Total Energy (TOTZF) Q1 2016 Earnings

Total Energy (TOTZF) CEO Daniel Haylk characterized the oil services market as “dysfunctional”  

“ur first quarter results reflect what is arguably the most difficult industry environment faced by Total Energy since we commenced our operations in 1997. The decline in North American oil and natural gas, drilling and completion activity that began in 2014 accelerated during the first three months of 2016, define the Canadian seasonal upswing in oil field activity that typically occurs during the winter months.  This difficult environment is led to what we have characterized as a dysfunctional market in certain of Total’s business lines. Evidence supporting our characterization includes unsustainable pricing, cannibalization of equipment and willingness to take excessive counterparty credit risks, which in turn is leading to business failures.”

Expects bankruptcies of some of their competitors

“With no clear and substantial improvement industry conditions in near sight, we fully expect business failures in our industry to accelerate over the next few months. In such circumstances, Total Energy has elected to remain disciplined, so as to preserve its equipment base, minimize operating losses and protect its financial strength and flexibility.”

Total Energy (TOTZF) CFO Yuliya Gorbach said revenues contracted substantially from last year

“Consolidated revenues for the first quarter of 2016 were $50 million, a 46% decrease from the first quarter of 2015.  Revenue per spud to release operating day in our contract drilling division during the first quarter was $16,260, an 18% decrease from the $19,888 per day realized during 2015. Decreased day-rate pricing was the primary reason for the decrease.”

Experienced price erosion of their services

“Within the rental and transportation services division, severe price competition resulted in significant declines in equipment utilization and divisional revenue. First quarter rental equipment utilization decreased 61% to 15% in 2016 compared to 38% in 2015.

Despite reducing costs, still not profitable

“Despite ongoing effort to reduce operating cost, a significant fixed cost structure of this division contributed to the fact that for the first time ever this division was not profitable during the first quarter, which is typically its busiest quarter.”

Total Energy Services (TOTZF) Q4 2015 Earnings Call Transcript

Total Energy Services (TOTZF) CEO Daniel Haylk said some of his competitors are acting irrationally

“Current industry conditions are as difficult as any faced by Total Energy since we commenced operations in 1997. Price competition has been fierce with some competitors literally offering certain of their equipment and service for free in order to secure what little work there is. We cannot and will not compete with free.”

They’re thinking very carefully about who they do business with

“We have remained diligent in the management of counterparty credit risks. Our refusal to pursue unprofitable work and recklessly extend trade credit has undoubtedly had a negative impact on near term equipment utilization and revenue. On the other hand, our bad debt expense has been minimal and our equipment fleet is and will be in a good state of repair and ready to resume normal and profitable operations in short order with relatively little start up costs.

They are turning down business in some cases where they are concerned about whether they will get paid.  

“We’ve turned down work where we’ve not been willing to accept the credit risk.  The worst thing than not getting a job is getting it and not getting paid.”

Total Energy Services (TOTZF) CEO Daniel Haylk said he takes business phone calls on Saturday’s at 10:00pm

“We have very strict credit controls, I will get phone calls 10 at night on Saturday night as to whether or not we can work for someone. And we will do due diligence, I will do due diligence at 10 at night. Usually someone phoning 10 at night on a Saturday, meeting at for six in the morning the next morning. That’s a big flag. But definitely we’re requiring deposits in some cases. We flat out refuse to work unless payment upfront.”

Total Energy Services (TOTZF) CEO Daniel Haylk said part of their corporate culture is digging in when times get tough

“So first of all, in 19 years we’ve never closed any of our rental transportation branches and we’re not going to now. We’ve had situations in the past where there’s been good discussions with divisional management about shutting the branch down, three years later became our number one branch literally. When we make a commitment to a community, first of all, we don’t open them lightly but once we open them we commit to that community. Now listen, we’ll bring our cost structure down as much as we can. But we stick, we’re not quitters. The easy thing to do is quit and we don’t quit. That said, and listen we bring our cost structure down and then we hunker down and – but that’s intangible assets that’s not on our balance sheet that when activity levels recover and you’ve supported a small community during a pretty rough time they remember who paid their property taxes during the rough times. They remember who supported the community employed the locals. And I can tell you number one, the community defends you. And number two, it’s pretty easy to find people to work for you relatively speaking. And so we take that commitment very serious. And we’ve never shut a branch down and we’ve hunkered down and gone through some pretty tough times. And we’re proud of that.  That’s something that defines our culture.”

Total Energy Services (TOTZF) CFO Yuliya Gorbach said prices for energy operating equipment continue to decrease across the oil patch

“Revenue per spud to release operating day in our contract drilling division during the fourth quarter was $16,405, a 24% decrease from $21,503 per day.”

 

JS Earnings Call Notes 11.23.15 – Total Energy Services, Ross Stores, Workday, & Intuit

Total Energy Services CEO Daniel Haylk said he won’t go after top line growth at the expense of profitability   

“We also seek to strike a strategic balance between equipment utilization and price and we have been continued to declined pursue business opportunities that are not profitable. Simply put we’ll not wear out our equipment for nothing.”

He expects the industry to consolidate in order to earn a respectable rate of return

We strongly believe that the North American energy services industry must consolidate to provide the efficiencies in economies of scale necessary to compete in an increasingly global market. We believe this need for rationalization will become more apparent over the next few quarters. However we’ll remain disciplined in the deployment of the owner’s capital as we continue to look to use our financial capacity and flexibility to pursue opportunities that will provide acceptable risk adjusted returns over the life of the investment.  Our view is things are going to settle out here over the next few quarters, there is going to be a lot of good acquisition and consolidation opportunities we’re going to use the strength of our balance sheet and our abilities to generate substantial cash at low utilizations.”

Total Energy Services CEO Daniel Haylk said his firm doesn’t play accounting games and back out one time expenses

“Unlike many in our industry we do not cargo so called one-time cost related to right-sizing our operations, as we view these costs to be part of the ordinary course of managing our business as well we take no pleasure in highlighting the difficult decisions that must be made during these difficult times that such decisions involve real people with real families.”

And he plans to reduce operating expenses in a challenging environment for energy

“Substantially lower activity levels coupled with excess industry capacity have resulted in a very challenging operating environment that is expected to continue for the foreseeable future. In such an environment we will seek to work with our stakeholders, increase operating efficiencies and reduce our operating costs so is to make the various markets in which we participate competitive from a global perspective.”

While pricing of their services continues to deteriorate

“Price seems horrible and at the end of the day we are seeing competitors work for prices that we simply can’t get to. And we are in a position where we are in business to make money that includes covering depreciation.  And there comes a point where you see park it, and we deliberately parked a bunch of equipment and we are keeping some core activity going to maintain employment for key people, but at the end of the day we are not going to work at a loss.”

Total Energy Services CEO Daniel Haylk said they have been very rational with how they have accounted for their assets on the balance sheet

We are disciplined. And so we’ve – this quarter obviously auditors are interested in the impairment issues. We’ve done a lot of the work that we typically would do at year-end now and we’re very comfortable with the caring values of our asset based and we do not expect to incur any capital asset impairments and again it’s being disciplined and you can argue there are non-cash isn’t that someone pays for it at some point, it also goes to rectificational issues and they were proud of the fact we’ve never return down any of our capital assets, acquisitions good will period and again it requires the intestinal fortitude not to jump on the bandwagon when times are booming.”

And he thinks there could be more pain ahead for other rig operating companies

And I can tell you the pricing that’s going on both in the rentals and the rig side we’ll lead to train wrecks the good thing about the rental and transportation side is those happen fairly quickly and I expect while you are already seeing a few insolvency some public most private that’s going to accelerate.”

Total Energy Services CEO Daniel Haylk reminded investors that he doesn’t give guidance and he wants to remain flexible to adapt to changing market conditions

For the same reason, we don’t give guidance generally, customer intentions are difficult at any time to predict.

And that scale matters in this particular business

“Scale matters, you’re spreading your cost over a larger asset base, you can definitely achieve efficiencies. The flip side is, we’re also seeing market exists in terms of insolvency.  So there is select markets that we compete in both above and below the border, where we’re already seeing the competitive landscape tighten up. And that’s going to continue. Whether we’ve hit bottom or not, I’m not going to give a forecast, but the longer this drags on the more people will go broke and the better of the remaining companies will be coming out of this.”

 

 

 

 

 

Ross Stores (ROST) CFO Michael Hartshorn said the company saw reduced buying costs as they continue to take advantage of opportunities to buy marked down merchandise

“Cost of goods sold was declined 45 basis points driven by a 45 basis points increased in merchandise margins and 5 basis points improvement each in freight and buying cost.  We continue [see] a really strong supply of excess goods in the marketplace.”

Ross Stores (ROST) CEO Barbara Rentler remains cautious regarding near term performance of the company due to the highly promotional nature of competitors 

There is ongoing uncertainty in the macroeconomic environment and, based on the current retail landscape, we expect the upcoming holiday season to be highly promotional.  As a result, while we always hope to do better, we believe it is prudent to maintain a conservative posture.”

Ross Stores (ROST) CFO Michael Hartshorn said they are seeing particular geographic strength in the Midwest

The sales performance was fairly broad-based across regions as we mentioned the Midwest was our strongest region which has been true over the past seven quarters, California our largest region performed in line with the chain and then as far as Texas, Texas was in line with the chain average for the quarter.”

Ross Stores (ROST) CEO Barbara Rentler highlighted the firms flexible buying strategy as a competitive advantage

The buyers have plans, it’s not just free-for-all they have their buying. There is a strategy, there is a plan, there is a plan by business segment of how much we think is appropriate. All that being said one of the benefits for model is that reflect able. So if we were to see a large amount of product and the classification or a business we weren’t planning on particularly driving and that product could help us drive the business, we would put money into that plan and we reflect. So that’s just one of the benefits of being a new up rise business.”

And their consumer skews to the younger side

“In terms of your point about the age we’ve always disproportionately attracted a slightly younger customers and that continues to be true. When you look at the growth of our junior’s business overtime that’s a good manifestation of that, but I would say that demographic for our new customers are pretty similar to the demographics from our existing customers.”    

 

 

 

 

 

Workday (WDAY) Workday CEO Aneel Bhusri says their software products continue to gain momentum with the Fortune 500

Aon and Saint Luke’s join our growing customer list of Financial Management customers that already includes Fortune 500 names such as Unum, Netflix, and J.B. Hunt, as well as large universities such as University of Texas at Austin and Yale.  Demand for our industry-leading Human Capital Management application suite also remains very strong. I’m excited to share that Workday was selected by FedEx, which is now our largest HCM customer. I’m also proud to share that General Mills and Denny’s both selected Workday in Q3.”

And customer satisfaction remains very high

For the past three years, we have earned a 97% customer satisfaction rating and this year that number increased to 98%.  We believe this level of customer satisfaction is far unmatched in ERP software.”

They believe they are taking market share from the legacy software ERP providers

“Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.  Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.”

And they said that positive customer references are helping drive their win rate

“In terms of competitive dynamics, I think we’ve gotten back to focusing on the technology differentiation. We’ve really pushed customers to do their homework and prospects to do their homework on reference ability.  Neither of our main legacy customers really have much in the way of large referenceable customers and as the customers do their homework, we tend to win the deal.”

Workday (WDAY) Workday CEO Aneel Bhusri says he isn’t impressed with his competitors updated product portfolio 

There were no new moves I think they are running out of new ideas. I didn’t see any moves.  We’re winning all of the large accounts and at the end of the day the models are all based on — all the pricing models are based on employee counts, so we just continue to win both in the mid-market with our mid-market strategy but the large accounts we just dominate and the reason is because we have proof points of getting these large companies into production, one after another. We have another big Fortune 100 company that just went live which we’ll announce in a couple weeks.  It’s about getting value and getting into production and we have that down and our competitors just don’t.”

 

 

 

 

 

 

 

Intuit (INTU) CEO Brad Smith said he is encouraged by the rate of growth in new customers

“We are generating strong new user growth in the online ecosystem. Over 80% of QuickBooks Online customers continue to be new to the Intuit franchise and total QuickBooks paying customer growth was also healthy.”

And they continue to benefit from an acceleration of individuals starting their own companies and the trend of the “gig economy” 

“Roughly 35,000 of our QBO subscribers are using the QuickBooks self employed SKU, which is up from 25,000 last quarter.”

Intuit (INTU) CFO Neil Williams said they maintain a disciplined capital allocation framework and so they won’t invest in anything which doesn’t generate a double digit return over 5 years

We continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15% over five years.”

100 million consumers come to TurboTax.com during tax season

“And right now, we’re in the neighborhood of having almost 100 million people in the United States already coming to TurboTax.com. So it’s not about getting even more people to the website, it’s about getting more of that 100 million roughly between the US and Canada to convert into paying customers.”

Intuit (INTU) CEO Brad Smith said he is in favor of tax simplification

We are for tax simplification. We have been from day one, quite frankly, that’s what our business is.  Trying to take a complicated tax code and make it simple for people to comply with, and to be able to get their tax obligations done, and obviously, to get the money back in their pocket if they overpaid.”