Ian Zaffino

Ian Zaffino asked for details on the Global Pet Care (GPC) e-commerce growth rate excluding a specific retailer with capacity issues, inquired about signs of a bottoming in the aquatics category, and questioned the company's current appetite for M&A.

Answer

CEO David Maura explained that GPC's online point-of-sale (POS) continues to see double-digit growth, though factory shipments were impacted by a retailer's capacity issues and the Q1 sales pull-forward for the ERP system upgrade. He noted aquatics has been a 'slower slog' but remains a dominant, high-margin business. On M&A, Maura stated that the company has passed on many deals due to high valuations, preferring to repurchase its own undervalued stock, but remains interested in acquiring assets in cat, wellness, and food categories at disciplined prices.

Ian Zaffino inquired about the sustainability of Everus's recent margin improvement and whether the company has re-evaluated its long-term margin potential. He also asked about specific geographic strengths in the data center submarket, inbound project inquiries, and the typical timeline for delivering large data center projects, particularly regarding earlier backlog conversion.

Answer

CEO Jeff Thiede explained that while execution upside is difficult to forecast, the company experienced strong execution benefits this fiscal year and will continue to focus on margin uplift. Regarding data centers, Mr. Thiede highlighted primary regions of strength including the Upper Midwest, Midwest, Southwest, and Pacific Northwest, noting the significant growth of data center work in both revenue and backlog.

Ian Zaffino with Oppenheimer inquired about the sustainability of Everus Construction Group's recent margin expansion and whether the company has revised its long-term margin potential. He also asked about the geographic strength in the data center submarket and project delivery timelines.

Answer

CEO Jeff Thiede explained that execution upside, while difficult to forecast, contributed to strong margin benefits this fiscal year due to favorable alignment of labor, materials, and schedules. He noted that Everus aims for continued margin uplift. Regarding data centers, Thiede highlighted primary strength in the Upper Midwest, Midwest, Southwest, and Pacific Northwest, emphasizing its growing importance to revenue and backlog.

Ian Zaffino from Oppenheimer & Co. Inc. asked if there was any weather impact on the T&D segment during the quarter and inquired about the outlook for the hospitality submarket, specifically if it was recovering from its recent trough.

Answer

CEO Jeffrey Thiede confirmed there were no significant weather impacts in the second quarter. Regarding the hospitality market in Las Vegas, he noted an uptick in backlog and stated that Everest is well-positioned due to its strong reputation and broad service offerings, although the market has not yet returned to the robust levels seen in 2022 and 2023.

Ian Zaffino from Oppenheimer & Co. Inc. asked if weather impacted the T&D segment in Q2 and questioned the recovery and outlook for the hospitality submarket in Las Vegas.

Answer

President, CEO & Director Jeffrey Thiede confirmed there were no significant weather impacts during the second quarter. Regarding the hospitality market, Thiede noted an uptick in the Las Vegas backlog. He explained that while activity has not returned to the peak levels of 2022-2023, Everest's strong reputation and comprehensive service offerings in the region position it well to capture emerging opportunities.

Ian Zaffino from Oppenheimer & Co. Inc. asked if weather impacted the T&D segment in Q2 and questioned the current outlook and recovery status of the hospitality submarket.

Answer

CEO Jeffrey Thiede confirmed there were no significant weather impacts during the second quarter. Regarding hospitality, particularly in Las Vegas, he noted an uptick in the backlog. While activity has not returned to the peak levels of 2022-2023, he stated that Everest's strong reputation and comprehensive service offerings position it well to capture new projects as the market recovers.

Ian Zaffino from Oppenheimer & Co. Inc. asked if weather impacted the T&D segment this quarter and questioned the outlook for the hospitality market in Las Vegas, specifically if it was recovering from its recent trough.

Answer

CEO Jeffrey Thiede confirmed there were no significant weather impacts in Q2. Regarding the Las Vegas hospitality market, he noted a backlog uptick and emphasized the company's strong local positioning. While activity has not returned to the peak levels of 2022-2023, he stated Everest is well-positioned to capture new projects as the market recovers.

Ian Zaffino of Oppenheimer & Co. Inc. asked about the outlook for non-backlog business as backlog grows, the current state of the Las Vegas hospitality market, and whether T&D revenue delayed by weather would be recovered in subsequent quarters.

Answer

Executive Jeff Thiede emphasized the importance of non-backlog work and noted that the company's backlog in Las Vegas has increased since year-end, reflecting a strong position in that market. Executive Maximillian Marcy added that the balance between backlog and non-backlog 'book and burn' business is a matter of resource allocation, with resources currently focused on executing the healthy existing backlog. The question on T&D revenue recovery was cut short by an audio issue.

Ian Zaffino from Oppenheimer & Co. Inc. asked about the outlook for non-backlog (book-and-burn) business given the significant increase in backlog. He also sought an update on the hospitality market, particularly in Las Vegas, and clarification on whether weather-related delays in the T&D segment would shift revenue to later quarters or represent lost business.

Answer

Executive Maximillian Marcy stated that the level of non-backlog work is a function of resource allocation, and with a healthy backlog, resources are currently deployed to execute on those visible projects. Executive Jeff Thiede added that the company's backlog in the Las Vegas hospitality market has increased since year-end, reflecting a strong position to capture future opportunities. The response regarding T&D weather delays was cut off by an audio gap.

Ian Zaffino asked about the backlog conversion rate, assumptions for non-backlog business like MSAs, the company's M&A strategy regarding target size and type, and the expected timeline for realizing benefits from investments in prefabrication.

Answer

Executive Jeff Thiede confirmed that larger projects are slightly altering the backlog burn rate and that MSA work remains strong. On M&A, he outlined a disciplined approach targeting companies with strong cultures for geographic expansion. Executive Maximillian Marcy added that with net leverage at 1.0x, the company has the capacity for significant acquisitions. Both executives described prefabrication as a multi-year opportunity, with benefits expected to materialize over time as more facilities are built near large projects.

Ian Zaffino asked for a deeper understanding of the Wyndham Rewards Insider program, including its expected EBITDA impact, longer-term profitability potential, comparable programs, and how its goals (fees, loyalty) will be achieved.

Answer

CEO Geoff Ballotti expressed excitement for Wyndham Rewards Insider, framing its potential for engagement on par with the credit card program over time, with long-term fee growth as the goal. He noted that in the short term, the focus is on proving the model and using returns to grow Wyndham Rewards. Ballotti highlighted the booming subscription economy and the nascent hotel loyalty travel subscriptions, emphasizing the program's value proposition at $95/year, which includes savings, a free night, bonus points, and expanded benefits through partnerships with airlines and cruise lines. He stressed that the program enhances the value proposition for members without impacting franchisee costs, aiming to increase member engagement and share of wallet.

Ian Zaffino followed up on Wyndham Rewards Insider, asking about its long-term profitability potential, comparable programs, and how it will drive value through fees or increased loyalty.

Answer

CEO Geoff Ballotti stated that Wyndham Insider has the potential for engagement on par with their credit card long-term, with fee growth as the ultimate goal, though the short-term focus is on proving the model. He emphasized the booming subscription economy and the program's value proposition at $95/year, offering significant savings and bonus points without impacting franchisee costs. He compared it favorably to premium credit card fee programs and highlighted partnerships with airlines, car rentals, and cruises to drive value and increase member engagement and share of wallet.

Ian Zaffino of Oppenheimer & Co. Inc. asked about the current trends in infrastructure-related demand, whether it has been impacted by the macro environment, and if any softening is expected.

Answer

CEO Geoffrey Ballotti acknowledged a slowdown in Q1 versus Q4 due to a temporary halt in fund disbursement but noted that allocations are resuming. He cited a recent meeting with the Transportation Secretary, who affirmed the administration's focus on getting funds spent. Ballotti stated that GSO revenue from infrastructure room nights outgrew the industry by 380 basis points in Q1 and that private investment near data centers is also strong. He reiterated that the $1.2 trillion infrastructure bill is viewed as a multiyear tailwind.

Ian Zaffino requested details on market share gains, including which states and brands are leading, the sustainability of infrastructure-driven demand, and how recent trends are influencing the company's strategic view on its brand mix.

Answer

CEO Geoffrey Ballotti highlighted strong RevPAR gains in oil and gas states and noted that infrastructure demand is in its very early stages, representing a multi-year driver. He cited specific market share gains for Super 8, Microtel, and Days Inn. He also pointed to ECHO Suites as a key upside in the economy segment, given the high demand for new extended-stay properties.

On behalf of Ian Zaffino from Oppenheimer, Isaac Salazin asked for a breakdown of the use of proceeds from Black Knight Football Club's recent capital raise, including allocations for stadium renovations and team investments. He also inquired about the origin of the Moriense FC investment, the strategy for future team acquisitions, the potential for further rationalization of the restaurant portfolio, and its long-term strategic fit within Cannae.

Answer

CEO Ryan Caswell detailed the use of the $130 million BKFC capital raise, allocating funds for the stadium acquisition and renovation, the Moriense FC investment (with only $4 million upfront), and operating expenses for the teams. He explained the Moriense deal originated through BKFC's President of Football, Thiago Pinto, who has deep connections in Portugal. Caswell stated that future team acquisitions are evaluated based on their ability to provide access to regional player talent and integrate into the network. Regarding the restaurant portfolio, he indicated that while the teams are working hard, he does not view it as a long-term holding and expects the trend of divesting brands to continue over time.

Ian Zaffino asked for details on the Vitality Stadium acquisition, including its economic opportunity, and questioned the future M&A strategy, particularly regarding further investments in the Black Knight Football multi-club model.

Answer

Executive Ryan Caswell explained that redeveloping Vitality Stadium is financially compelling, targeting a mid-teens return on investment. On future M&A, he clarified that while Cannae participated in a recent Black Knight capital raise, the near-term priority for capital is shareholder returns (repurchases, dividends) and debt repayment, though the company will remain opportunistic.

Ian Zaffino asked for details on the capital funding plan for Black Knight Football and questioned the rationale for Bill Foley stepping down as Chairman of Alight, as well as Cannae's potential monetization strategy for its Alight stake.

Answer

Ryan Caswell, an executive, outlined that Black Knight Football's funding levers include player sales, which create value, alongside investments in infrastructure like the stadium and training facility. He noted future capital needs would be less than historical amounts. Regarding Alight, Caswell clarified that Bill Foley remains an active board member and that recent management and board changes position Alight for standalone success. He suggested that questions about a strategic sale of Alight are better directed to Alight's management.

Ian Zaffino asked about Cannae's philosophy on portfolio construction, questioning the target deal size and number of positions to achieve better focus. He also requested more detail on the synergies being realized within the Black Knight Football group, both on and off the field.

Answer

Ryan Caswell, an executive, stated that going forward, new investment sizes would likely be in the $100 million to $300 million range, resulting in a more concentrated portfolio. On Black Knight Football, he explained that they are building out a holding company structure to create synergies in recruiting, commercial processes, and sporting performance across all clubs, which they believe will become a significant competitive advantage.

Ian Zaffino of Oppenheimer & Co. Inc. asked for an update on the available production capacity within the wind tower business to accommodate new orders, given the recent increase in customer inquiries following policy clarification.

Answer

President and CEO Antonio Carrillo stated that after converting one plant to utility structures, three plants remain for wind towers, operating at approximately 60% capacity. This leaves significant available capacity to ramp up production to meet new demand. Carrillo emphasized that recent policy clarity has boosted customer confidence, and he anticipates securing additional orders in the coming quarters to support the industry's needs.

Ian Zaffino asked about Arcosa's strategy for balancing aggregates price increases with potential volume impacts, the criteria for implementing mid-year price hikes, and which geographic markets are currently showing the most strength or weakness.

Answer

CEO Antonio Carrillo described the price-versus-volume decision as a localized effort to balance margin per ton with fixed cost absorption. He confirmed that mid-year price increases are already planned for several regions. Carrillo highlighted strength in industrial and infrastructure projects, particularly in Texas, the Gulf, and Florida, while noting that housing remains a soft spot, though some leading indicators are improving.

Ian Zaffino inquired about the revenue impact from declining steel prices in the Engineered Structures segment, the drivers behind volume declines, and whether Arcosa is observing any pre-buy activity ahead of potential steel price increases.

Answer

CFO Gail Peck confirmed that lower steel prices were the primary cause of the Q4 revenue miss, representing a high single-digit impact on transmission revenues. CEO Antonio Carrillo added that volume volatility is normal due to shifts in product mix (small vs. large towers). He also noted some pre-buy activity specifically for tank barges, which has extended delivery times deep into 2026.

Ian Zaffino questioned whether project delays from weather and election uncertainty could be recovered in Q4 and asked for an update on the timing and potential source of new orders for the wind tower business.

Answer

Executive Antonio Carrillo anticipates a solid Q4, noting that while weather delays are hard to recover quickly, underlying project demand remains strong. Executive Gail Peck added that storm recovery in the Southeast could affect the timing of utility structure deliveries. Regarding wind towers, Carrillo expects new orders to materialize in 2025 for 2026 deliveries, driven by a fundamental shift in U.S. electricity demand from data centers and AI, which necessitates more renewable power.

Ian Zaffino of Oppenheimer & Co. Inc. asked for the drivers behind the projected decline in in-park spending, questioning the need for promotions and the impact of attendance mix. He also requested insight into a normalized decremental margin, given the cost fluctuations in the quarter.

Answer

CEO Richard Zimmerman explained that extreme weather disproportionately impacted high-spending single-day visitors, increasing the mix of lower-spending season pass holders. CFO Brian Witherow added that promotions focus on adding value, not discounting tickets. Witherow stated that lost attendance is very high-margin (55-70%), so the significant volume drop in Q2 had a severe impact on decremental margins.

Ian Zaffino inquired about any shifts in consumer spending within food and beverage, such as softness in discretionary items. He also asked for an update on geographic performance and whether the company was seeing any West Coast softness mentioned by competitors.

Answer

CEO Richard Zimmerman stated that the company has seen broad-based strength across F&B categories, including meals and beverages, on good weather days. Regarding geography, he noted that while it's early with only 15% of operating days complete, performance has been as expected in all regions when weather is favorable. He emphasized the benefit of the company's geographic diversity, which prevents over-reliance on any single region and mitigates localized impacts.

Ian Zaffino asked about potential white pouch production constraints, the possibility of moving manufacturing from India, a sales breakdown between the ALP and Free brands, and the current and future costs of retail slotting fees.

Answer

CFO Andrew Flynn confirmed that the company has ample production capacity in India and is managing potential tariff impacts by building inventory, negotiating with suppliers, and considering price increases. He also noted continued investment in U.S. manufacturing. Flynn declined to provide a sales split between ALP and Free due to the joint venture structure but affirmed that slotting fees are a necessary and ongoing investment reflected in guidance.

Ian Zaffino of Oppenheimer & Co. Inc. asked about potential white pouch production constraints, the possibility of moving production from India, a sales breakdown between the ALP and FREE brands, and the current and future costs of slotting fees for retail expansion.

Answer

CFO Andrew Flynn addressed these points, stating the company is managing potential tariff impacts by building inventory, negotiating with suppliers, and considering price increases. He confirmed ample production capacity in India while also investing in U.S. manufacturing capabilities. Flynn declined to provide a sales split between ALP and Free due to the joint venture agreement and affirmed that competitive slotting fees are an ongoing investment factored into guidance.

Ian Zaffino from Oppenheimer & Co. Inc. asked about potential production constraints for white pouches, the possibility of moving manufacturing out of India to mitigate tariff risks, and requested a sales breakout between the ALP and FREE brands. He also inquired about the current cost of slotting fees and how to model them going forward.

Answer

CFO Andrew Flynn addressed the tariff situation by explaining the company is building inventory, negotiating with suppliers, and considering price increases. He confirmed ample production capacity in India and noted ongoing CapEx investment in U.S. manufacturing capabilities. Flynn declined to provide a sales split between ALP and FREE due to the joint venture agreement but confirmed that competitive slotting fees are a necessary and ongoing investment that is factored into the company's revenue guidance.

Ian Zaffino requested more detail on the relative performance of the FRE and ALP nicotine pouch brands during the quarter and asked how the raised sales guidance was split between them, questioning why it might be even given their different market strategies. He also sought to bridge the EBITDA guidance by asking for the specific amount of increased investment in white pouches, separate from the disclosed tariff impact.

Answer

CEO Graham Purdy stated that it is too early in the ALP launch to provide a detailed performance breakdown and that their agreement with TCN restricts specific disclosures about the brand. He emphasized the company is focused on achieving its overall double-digit market share goal. Executive Andrew Flynn noted that the increased investment was already contemplated in previous guidance and that the company will make incremental investments as the segment grows.

Ian Zaffino from Oppenheimer & Co. Inc. asked for details driving the $60-$80 million modern oral revenue guidance, including the mix between FRE and ALP brands. He also inquired about the product's contribution margin, potential slotting fees, and the strategic rationale for its manufacturing location.

Answer

CEO Graham Purdy explained the guidance is informed by FRE's continued growth and positive early indicators from the ALP launch, viewing the two brands as synergistic. Executive Andrew Flynn stated that modern oral gross margins are in the mid-30s, with plans to reinvest profits into sales and marketing. Flynn confirmed that slotting fees are being considered and that the company is evaluating all supply chain options, including U.S. manufacturing.

Ian Zaffino from Oppenheimer & Co. Inc. inquired about the long-term gross margin potential for the Products and Solutions (P&S) segment, the company's ability to mitigate tariffs by negotiating with suppliers, and the forward-looking M&A strategy for both business units.

Answer

Thomas Surran, President of Products & Solutions, stated that P&S is targeting a long-term gross margin range of 45% to 50%, driven by new products, manufacturing efficiencies, and mix. Rob Aarnes, President of ADI Global Distribution, confirmed ADI mitigates tariffs by leveraging its scale with suppliers and getting them to absorb some costs. CEO Jay Geldmacher, along with Aarnes and Surran, affirmed that M&A remains a key part of the strategic plan for both ADI and P&S, with ADI focusing on adjacencies like ProAV and Datacom.

Ian Zaffino inquired about the pricing environment at ADI, asking if it resembles a classic inflationary period beneficial to distributors. He also questioned the potential for demand impact from price increases in the Products & Solutions segment and requested a consolidated outlook on pricing, mix, and volume.

Answer

Robert Aarnes, President of ADI, confirmed the environment is similar to past high-inflation periods and that ADI is passing through supplier price increases and taking other actions to mitigate tariff impacts. Thomas Surran, President of Products & Solutions, stated that less than 10% of P&S products are affected by tariffs and he does not expect a material impact on demand due to proactive customer communication. CFO Michael Carlet added that while there could be some top-line upside from pricing, the company is maintaining its full-year guidance due to market uncertainty.

Ian Zaffino of Oppenheimer & Co. Inc. questioned the progress of the dynamic pricing initiative, the reasons for the implied deceleration in pricing in the guidance, and the path to achieving the 20% EBITDA margin goal.

Answer

CEO Brian Gray estimated the company is about 50% through its dynamic pricing rollout and that the guidance reflects a more normalized, yet still strong, pricing environment for the high-volume second half. He reiterated that the 20% adjusted EBITDA margin is a long-term goal with multiple paths, including aggregates growth and operational excellence, and that it remains achievable despite the temporary setback in Oregon.

Ian Zaffino questioned if the SG&A investment cycle is complete and sufficient to reach margin targets, and also asked for more detail on the types of private projects being delayed.

Answer

President and CEO Brian Gray characterized the $20 million SG&A step-up as a 2025 investment to build out capabilities, with the resulting run rate expected to be ongoing but without another similar step-up. He confirmed this investment level supports the path to the 20% long-term EBITDA margin target. Gray specified that delayed projects are exclusively on the private side, impacting materials sales for various developments, with most owners anticipating a Q3 restart.

Ian Zaffino from Oppenheimer & Co. Inc. asked about the expected mix of future M&A targets, specifically regarding services versus materials, and inquired about the company's strategy and timeline for reaching its long-term 20% adjusted EBITDA margin goal.

Answer

President and CEO Brian Gray stated the M&A pipeline is robust and diverse, with a continued focus on materials-based, aggregates-led companies in or adjacent to existing markets, though vertically integrated targets are also attractive. He reiterated the company's commitment to the 20% long-term margin goal, highlighting that growth, PIT Crew efficiencies, and dynamic pricing are the key levers to achieve it.

Ian Zaffino of Oppenheimer & Co. Inc. inquired about the expected Q4 revenue acceleration, the timing of new business wins, and the specific factors behind the Q3 events business headwind.

Answer

CEO John Zillmer and CFO Jim Tarangelo expressed confidence in the Q4 guidance, citing a strong start to the quarter, new education contracts commencing in August/September, and lapping prior-year facility exits. Zillmer attributed the Q3 events weakness to lower concert activity and facility renovations, characterizing it as lost business rather than postponements.

Ian Zaffino asked about the potential for net new business growth to exceed 5% given the strong performance and 98% retention rate. He also inquired about the performance of the Avendra GPO in a higher inflation scenario and whether any consumer slowdown was observed.

Answer

CFO Jim Tarangelo confirmed that the company's Q4 exit rate for revenue growth is expected to be north of their 5-8% multiyear target range. CEO John Zillmer added that Avendra is well-equipped to manage supply chain disruptions and that consumer behavior remains strong, with no evidence of a slowdown in per capita spending. He also detailed the monthly revenue acceleration from January through April.

Ian Zaffino inquired about the potential new athletics business win at Nebraska, the quantitative impact of facility exits on top-line revenue, and the company's strategy for managing inflation and potential tariffs.

Answer

CEO John Zillmer stated that the Nebraska contract was not yet official but represented an exciting opportunity. CFO James Tarangelo quantified the facility exits as a 2% negative impact on revenue. Zillmer added that potential tariffs would have a de minimis impact, estimating a 30 basis point increase in food costs before mitigation, given that over 85% of products are sourced domestically.

Ian Zaffino from Oppenheimer & Co. Inc. asked about trends in delayed focus account signings, the confidence level in closing them in the current quarter, and the company's strategy regarding share buybacks.

Answer

Chairman & CEO Martin Schroeter addressed focus accounts, stating the initiative is profit-focused and has already delivered $925 million in cumulative benefits. He noted that the complexity of these deals can affect timing, but progress is continuous, citing a deal that closed shortly after Q1 ended. CFO David Wyshner discussed buybacks, confirming $65 million was spent in Q1. He stated future repurchases depend on cash flow, share price, and market conditions, with over $140 million remaining under the current authorization as the company enters its stronger cash flow season.

Ian Zaffino questioned why the fiscal 2026 revenue growth guidance of 1% appears conservative given the 46% signings growth, and asked about the company's capital allocation strategy and appetite for more aggressive action.

Answer

Chairman and CEO Martin Schroeter explained the guidance reflects the full backlog, which includes signings from fiscal '23 and '24 when the company was still heavily focused on remediating low-margin accounts. He noted that while two-thirds of the P&L will come from post-spin contracts, one-third is still from the inherited business. On capital allocation, Schroeter reiterated that priorities are reinvesting in the business, including potential tuck-in acquisitions, and returning capital to shareholders via the existing share repurchase program.

Ian Zaffino from Oppenheimer & Co. Inc. asked if AI innovations like DeepSeek could benefit Kyndryl's internal operations, such as Kyndryl Bridge. He also inquired about the sources and sustainability of the growth seen in the Kyndryl Consult business.

Answer

CEO Martin Schroeter stated that while they are investigating innovations like DeepSeek, Kyndryl Bridge's existing AI and machine learning capabilities are already central to their delivery automation and customer insights. CFO David Wyshner explained that Consult's growth is a share-gain story, driven by their independence and ability to offer multi-vendor solutions, which allows them to capture work previously done by competitors or in-house by clients.

Ian Zaffino from Oppenheimer & Co. Inc. asked for more detail on the drivers behind the revised full-year guidance and questioned the potential tax savings from the 'One Big Beautiful Bill Act'.

Answer

Chair & CEO David Graziosi attributed the guidance change to significant reductions in North America on-highway OEM build rates due to softening demand and elevated inventories, which he views as a deferral. CFO & Treasurer Scott Mell detailed the tax impact, noting a substantial one-time cash tax benefit in 2025 from the bill, with a smaller, ongoing annual benefit in future years.

Ian Zaffino asked for clarification on foreign exchange (FX) headwinds and tailwinds, including the company's exposure to the Japanese yen.

Answer

G. Bohley, COO, CFO & Treasurer, stated that while the company is relatively naturally hedged, the primary FX impact comes from balance sheet revaluations. A strengthening U.S. dollar can negatively affect assets held in foreign currencies. He noted that the FX impact on EBITDA margin was approximately negative 100 basis points from 2023 to 2024, with the Q4 impact being more negative than typical.

Ian Zaffino inquired about the pricing outlook for the upcoming year, particularly concerning the significant portion of North America On-Highway long-term agreements (LTAs) that are currently under renegotiation.

Answer

CFO Fred Bohley responded that Allison Transmission is in a strong negotiating position due to the substantial value its fully automatic transmissions provide, especially as end-user costs for vehicles, drivers, and maintenance continue to rise. He highlighted the very strong demand for Allison's products and anticipates that most negotiations will be finalized toward the end of Q4.

Ian Zaffino asked about the extent of temporary over-fleeting due to early vehicle deliveries, the difference in residual values between retail and wholesale channels, and whether recent demand softness was geographic or segment-driven.

Answer

CEO Gil West clarified that over-fleeting was a temporary, local market issue, not a macro problem, caused by pulling vehicle deliveries forward to avoid tariffs. He noted wholesale residual values rose quickly in March and April. CCO Sandeep Dube added that demand softness was related to corporate and government segments, not geography, and that seasonal leisure demand is picking up as expected.

An analyst on behalf of Ian Zaffino asked for more detail on the puts and takes for full-year direct operating expenses (DOE) and any incremental operational initiatives that could offset headwinds like insurance costs.

Answer

CFO Scott Haralson clarified that core operating components like labor, maintenance, and collision costs are trending favorably. However, these improvements are partially obscured by headwinds from accounting changes and a lag in the benefits from insurance initiatives. He stressed that driving utilization and leveraging the newer fleet are key operational levers to manage overall costs.

Ian Zaffino asked for insights into current rental rate trends for October and November and the key considerations behind the recently announced asset impairment charge.

Answer

Chief Commercial Officer Sandeep Dube noted that while industry supply is slightly higher, overall demand remains strong and in balance, with rates still significantly above 2019 levels. CFO Scott Haralson explained the impairment was a noncash charge triggered by the accelerated fleet rotation initiative and the gap between vehicle book values and current market values, which does not affect financing covenants.

Ian Zaffino asked for a breakdown of the drivers behind the Sealing segment's margin expansion, specifically the contribution from volume versus price, and the pricing outlook. He also questioned the confidence in the AST segment's growth guidance, any positive signs in semiconductor capital equipment, and whether the Arizona facility contributed to the growth in Cleaning Solutions.

Answer

Executive James Gentile attributed the Sealing segment's strong margin primarily to favorable product mix, driven by growth in high-margin areas like aerospace and aftermarket. President and CEO Eric Vaillancourt added that general pricing has returned to a traditional ~2% annual increase. Regarding the AST segment, Eric Vaillancourt reaffirmed the mid-to-high single-digit growth forecast for the year, describing semiconductor OEM demand as 'still choppy' and confirming 'very little contribution from Arizona' in Q1. EVP and CFO Joe Bruderek highlighted that the strong growth in Precision Cleaning Solutions is driven by continued penetration into leading-edge nodes.

Ian Zaffino of Oppenheimer & Co. Inc. sought to clarify the specific areas of weakness within the Advanced Surface Technologies (AST) segment and questioned what would be required for the division to return to positive growth, considering the upcoming easier comparable periods.

Answer

CEO Eric Vaillancourt specified that while leading-edge cleaning applications remain very strong, the weakness in AST is concentrated in legacy products and capital equipment spending due to low factory utilization. Executive James Gentile added that shorter-cycle coatings orders were also choppier than expected. Regarding the growth outlook, Gentile stated that while Q3 saw year-over-year growth, the first half of 2025 is expected to be slow and a "hockey stick" type of acceleration is unlikely. Vaillancourt confirmed they expect year-over-year growth but not a substantial sequential improvement in the near term.

Ian Zaffino asked for an overview of the current retail environment and the company's expectations for growth within that segment.

Answer

Executive Brian Webb-Walsh described the retail environment as active, with strong customer conversations around expansion, next-gen solutions, and services to improve efficiency and reduce shrink. CEO James Kelly supported this, pointing to the 26% growth in platform sites as evidence of strong demand from both existing and new customers for the company's software and services.

Ian Zaffino of Oppenheimer questioned the backlog burn rate assumptions, the outlook for non-backlog business like MSAs, the company's M&A strategy regarding size and targets, and the expected timing for benefits from investments in prefabrication.

Answer

Executive Jeff Thiede confirmed that larger projects are altering the historical backlog burn rate and that MSA work remains strong. On M&A, he stated the company is seeking targets that offer geographic expansion and have strong cultures. Executive Maximillian Marcy added that with net leverage at 1.0x, the company has significant capacity for acquisitions. Both executives described the benefits from prefabrication as a multiyear opportunity that will materialize as new facilities support large projects.

Ian Zaffino asked about the outlook for digital billboard conversions for the remainder of 2024 and into 2025. He also questioned what was driving higher advertising rates on the MTA, given that ridership remains below pre-pandemic levels.

Answer

CFO Matthew Siegel indicated that while the number of digital conversions would be lower in 2024, he is confident the number will be higher in 2025. CEO Jeremy Male explained that MTA revenue growth is driven by a vastly improved, digitized product offering more creative and timely advertising opportunities, which attracts advertisers even without a full ridership recovery. He also highlighted the growing contribution from automated channels.

Asked about the forward-looking balance of price versus volume, the capital allocation strategy between share buybacks and M&A, and whether the M&A strategy includes acquiring more non-bowling concepts to build scale.

Answer

The company sees a significant opportunity to increase prices on food and beverage. Regarding capital allocation, they will continue to pursue acquisitions that offer superior returns while also being dynamic and price-sensitive with share buybacks to drive shareholder value.

Questioned the divergence between strong online bookings and weaker walk-in traffic, the impact of promotions, and the monthly cadence of same-store sales comps from January through April.

Answer

Strong online bookings represent a shift in customer behavior towards pre-booking, which is a higher-value transaction for the company, even if it cannibalizes some walk-in traffic. Comps improved sequentially each month: Jan -7%, Feb +1%, Mar +3%, and Apr +6%.

Ian Zaffino asked about the methodology behind Frontdoor's price increases amid demand softness and the strategic differences between the new AHS app launch and the existing Frontdoor app, raising a question about potential cannibalization.

Answer

CFO Jessica Ross stated that pricing is now more aligned with inflation and leverages their dynamic pricing capabilities. CEO Bill Cobb added that strong retention rates in the renewal channel support the increases. Cobb also clarified the distinct purposes of the two apps: the AHS app serves existing home warranty members, while the Frontdoor app is for the on-demand business and is open to all, thus they are seen as complementary rather than cannibalistic.

Ian Zaffino asked about the M&A environment, including potential activity and multiples, and inquired about the forward-looking outlook for the vocational truck market.

Answer

Executive W. Rush declined to comment on specific M&A plans but noted there is not a lot of large-scale activity at the moment. He speculated that M&A could pick up as the 2027 EPA regulations get closer. Regarding the vocational truck market, Rush confirmed that demand remains strong and is expected to continue through 2025, supported by government infrastructure spending. He also noted that some transmission supply shortages have pushed some of this year's vocational sales into 2025, further bolstering the outlook.

Ian Zaffino inquired about trends with the lower-end consumer, the potential to lower FICO score requirements to boost volume, the company's appetite for M&A, and the financial impact of recent hurricanes.

Answer

CFO Michael Hug stated that pressure remains on the lower-end consumer and the company has no near-term plans to lower its 640 FICO minimum for new owners, preferring to use more data for existing owners. CEO Michael Brown reiterated a disciplined M&A approach, prioritizing shareholder returns like the $70 million in Q3 buybacks. Management confirmed the hurricanes impacted tour volume by about $5 million but was not material enough to adjust guidance due to the portfolio's geographic diversity.

Asked about the potential for developing data centers at other company locations and what would be required, and also inquired about the specific execution method for the newly upsized $1 billion share buyback program.

Answer

The company stated they are leveraging learnings from the AWS deal for other opportunities but will not comment on commercial activities until they are finalized. Regarding the buyback, they will use various methods to execute the board-approved $1 billion program in a timely and purposeful manner before the end of 2025.

Ian Zaffino asked for an update on the potential to develop data centers at other Talen locations and inquired about the planned execution method for the newly upsized $1 billion share buyback program.

Answer

CEO Mark McFarland stated that while the company learned a lot from the AWS transaction and will look to leverage that experience, he could not comment on specific commercial activities. CFO Terry Nutt confirmed the $1 billion buyback is board-approved through 2025 and will be executed with purpose through various avenues to return capital to shareholders in a timely manner.

Ian Zaffino from Oppenheimer asked for an update on discussions to develop data centers at other Talen sites and inquired about the specific mechanics planned for executing the upsized $1 billion share repurchase program.

Answer

CEO Mark McFarland acknowledged the company is looking to leverage its experience from the AWS deal for other opportunities but declined to comment on specific commercial activities until they are finalized. CFO Terry Nutt confirmed the $1 billion share repurchase program is fully approved by the board to be executed by year-end 2025 and will be pursued with purpose and in a timely manner, utilizing various avenues.

Asked about the company's share buyback strategy, including the potential for increasing the authorization and how M&A-related blackout periods might affect execution. He also inquired about other opportunities to capitalize on growing power demand from data centers beyond the current AWS deal.

Answer

The company will not comment on blackout periods but will report repurchase activity quarterly, utilizing market purchases and potentially a 10b5-1 program. Decisions on increasing the buyback authorization are premature. They are exploring other opportunities to meet massive power demand, even considering coal, but a primary focus is on maximizing the value of the existing AWS deal by accelerating its development, which offers a significant growth profile.