Q1’23 Trending Earnings Topics Week of May 1, 2023

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Welcome back to the weekly edition of our earnings topics week of May 1 update on trending topics, macro trends and key management commentary. With another busy week of earnings last week, some notable reporters include Broadridge Financial Solutions, T. Rowe Price, McKesson, AMC Entertainment, WestRock, Match Group, Etsy, Sysco, and Dominion Energy.

Here are some key trending topics that emerged during earnings updates over the last week:

Companies are frequently being asked about their plans for hiring throughout the course of 2023, as many are looking to implement further cost-cutting measures through slowed hiring to combat inflationary pressures. Other organizations are noting stability in their workforce expansion plans despite the uncertain economic climate

Gartner – Prepared Remarks

Research revenue in the first quarter grew 7% year-over-year as reported and 9% on an FX-neutral basis. Subscription revenue grew 11%, FX neutral. First quarter Research contribution margin was 74%, down about 1 point as we have caught up on hiring and returned to the new expected levels of travel…

GTS quota-bearing head count was up 22% year-over-year and 11% on a two-year compound annual growth rate basis. We will continue to manage hiring based on both short-term performance and the medium-term opportunity. Our regular full set of GTS metrics can be found in the appendix of our earnings supplement.

  • Craig Warren Safian – Gartner, Inc., Executive Vice President & Chief Financial Officer

Leidos Holdings – Q&A

Question – Peter J. Arment: Chris, on the EBITDA margin guidance, it just implies kind of a much stronger mix probably in the second half. Just maybe if you could call out maybe some of the puts and takes around that and the confidence level around kind of that team, that stronger performance.

Answer: Peter, I would add, as you know, our business model still has a significant dependency on our great people. And we had some goals for hiring and retention for the year and we’re very, very pleased that our voluntary attrition is significantly below what we had planned. And Leidos is still an attractive place for people to come to work.

So, our hiring has not slowed down. We’ve actually eaten into, if you will, our open kind of wreck situation. We’re in one of the best staffing positions that we have been in for years. Now, we may benefit from some of the hyperscalers reducing their staffing, but albeit, we are very comfortable with where we are from a teammate’s standpoint.

I think it’s early, but the first quarter performance has really been outstanding. If we can maintain that throughout the year, that will give us a lot of momentum as we close out 2023.

  • Roger A. Krone – Leidos Holdings, Inc., Chairman & Chief Executive Officer

Broadridge Financial Solutions – Q&A

Question – David Mark Togut: Appreciate that. And just as a follow-up, Edmund, I’ve received some investor questions about the implied fourth quarter guide perhaps suggesting a steeper-than-normal ramp versus the March quarter. And I know you did call out kind of extensive testing pointing to a strong proxy season. But is there anything else in the implied fourth quarter guide that would suggest a steeper June versus March quarter ramp?

Answer: So, David, thanks for the question. And I think you hit on one important key component, and that is the position growth from – and we gave – we’ve been saying the entire year that that would be mid to high-single digit growth, and now having 92% of the record data and strong, strong visibility for this year, and we can point directly to approximately 8%, right in line with what we’ve been saying all year. The other component, though, to call out, and I did mention this in the remarks, is on our continued ability to drive operating expansion in the business. We have this operating leverage in both of our businesses. So, as we bring on new revenue, we see benefit there. We had 60 basis points of expansion in Q3, right in line with our expectations. And we expect that operating leverage to continue to drive impact in Q4.

And I know you’ll remember that, in Q4 2022, we announced some targeted actions. So, we continued to right-size our real estate footprint, particularly as we think about the new hybrid work environment. We slowed our hiring. We took other targeted cost actions as well. And we expect to see those benefits come to fruition in our Q4 2022 as well…

  • Edmund J. Reese – Broadridge Financial Solutions, Inc., Chief Financial Officer

Etsy – Prepared Remarks

Lastly, we are guiding to an adjusted EBITDA margin of approximately 26%. Approximately half of the forecasted sequential margin decline is driven by incremental marketing investment at Depop, including the I got it on Depop campaign, Josh mentioned in the UK, as well as a #depopthislook campaign on social media in a large US city. We’re excited to test and measure our returns here.

We also expect higher employee compensation expense. And as a reminder, the discrete tax benefits we saw in the first quarter are not factored into our second quarter guidance. While we continue to strategically add to head count as well as annualizing last year’s additions, we are seeing consistent productivity from our product and engineering teams.

  • Rachel C. Glaser – Etsy, Inc., Chief Financial Officer

Host Hotels & Resorts – Q&A

Question – Michael J. Bellisario: Thanks. Good morning. Probably for Sourav here on the expense side of the P&L. Are you seeing any easing of the cost pressures or the hiring challenges that you’ve mentioned previously? And then, do you have any updated forecast where you see wages and benefits tracking for the remainder of the year? Thanks.

Answer: Yeah, outlook in terms of wage and benefit for the year, year-over-year increase is still at the 5%-ish. Don’t expect that to change for the year. We are tracking well on that. In terms of just overall staffing, given where our business volumes are right now, we feel pretty good. I would say, we are fully staffed across the portfolio and are not seeing any major challenges.

I mean, it still is, in certain markets, difficult to hire a line cook. But, apart from that, we are lucky where we are predisposed to primarily Marriott-managed and Hyatt-managed hotels, brand-managed hotels, which they do a really good job of acquiring talent and retaining talent and really are pushing for hospitality as a career, which has made it much easier to staff up, not only staff up, but really get quality talent into our hotels.

  • Sourav Ghosh – Host Hotels & Resorts, Inc., Chief Financial Officer & Executive Vice President

With increased attention on ESG across numerous sectors in recent years, companies are regularly reporting on sustainability initiatives that are being implemented to reduce their carbon footprint and how they’re aligning broader company goals with a long-term ESG focus

Sysco – Prepared Remarks

As seen on slide 22, our ESG or sustainability efforts advanced with the unveiling of our first electric vehicle hub in Riverside, California, last month for Earth Day. This is the world’s first electric vehicle hub of its kind consisting of electric tractors and electric trailers fueled by renewable solar energy. These trucks are rolling, serving our customers as we speak, with more on the way. Our industry-leading climate goals also include a commitment to work with suppliers representing 67% of our Scope 3 emissions to set their own science-based targets by 2026. Importantly, our focus on sustainability and diversity, equity and inclusion is not only the right thing to do, we believe it will be good for business in the long term.

  • Neil A. Russell – Sysco Corp., Senior Vice President, Corporate Affairs and Chief Administrative Officer

Johnson Controls International – Prepared Remarks

Decarbonization is an area of focus across the entire Johnson Controls portfolio, which includes our sustainable infrastructure, or SI business, that the KPIs on this slide represent. In addition to SI, decarbonization touches many products and solutions. Nearly 55% of our products and solutions drive sustainability. This includes heat pumps, energy efficient refrigerants, and digital solutions, to name just a few. As an example, when we upgrade an asset or a solution in the field, it drives efficiency at the building level, such as software for controls or upgrading a chiller…Recently, the European Parliament voted to include a promising enhancement to the Energy Performance of Buildings Directive, which would require indoor environmental quality monitoring of buildings. Johnson Controls is encouraged by the latest developments as the IEQ language has the potential to drive increased adoption of digital building systems and deliver improved health and wellness, all while accelerating the decarbonization of buildings.

Turning to slide 7, we are honored to be continually recognized for our dedicated sustainability efforts. During the quarter, we received several recognitions, including being named one of the World’s Most Ethical Companies for the 16th time by Ethisphere. We were especially honored to be named to the Clean200 for the 8th consecutive year. Every year, 200 out of more than 6,000 companies are selected for the high proportion of their revenue earned through sustainable business.

  • George R. Oliver – Johnson Controls International Plc, Chairman & Chief Executive Officer

Alliant Energy – Prepared Remarks

And while we’re proud of our industry-leading renewable investments and the progress we’re making on our clean energy blueprint, our efforts go beyond these investments. We focus on all aspects of ESG as we execute our plan. A great example of this is our Wood County Solar Project in Wisconsin. This project was recently awarded ISI’s Envision Platinum Award for Sustainability, highlighting the project’s contributions to the environmental protections, social well-being, and equity, all while helping the community thrive economically.

This recognition showcases the tenants of our clean energy blueprint and our purpose. In Iowa, we’re continuing to advance our solar installed storage projects. Robert will share more on the status of the regulatory proceedings, but I’ll note that we remain committed to advancing clean energy projects and delivering on the benefits they will provide to our customers and communities.

  • John O. Larsen – Alliant Energy Corp., Chairman, President & Chief Executive Officer

Ingersoll Rand – Prepared Remarks

On slide 9, our commitment to become a market leader in ESG continues. And we’re very excited to continue receiving positive feedback from the rating agencies on our efforts. In April, Ingersoll-Rand received an ESG risk rating of low with a score of 12.8 from Morningstar Sustainalytics. These rating ranks us second in the machinery industry group and places Ingersoll Rand in the first percentile in the machinery industry and 6 percentile of all rated companies.

This is a perfect example of how we utilize IRX for agile execution across all aspects of our business. In this case, we use our own IRX execution process to go from medium risk to low risk and are now in the top percentile in the industry and regionally.

  • Vicente Reynal – Ingersoll Rand, Inc., Chairman, President & Chief Executive Officer

Evergy – Prepared Remarks

Moving to slide 9. I’ll profile another element of our corporate strategy relating to environmental, social, and governance measures. We continue to enhance our ESG practices and disclosures, and our efforts have been recognized and reflected in significant improvements in third-party ESG ratings for Evergy. For example, slide 9 profiles the comprehensive progress that we’ve made in the ESG ratings provided by IFS and by S&P Global’s Corporate Sustainability Assessment.

From a disclosure perspective, 2022 marked the first year Evergy completed full CDP climate and water security questionnaires, as well as the Global Reporting Initiative Report. We’ve also joined the Electric Power Research Institute’s Climate Ready Initiative Research Partnership, aimed at developing a collective approach to identifying and managing physical climate risks. Over time, we expect this effort to support the optimization of our grid investment priorities, utilizing a common framework around cost benefit analysis, risk mitigation, and adaptation strategies. Finally, we continue to integrate climate-related risks into our enterprise risk management system. This is a best practice which will allow us to identify and mitigate the impact of current and future risks on our business, enhancing our ability to provide safe, reliable, and affordable power.

  • David Alistair Campbell – Evergy, Inc., President, Chief Executive Officer & Director

Thanks for reading this issue of the Earnings Recap blog for the Q1’23 Earnings season. Stay tuned for our trending topics recap next week! Feel free to check out the previous iterations of this quarter’s recap blogs below:

Week of April 17

Week of April 24

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