Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome.
Charles is Q4 20, Nike Inc. Conference call as a reminder, today's conference is being recorded this time.
The conference over to Steve.
Chairman and CEO . Please go ahead mr. sadly.
Good morning, everybody I'm here today, what Vince <unk> Global President, Doug Bryce didn't VP Finance taught me VP legal counsel and sand manager VP corporate do you go.
Before we'd be good I love toward read our forward disclaimer.
Certain statements may make forward looking by their nature such forward looking statements are subject to various risks and uncertainties, including those actions. It's your school your filings such as it's ever I got which could cause the company's actual results and experience.
To differ materially from anticipated results for other expectations undue reliance should not be placed on these forward looking statements and information and the company has no obligation to update or revise any forward looking information whether as a result, you information future events or otherwise.
Thanks, Todd Doug will now give an overview of the financial results.
Thanks, Steve.
Yesterday, anxious announced its fourth quarter and year end financial results for the period ended October 31st 2019.
Revenue increased to 385.9 million for the fiscal year compared to revenue was 342.8 million in previous fiscal year, resulting in another record year for the company.
Revenue includes 219 point Sixmillion from hosted in maintenance services, an increase of 14.9%.
Operating expenses were 155.1 million per year compared to 136.2 million in the prior year as a savings related to operating cost synergies were offset by the incremental cost related to acquired operations.
Results from operating activities were 112 million compared to 103.2 million last year, 13.9% increase.
Operating expenses include special charges of 1.2 million compared to zero point Fourmillion last year and reflects the cost related to of course acquisition restructuring.
Net income for the year was 70.8 million or dollar 29 per diluted share compared to 57.7 million or dollar six per diluted share in the prior year, an increase of 22.7%.
Adjusted EBITDA for the year was 11, there's 115 point sixmillion, what $2.10 per diluted share compared to 106 million or dollar 94 per diluted share last year, an increase of 9%.
Fourth quarter revenue was 109.3 million, a 27.4% increase compared to revenue of 85.8 million in the fourth quarter the prior year.
The revenue increase primarily reflects contributions from acquisitions.
Results from operating activities were 32.5 million compared to 27.3 million in the prior years fourth quarter, which reflects the impact due to changes in product mix on gross margins and strong operating margin contributions from acquisitions.
Net income for the quarter was 24.7 million or 45 cents per diluted share an increase of 26.3% from 19.6 million or 36.
Centsper diluted share last year.
Adjusted EBITDA for the fourth quarter was 34 million or 62 cents per diluted share compared to 27.9 million were 51 cents per diluted share last year with the increase being primarily attributable to incremental revenue contributions from acquisitions.
Operating expenses before special charges related to restructuring of acquired operations were 43.7 million compared to 33.5 million in the prior years fourth quarter and reflect incremental operating cost related to acquisitions.
Noncash amortization charges on acquired software in customer relationships from acquired operations were 9.2 million for the quarter compared to 6.4 million in the prior years fourth quarter.
And just generated cash flows from operating activities of 21.7 million compared to 24 million in the fourth quarter. The prior year, an 81.4 million for the year compared to 98.3 million in the prior year.
Cash flows from operating activities, excluding changes in working capital were 33.9 million compared to 29.5 million in the fourth quarter last year, an increase of 14.9% for the year cash flows from operating activities, excluding changes in working capital increased 9.5% to 118.5 million.
Working capital adjustments reduced operating cash flows by 12.1 million in the quarter and 37.1 million annually largely as a result of settling liabilities assumed from acquisitions.
And she has closed the year with 150.3 million in cash cash equivalents in short term investments compared to 993.9 million at October 31st 29, 2018, the cash balance was achieved after payments of 21.9 million for cash dividends, an increase of 19% from the prior year as the company increased its dividend for the OLED.
Month consecutive year.
The cash balances also after the completion of six acquisitions in the year at a cost of 101.2 million net of cash required.
These complementary acquisitions increased revenue, while expanding NHS product portfolio and local presence in new countries.
Late in the fourth quarter inch has completed the acquisition of Africa.
Which further expanded the company's footprint in France, and added customer engagement software solutions powered by AI to the company's interactive portfolio.
Finally yesterday the board of directors approved.
And he's eligible quarterly dividend of 11 cents per common share payable on February 28, 2020 shareholders of record at the close of business on February 14, 2020, I'll now hand, the call back to Mr. seven seas.
Thank you Doug as Doug noted, we closed the quarter with over 150 million in cash and short term investments after paying approximately 7 million for uptick on October 22nd just before the year read.
It should be noted a hold back of 3.2 million may also be needed for the ethic of purchase.
Cash flow before working capital.
It was 33.85 in Q4 compared to 29.5 in the prior year increase of 14.7.
As noted that net cash flow from operating activities with 21% 21.7 million as income taxes paid increase with the added profitability and payments were made related to liabilities and provisions from pre acquisition activities.
Revenue was as expected in Q4, although it was negatively impacted by approximately 1.8 million over Q3 at approximately 1.7 mail again over the prior year due to foreign exchange the balance sheet also at a small loss on foreign exchange in Q4 was basically neutral for the year.
On the operations.
Loss due to foreign exchange was about four point threemillion from revenue and.
Cost was what the reduction was about 3 million for the entire year, where you we have reasonable operational hedging.
Fiscal two Nineteens had two large acquisitions in may.
Both these companies had substantial losses over the last 10 years.
As long as noted last quarter. The results of these acquisitions, where EBITDA positive in the last quarter and in Q4. They both achieved our targeted EBITDA margins first feel we continue to invest IP TV and expect revenue to improve in the second half of fiscal 2020 for video.
We're planning to invest more in sales and marketing, especially in our international operation.
Through improved growth this will take time and cost to achieve but we already have a global business structure on which to build.
Optical was closed October 22nd to 19 and had minimal financial impact on the quarter. Since it was completed so late in the quarter.
But it did reduce our cash balance.
For acquisitions in general economic and market factors.
Our service industries continue to support our acquisition strategy and meet our acquisition financial payback criteria with strong return on invested capital. We continue to focus our capital deployment activities as well as positioning to improve internal growth in future years I will now open the call.
A question.
Thank you, ladies and gentlemen, if you would like to ask your question on today's call. Please signal by pressing star one on your telephone keypad. If you all using a speakerphone. Please make sure. Your mute function is turned off to allow you signaled to reach our equipment.
Again press Star one you ask your question.
We'll now take off.
Daniel Chan of TD Securities. Please go ahead, hi, good morning, guys. So you've got about $150 million of cash and you generate about $80 million or free cash flow this year.
If we add back to $30 million of operating cash flows from settlement liabilities. It came with the acquisitions that puts you at let's call. It an adjusted free cash flow of about 110 billion for the year and that's likely to be higher next year. Following the integration of these acquisitions.
You think the opportunities and your acquisition pipeline, our large enough for you to use up on capital or are you considering any alternatives for the capital outside of acquisitions.
Just a I think the exact upwards of a one eight teams for the cash flow you add that back 118 million and you know we're seeing good opportunities as long as the a week. They can meet our financial criteria, we're comfortable that we can.
Deployed at least some of that cash next year.
Whether we deployed or not.
I will tell.
So I guess my question is if you do not able to deployed all what are your thoughts on using the rest of it.
Save it for next year to deploy it okay sounds good.
And then they'll zone, but from a dividend point of view, we do look at the dividends in March and we have increased it every year for the last Ted So, possibly the dividend will go up a little bit some will be used for that and we're sticking to our general formula where most of the.
Cash would generate goes to acquisitions and about 15% to 20% goes to the dividends and since.
Our EBITDA is increasing the dividend generally increases.
Thank you.
Switching over to Mg.
In Q3, you do I mentioned there were some delayed deals just wondering if you're able to close those deals in Q4.
All closed in Q4, there's always some deals that.
Full quarter to quarter, but there was a little bit more in Q3 and they closed as expected. Okay and final question for me just to get up update on the EMG, Microsoft teams integration How's that going.
Going pretty well, we basically have the integration done as we said.
In the last couple of quarters, we're now.
There are still always things to do and getting the ice from Microsoft finished but we are now actively starting to sell it and.
Beginning in Q2, it should help our revenue.
Great. Thank you.
Thank you, ladies and gentlemen, if you find that your question.
You mean always move yourself on the Q by pressing star too and as a reminder to ask the question. It is one will not go next question from Paul steep of Scotia capital. Please go ahead.
Morning.
Deeper Vince can you talk a little bit just fit the organic initiatives. It looks like things have gone well this quarter, an interactive maybe how you're feeling about the bill data that we jet engine and walk through what you've done over the last 18 months and where we're at where you feel you are at today.
Going forward.
I'm going to pass it over to Vince, but this does take time to do you know demand Gen. You've got to put you've got to start building things online. So people understand what you do.
Weve gotten we've started that done a lot of it but it does take time, maybe Vince you can go through what had been working against it.
Continue on what I had said previously so the demand Gen. Part is part of that's also going more direct.
That's moving along nicely we are doing more on customer success.
In terms of selling to our large customer base cross selling that kind of thing. So overall the progress is it's going pretty well.
And generally speaking you're starting to see some of those results happened. So like Steve said it takes time and.
We're making some good progress there.
On the direct sales force on that side, how far buildup.
Through Vince or we are you still in the process of trying to recruit and build out the organization or you feel like okay. We've done the building out and now we're just given people time this season and sort of build a pipeline.
And well we've built out.
Some of the direct Salesforce, what we're adding now like Steve mentioned is some direct in video in Europe .
We think there's a big opportunity to sell video in the European market.
We'll be adding some more direct salespeople in Europe as well to sell the video products. So that's kind of still new.
But the other direct sales teams are built has quite well over the last eight.
Great.
Maybe just on to margin upside, obviously speed you did a great job with video and east Spiel getting some cost it there how should we think about where you're at in the progressive that we sort of hit the full inflection point of view, removing those costs or is there more days still come in terms of.
Opportunity from margin upside.
We're pretty much at the margin our standard margin plus a little bit.
And now our objective for both was lets get you know the operations profitable. They hadnt been profitable for 10 years get them profitable and then look at the cash we're generating and see how to deploy that back into grow the business and grow the operations.
Again for a spiel in IP TV, that's probably coming out for the second half the year, we're still investing in that so not much change there for video the margins actually are a little better than I would expect and we've got to invest as Vince you said in some of our global sales and marketing.
To grow the business a bit more which again it always takes a little bit of time. So usually there's some costs before you get the benefit of extra revenue, but the margins are there now we don't see really anything more to improve the margins.
Other than hopefully we can grow the video, but it'll cost a little bit to do it.
Okay, Great and then.
Not sure if I caught you you went a little faster at the beginning so apologies if I grabbed the wrong. One here you talked about further investments I know rent IP TV, maybe talk about what that looks like into next year in terms of you know what you're actually building and when do you think you'd have a product in market or if its enhancements.
The existing.
Solutions be able to head end market.
This is Phil was Bailey cable so it's actually a new product that goes on for TV over the internet.
We'd be where they were working on it and we continue to expect the product will be for first release around the third quarter early in the third quarter April May next year.
We already have interest in the product.
One could say orders, but let's wait till we get the product all finished and make sure. It does what everybody wants which will be in the second half of next year.
Great and then.
The last quick one for me speed in the quarter I know you had to recognize some of the licenses point in time.
Should we think about next year, when we anniversary that that there's potentially a bit of a gap or no. Those are quarters that might have an annual cadence to them in the future is there a bunch of all Tobey I know that was forced on you Buddy counts choices.
Yes, Kevin accounts like to change the rules, but we were pretty steady we don't see any big impact plus or minus from that now the first years old stopper I'm you know we had to take some that we could not recognizing the prior year about 2.2 million that we did last November .
So.
I think we're fine it's pretty steady now as we go forward.
Okay, great. Thanks, guys happy holidays.
Thank you. Our next question comes from deep pockets of course, all of US Stifle GMP. Please go ahead.
Oh, Hey, good morning, guys. Thanks for taking my questions.
Steve I just wanted to follow up on Paul's question on margins. So it's 30% is your standard corporate rate and you're investing a little bit in sales and marketing in video next year, well that could cause margins to below that standard rate or can you do that within the standard rate.
Well first of all our standard rate, which I, usually tell everyone is 25% to 30%. So we're doing a little better than what I would say are standard rate is right now we do have to invest a little bit into a video, but we do have a global is infrastructure already in place. So it's not as.
As much as a lot of other companies might have to do.
If the revenue depends how fast it picks up what happens to those margins initially it would be a bit of a drag on the margin. So we might drop a little bit below 30%.
But as revenue picks up we should be back in a box, but I'd like costly mentioned as we do acquisitions, they negative usually negatively impact the margins for a couple of quarters as we integrate them in we happened to integrate both SPL and video both large troubled companies very quickly so that.
Flare margins are backup where the are but depends on what we do with acquisitions into future what happens to those margins. So if we continue to do some more they probably will come down a bit our ethical didnt impact the margins very much negatively because there wasn't really much structure to be done, which as you know in France is.
Every expensive so we look for companies, we assess all those factors so.
You know we're doing okay margins a 30, we've always said you should think about 25 to 30, we'd be beating it a lot, but it depends a lot on acquisitions and how much restructure we have to put through.
Okay. That's helpful. Thanks, Yeah of course, notwithstanding future acquisitions.
So a couple of follow up M&A.
Are you seeing any change in the dynamics from private equity either competition or in terms of selling.
Hey side or any any new things on the video side since you bought SPL and good Joe.
Well you don't want video there is a company called zoom the trades about 20 times revenue and there the market leader growing quite quickly for us what that means it's a very good market.
Had a big markets.
Looking at their growth. So we don't see any any difference there in fact, sometimes that can help you because when you got a large company doing well, there's probably some smaller companies that aren't doing as well and remember where capital allocators. So that may give us some opportunities, but we'll have to wait see I think the rest of it price it's about the same.
But it has been for a couple of years private equity has a lot of money and our active but generally on bigger deals. They really I. We don't see it made the revenues not 50 to 100 million, mostly over 100 million. So under 50, where we generally play.
They don't have a big impact they've gone for bigger deals, but they do have money to spend.
Okay excellent and then I know I've asked you about the potential.
Risk on Brexit.
But now we might have more clarity on that happening after yesterday.
So it given there's more clarity on Brexit are there any opportunities that this kind of cement in your mind for your UK business and you're in general.
You don't have that haven't seen much impact one way the other never thought of it is a big issue for us and actually don't see it is a big benefit for us to either so unless a company moves their contact center to another location and then has to buy another system, but.
You know that it's way too early for all that.
So not really negative and not really positive. Other then its impact on foreign exchange.
Okay excellent okay, well, thanks for taking my questions pathway and have a great holiday if if we don't show.
Thank you.
Thank you.
Next question comes from Stephanie price of <unk>. Please go ahead.
Okay.
I'm learning.
I was hoping you could talk a bit about the uptick acquisition in terms of what it was growing at pre acquisition revenue brings and how you see sitting in.
So ethic is.
Oh, good unusual I said pre opening in the past French's, Brad the heart place to do business.
But this is a pretty good company that had some software that actually ties to contact centers. So we believe that we will pretty good recurring revenue.
So we believe that we can see this as.
A base for us in France to bring our contact center software in their they have a group of himself and its with our strategy of think globally, but act locally.
Everyone's putting all countries and regions are putting bottles over themselves, including the U.S. now and so we're in the countries.
With support with professional services with management, and we see getting into we weren't in France really we had a couple of customers, but now we can move in there. We video we had a large customer there. So there will take on those customers in France, and hopefully we'll improve revenue.
With our local presence.
Okay.
And then in terms of margins and the eye and GE Division they were stronger than we anticipating a is that mostly video integration or were there other kind of drivers of that margin in 90 this quarter.
Yeah, I don't know how you anticipate that so it's a hard question for me to enter enough. So do you see any other onetime.
[laughter].
Let me, but let me say the video margins were quite good and certainly at or above our normal margins.
As was the spiel margins.
If I looked at the quarter anything we took two large companies that never made money.
Had been breakeven after a few months and haven't met our margins in the next three months, that's pretty good a lot of credit goes all the staff will help get that debt.
Perfect. Thank you very much.
Thank you, ladies and gentlemen, as a reminder, she would like to ask a question in days saw a one on your telephone keypad, we'll take our next question from Paul Treiber RBC capital markets. Please go ahead.
Okay. Thanks, very much and good morning, just wanted to follow up on the lasting comment you made just in terms of the integration the pieces integration and video in SPL I mentioned that it's fashion in the fourth quarter target that you typically have why you would could you elaborate on why the integration was so smooth in so much faster than a typical.
Target and then could you also speak the impact and positive impact perhaps at your your new financial systems are having in terms of integration.
Yeah.
Okay. A couple of questions. There remember I told I said before the deal even closed all actions taken to restructure their business. They were looking at doing that restructuring and we of course did what they said and tying to us it a little bit more also it's started or.
Earlier than normal usually you buy it won't start until after you by just one here. They both were troubled companies and we're happy to take some action themselves.
So that's started a little early and once we got into it look you just you sort of answered the question about the potential systems. We said, we did a lot of that work over a couple of years and it was a little painful so we could bring acquisitions in faster.
I guess all I can say is it shows that we can do it. So we are bringing acquisitions and faster and we have taken their systems and put them all on our systems already so we did that before the end of the year had an audit.
We're just getting a little better at it.
Okay. That's good to hear in also when you and acquired those two companies as you gave a comment that the businesses would generate 70 to 75 million in annual revenue going forward is what you saw Q4 consistent with that and then looking for.
It is there anything that you're seeing right now that would lead you to revise that outlook you there either up or down.
Yes, it's very consistent with that maybe a little in the high end.
Yeah and depends how well we moved the video how well internationally, we can develop that business. The us feel like don't until the last half the year and it always takes a little bit longer. So I don't see a lot of growth from that in the current year, we'll have to see how the new product works and on the video side, we're hoping.
We can get a faster start because we do have an infrastructure a global one with people in all those countries. So we don't have that much cost one or two salespeople, maybe a support person to start developing the product in those companies. We don't have to set up we've already got management, we've already got support we've got professionals.
Services, and we got salespeople, but we do have to add a bit more in the sales and marketing side, because it's slightly different than our contact center or networks products. So we have to do that it depends what happens there.
Usually pretty conservative, but you know it is a challenge to do that and you got a pretty big and good competitor in zoom, a little they're mostly U.S.
So they don't I'm not sure that they had the same structure that we do and I think local markets to tend to like having staff locally to support them.
Hi, Thanks, taking my questions.
Thank you once again, ladies and gentlemen, if you would like to ask question on today's call. It is still one.
They go next question from deep across all of stifle GMP. Please go ahead.
Hey, sorry, sorry, guys. Thanks for taking my follow up.
Steve just on your comments on zoom, just kind of piqued my interest I'm just kind of wondering if you could remind us on video.
Hi, there.
Technical infrastructure is are they fully cloud based totally sauce.
What are the differentiating features you have with a competitor like soon.
Those zoom is really sorry.
Cloud based we're both so we were they were on premise and had slowed it down for a couple of years. So we're still investing in sales and marketing you'll notice R&D is up because of that.
Because just fixing up their system they were doing partly a new system, but they have a system that can be on premise or in the cloud and we're happy to do either one for the customers.
We do have to make it a little bit more robust, we gotta catch it up a bit we've been working on doing that and we'll continue to but pretty good shape. We're in the cloud and like everything we try and do both let the customers choose if they want to be in the cloud or SAS.
Okay, and what percentage of your.
Existing customer prior to video we're overlapping with their product.
A hard to say haven't gone all through that because it's sort of different groups, but all I would say most of our customers did not overlap they brought new customers to us banking cost photos, we weren't big in those two areas.
So a lot of the customers were basically new.
Okay excellent. That's that's helpful reminder, I appreciate it.
I'll pass one thing.
Thank you, ladies and gentlemen, once again it is saw one or two asked a question. We'll just take a brief pause hello, everyone enough that you needed to signal for questions. Thank you.
It doesn't appear we have any further questions at this time I would like to turn the conference back over to Mr. Sam. Thank you.
Well. Thank you everyone for your continued support and have a Merry Christmas and a happy holiday season.
Ladies and gentlemen. This concludes today's calls thank you for your participation you may now disconnect.
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