once we add drilling locations and so on and so forth, we get the benefit of that infrastructure. And that's for simple things as how we run electric lines, how we set up meter stations. I mean, it's kind of coursed throughout the company. And early in our life here, people were comparing our AFEs to others and our AFEs were complete with everything you need to produce the well. And some of it was just making sure that on our pads, for example, we built pads such that we could come back in and drill multiple well off a pad and had the power to do that kind of stuff. So, it's – the infrastructure spend is not just within LMS, it's also within LPI. Jay, you want to add anything to that?
They, I believe, are late teens.
You know Garen, I think you have participated in our economic outlook, when we survey and we get the results, I mean so we are in the process of doing that right now. Our sense is that they are continuing to invest in EMR, they are continuing to invest in data warehousing and integrated data sort of capability and were continuing to see people who are looking for specific analytic capabilities in population health, in safety, in quality. So I think that will probably be borne out by our economic outlook, but we won't have it specifically for a couple of months.
You are welcome.
Well, a quick comment on the SG&A, there's nothing structurally that's really taking place in the business at all. It is -- as you indicated, we basically accrue for a variable compensation in the 9/30 quarter. On the CapEx, I think we're as disciplined in the CapEx expenditures as we're in the M&A expenditures. We're focused on CapEx investments, where the returns will be quite a bit higher than our weighted average cost of capital. And I gave one example of a CapEx expenditure in the Texas market. We're really -- towards the end of the year, we reached our capacity at -- in our block manufacturing. And we've spent six to nine months identifying an opportunity that not only increases our capacity in the market, what it does, it allows us to take some of the specialty block products that we were running on what's called a besser machine and move them to what's called a big board machine. It will greatly impact the efficiency of our operations. So not only are we going to increase capacity, we're going to get some of the more difficult products to manufacture onto a machine that is designed to manufacture them. And so, it should improve our efficiencies. And so that CapEx expenditure, not only do we believe it will increase our revenue because of additional capacity, it will increase our efficiency. And we should have some margin expansion associated with that CapEx expenditure. There's a number of opportunities like that that we're pursuing this year.