安朗杰 (ALLE) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Allegion first-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's presentation, Mr. Tom Martineau, Director of Investor Relations. Sir, please begin.

Thank you, Howard. Good morning, welcome, and thank you for joining us for the first-quarter 2015 Allegion earnings call. With me today is Dave Petratis, Chairman, President, and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

Our earnings release, which was issued earlier this morning, and the presentation which we will refer to in today's call are available on our website at www.Allegion.com. This call will be recorded and archived on our website. Please go to slide number 2.

The statements made in today's call that are not historical facts, are considered forward-looking statements and are made pursuant to the Safe Harbor Provisions of Federal Securities Law. Please see our SEC filings for description of some of the factors that may cause actual results to vary from anticipated results. The Company assumes no obligation to update these forward-looking statements.

Our release and today's commentary includes non-GAAP financial measures, which exclude restructuring and [spend] expenses from prior year results. Excluded from the current quarter results is a re-measurement of monetary assets and inventory charge reflecting a change from the Venezuela SICAD II exchange rate, to using the Venezuelan government's market-based SIMADI exchange rate. We believe these adjustments reflect the underlying performance of the business when discussing operational results and comparing to the prior year periods. Please refer to the reconciliation in the financial tables of our press release for further details.

Dave and Patrick will discuss our first-quarter 2015 results, which will be followed by a Q&A session. For the Q&A, we would like to ask each caller to limit themselves to one question and then re-enter the cue. We will do our best to get to everyone given the time allotted. Please go to slide 3, and I'll turn the call over to Dave.

Thanks, Tom. Good morning, and thank you for joining us today.

Allegion posted another solid quarter of organic revenue and EPS growth. We continue to make progress on our capital allocation plan and are beginning to realize the early benefits of our new product and channel initiative. Revenues of $458 million grew 5.9% on an organic basis. Total revenue declined 1.7%, reflecting the negative impact of foreign currency. All regions posted positive organic growth. Of note, the Americas segment grew 7.7% organically, driven by strength in the nonresidential business.

Adjusted operating income of $75.2 million decreased 2.5% versus last year, and, as we mentioned in the previous earnings call, incremental investments were a headwind to margins in the first quarter, which declined by 10 basis points. The investment impact was approximately 170 basis points. Adjusted earnings per share of $0.51 increased 15.9% versus the prior year, driven primarily from improved operating performance and a lower effective tax rate, offset by incremental investments in foreign exchange impact. This is our third straight quarter of double-digit earning-per-share growth.

In the quarter, we repurchased approximately 500,000 Allegion shares, which more than offset dilution related to incentive plans. We are affirming our full-year 2015 adjusted EPS guidance of $2.65 to $2.75, or $2.61 to $2.71 on a reported basis, which reflects the first quarter Venezuelan devaluation charge that Tom mentioned previously.

Please go to slide four. As you know, opportunistic acquisitions is one of Allegion's five strategic pillars. Aligned with this, we've recently announced two acquisitions, and I would like to welcome Zero International and Brio to the Allegion team. We remain focused on acquiring great businesses, and these strategic acquisitions will expand our product portfolio and provide opportunity to expand globally. Zero International is a recognized leader in door and window products for commercial applications. These product lines include premium ceiling systems for sound control, fire and smoke protection, and threshold applications. The high-quality product portfolio from Zero expands our customer offerings, which can be leveraged through our existing specification capability and channels.

The acquisition of Brio, expected to close in the second quarter, adds sliding and folding door hardware to Allegion's portfolio that provides opportunity to expand globally. Brio's suite of products include door hardware systems and accessories for interior sliding and folding doors; weather fold exterior folding doors; straight-sliding top-hung and bottom roller doors; and retractable insect screens.

We have made significant progress in building the relationships and capabilities necessary to execute on our acquisitions strategy. We continue to work the pipeline and are confident we are building this as a core competency.

Patrick will now walk you through the financial results, and I'll be back to discuss our full-year 2015 guidance.

Thanks, Dave, and good morning, everyone. Thank you for joining the call this morning. Please go to slide number 5.

This slide depicts the components of our revenue growth in the first quarter, as well as our growth by regional segment. As indicated, we delivered 5.9% organic growth in the first quarter, supported by incremental volume reflecting improving market fundamentals, modest price improvements, and early traction on our key organic investments and products and channels. We saw good growth across most product segments and continue to experience favorable traction on our electronic products portfolio. All segments reported positive organic revenue growth for the quarter.

Currency rates continue to be a headwind to revenue growth as reflected by negative 7.4% decline. All reporting segments were impacted, most notably, the weaker euro in EMEIA and softer Canadian dollar and Venezuelan bolivar devaluation impact in Americas results. In Asia Pacific, the impact of weaker Australian, New Zealand dollars were offset by a prior year acquisition. As a result of unfavorable exchange rates, reported revenue deceased 1.7% compared to the prior year period.

Please go to slide number 6. Reported net revenues for the quarter were $458.7 million. This reflects a decrease of 1.7% versus the prior year, up 5.9% on an organic basis. We realized 2.6% growth in the Americas, up 7.7% on an organic basis. US nonresidential grew high single digits and residential segments, ex Venezuela, increased low single digits. EMEIA revenues were down 17.6% driven by currency headwind. Asia Pacific revenues were up 3.2% with good traction on residential electronic locks.

Adjusted operating income was $75.2 million, decreased 2.5% compared to the prior year. The decline was driven by increased investment spending and unfavorable foreign currency exchange rate movements. The adjusted operating margin of 16.4% reflects a decrease of ten basis points versus the prior year. This was expected for the first quarter and reflects the impact of incremental investments and currency rates already mentioned.

Incremental investments made in areas of new product development, channel market expansion, and certain infrastructure programs, had an impact of 170 basis points on the quarter. This headwind was largely offset by the favorable operating leverage on the increased volume. The impact of incremental investment comparisons get easier in the second half of the year. We are in the early stage of new product and channel initiatives, and are very encouraged by the early feedback from the market. We continue to navigate the currency headwind but still expect margin rates to improve in all regions for the full year.

Please go to slide number 7. This slide reflects our EPS reconciliation for the first quarter. For the first quarter 2014, reported EPS was $0.38. Adjusting for prior-year one-time separation and restructuring expenses of $0.06, the 2014 adjusted EPS was $0.44. Operational results increased EPS by $0.09 as pricing, productivity, and favorable operating leverage more than offset inflation. The decrease in the adjusted effective tax rate to 20.2% grossed $0.06 per share improvement versus the prior year.

Of note, we benefited from discrete tax items in the current quarter that were exchange-rate related. We are forecasting these types of items to balance out on a full-year basis and, accordingly, are maintaining our effective tax rate guidance of 22%. Interest expense improvements from the Credit Facility Amendment in 2014 added $0.01, and other net items added $0.01, primarily due to lower non-controlling interest expenses.

Foreign exchange impacts reduced earnings by $0.04 due to the stronger US dollar compared to most currencies across the globe. Incremental investments related to ongoing growth opportunities for new product development in channel management, as well as corporate initiatives tied to our strategy specific to taxes and M&A were $0.06 reduction. This results in adjusted first-quarter 2015 EPS of $0.51 per share. Continuing on, we have a negative $0.04 per share reduction for the Venezuela devaluation charge to revalue monetary assets, and a non-cash impairment charge to adjust Venezuelan inventory. After giving effect to these one-time items, we arrive at the first-quarter 2015 reported EPS of $0.47.

Please go to slide number 8. First-quarter revenues for Americas region were $354.3 million, up 2.6%, for an increase of 7.7% on an organic basis. Higher volumes and pricing compensated for unfavorable currency movements in Canada and Venezuela. The higher volumes reflect solid results against a weak weather-impacted 2014, but also steady nonresidential improvement and better-than-market results with our new product and channel initiatives. Net favorable pricing reflects traction in the nonresidential segment, offset by slightly unfavorable residential pricing driven by pricing adjustments to clear older generation products and make shelf space for our new electronic products and new merchandising connected to our style and design strategy.

Americas adjusted operating income of $88.4 million was up 2.1% versus the prior year period. Adjusted operating margin for the quarter decreased 10 basis points due to incremental investment spending, which created a 150 basis point headwind in the quarter. The investments are related to the previously mentioned new product and channel development initiatives.

Please go to slide number 9. First quarter revenues for the EMEIA region were $81.7 million, down 17.6%, and up 0.7% on an organic basis. Currency headwind continues to be a challenge in the region due to the softening euro and the Russian ruble, which impacts Eastern European sales. Solid results in Interflex, Hospitality, and Turkey more than offset weakness in France and the soft Eastern European performance. EMEIA adjusted operating income of $2.6 million was up $1.4 million, or 116.7% versus the prior year period on revenues that were down over 17%. Adjusted operating margin for the quarter increased 200 basis points, primarily due to favorable pricing and productivity that more than offset inflation, investment, and unfavorable foreign currency exchange rate movements.

We are pleased with the ongoing improvement in this region, especially with increased currency headwinds and unfavorable sales mix, due to lower Eastern European sales. The Company continues to target an operating margin of 10% in 2016 through ongoing cost-reduction and productivity initiatives, specific customer and market pricing actions, and the elimination of unprofitable business.

Please go to slide number 10. First quarter revenues for the Asia Pacific region were $22.7 million, up 3.2%. Modest pricing and volume increases in a prior year acquisition more than offset unfavorable currency exchange rate movements. Residential electronic locks continue to grow in the region, and the system integration pipeline supports the full-year outlook, which is seasonally weighted to the second half of the year. Asia Pacific adjusted operating income of negative $2.6 million was up 10.3% versus the prior year. Adjusted operating margin improved 170 basis points due to incremental pricing, productivity, and the prior-year acquisition of FSH, which offset inflation and currency exchange impacts. As a reminder, the Asia Pacific region historically loses money in the first quarter due to the seasonal nature of the business, with the lowest revenues in the first quarter.

Please go to slide number 11. Available cash flow for the first quarter 2015 was negative $4.8 million, an improvement of $4.4 million compared to the prior year. The negative cash flow is typical of our historical performance and reflects seasonal use of working capital. We continue to operate with an effective working capital structure, and have realized a year-over-year improvement in working capital as a percent of revenue in every quarter since the spin. In addition, our cash conversion cycle improves 17% in the first quarter of 2015. We continue to guide full-year available cash flow of 95% of net earnings from continuing operations.

Please go to slide number 12. As mentioned in our last call, the Venezuelan government announced changes to exchange rate system that introduced a new market-based system called the marginal currency system, or SIMADI. We adopted the SIMADI rate after its introduction and recorded a charge of $7 million before tax and non-controlling interest, or $0.04 per share. The charge includes re-measurement of net monetary assets of $2.8 million and a non-cash impairment charge to adjust Venezuelan inventory balances of $4.2 million. Subsequent changes to the market-based SIMADI rate will flow through the income statement. However, at the current level of exchange, Venezuelan operating results are expected to have minimal impact to Allegion reported 2015 results.

I will now hand it back over to Dave for an update of our full-year 2015 guidance.

Thanks, Patrick. Please go to slide 13.

Looking at full-year revenue guidance, we are increasing our organic growth expectations, but decreasing our overall revenue growth based on increased exchange-rate headwinds. The incremental organic growth is from the Americas region and reflects continued optimism in 2015 markets and ongoing traction of our growth initiatives. We continue to monitor institutional market recovery, the given health of state budget surpluses, and potential impacts of energy sector slowdown construction markets. It's too early to call more than a moderate recovery for the year.

Overall, inorganic revenue headwind in the Americas is unchanged, as a slight increase from the Zero acquisitions offset the increase in Canadian currency headwinds. The most notable change is the EMEIA region. Although organic projections remain unchanged, currency movements have created another six points of headwind. Inclusive of the revenue update, we are affirming our full-year adjusted EPS from continuing operations of $2.65 to $2.75, and reported EPS of $2.61 to $2.71, which incorporates the first-quarter Venezuelan devaluation impact of $0.04 per share. We continue to project full-year margin growth in all regions, with incremental operating leverage being used to support growth investments.

Please go to slide 14. Let me finish by reiterating that I was pleased with the first-quarter results. We delivered organic revenue growth of 5.9%, held adjusted margins relatively flat, while absorbing investments and currency pressure, and grew EPS by nearly 16%. We are executing in our margin improvement efforts in Europe, and continue to deliver a flexible and balanced capital allocation plan with both share repurchases and acquisitions announced in the quarter. And finally, we remain on track to deliver our original EPS guidance.

Now, Patrick and I will be happy to take your questions.

(Operator Instructions)

Robert Barry, Susquehanna.

Hello, good morning. Nice quarter, congratulations.

David, I wanted to just follow up on your comments on the revised outlook for the Americas segment. I can certainly understand wanting to have some caution. But given the quarter you just put up, I think to get to the midpoint of your revised organic growth range implies a pretty material slowdown in the volume for the next few quarters.

So are you seeing evidence of some of those headwinds that you flagged as reasons for caution? Or how are you thinking about the evolution of the core growth for the rest of the year in Americas? Thanks.

So we are net positive, as reflected in my comments on core growth. We see modest recovery in the institutional and commercial. We are cautioned by the weak GDP growth. We're mindful that recovery in our minds is capped by the available of investment dollars, especially in institutional, and capped by the amount of labor.

So as we talked and evaluated on the year, we'd like to see another quarter and make any adjustments or stay with our current guidance at that point.

Robert, I would just also add in the first quarter the comparisons were a little bit easier. You may recall last year, Q1 with the weather impact was a little bit softer. And so the 7.7% growth in Americas reflects a stronger year-over-year comparison. But also keep in mind, sequentially going forward, we had pretty good growth last year -- Q3, Q4, around 5% in Americas.

So the comparisons get a little bit more difficult. But, as Dave indicated, a little caution here. Like the start to the year. Getting really good traction on our investments, particularly in the channel-led business and discretionary market, as well as some of the NPD initiatives. So feel good about that.

Okay, fair enough. I'll get back in the cue. Thanks.

Tim Wojs, R.W. Baird.

Hello, good morning.

I guess just the question for me is just on Americas on pricing. I think in the 10Q, pricing was up a little bit on the top line, but it didn't cover inflation. So I am just curious. Is that due to timing just because wages went up a little bit more in the first quarter? How should we think of the pricing and inflation dynamic this year?

And then maybe just a little color on how you think about raw material inflation as we progress?

Yes, so on the pricing front, as we had indicated last call, we're still anticipating a little under 1% on pricing. Now, you didn't see that full benefit in the quarter. Accelerate a little bit in the back half of the year, but getting pretty good traction on the nonresidential products.

It's the residential side that we commented was a little softer than anticipated. And some of that is just moving out older product to make room for the high demand of our new electronic products -- so a little pressure from that.

Relative to your inflation question, you're exactly right. In the commodity area of steel, brass, copper, zinc -- all the inputs that go into our products -- seeing it decline year over year. We're not yet seeing the full impact of that because, as part of our policy, we lock into supplier hedge contracts. And so we look out 12 months, and we kind of hedge some of that. So you'd see some more of that in the back half of the year, but potentially some upside if the prices stay where they are today.

Great. Thanks for taking the question.

Jeff Kessler, Imperial Capital.

Thank you.

Can you get a little more granular on the investments that you're making, particularly in the Americas, with regard to both building up the channel, and your channel investments as to which way that is going, as well as any traction or any new product introductions that you are coming out with in the sphere of the NPD technology area. And if that is going to be addition additive to revenues, or will there be some cannibalization this year.

You may recall -- just to recalibrate everyone -- we did reflect our Analyst Day incremental investments year-over-year, full-year basis of $0.15 to $0.20. And you saw a $0.06 headwind in Q1 relative to the prior-year period. The majority of that is Americas-related, probably two-thirds; the remaining one-third would be tied to our corporate what we call infrastructure investments -- tied back to our M&A building capability, taxes, systems, those types of things.

But as it relates specific to Americas, I would say two-thirds probably NPD-related on both residential/nonresidential products -- one-third being channel related to this discretionary market, which we think is a huge upside for us in the future. If you relate that relative to the benefits we're seeing, I would say in the organic revenue growth for Americas, which was close to 8% for the quarter, you're probably getting 1 to 2 points tied back to those specific initiatives. So I think pretty good traction early on. That should hopefully accelerate; we like what we're seeing in the marketplace. So on a full-year basis, I would see that maybe improving a little bit but getting good, I'd say, return from those investments.

Okay.

I would add from a new product standpoint, we will continue to roll out products that complement our engage technology. And that communication interface, connected interface, complements our strong mechanical base. And then announced rollouts August/September in the residential space along connectivity.

Thank you very much.

Jeremie Capron, CLSA.

Hi. This is Grace Lee sitting in for Jeremie Capron.

We have two questions. One is it's nice to see some acquisitions in Asia. Can you give us an update on acquisition pipeline there? And also, we were wondering how this ongoing acquisition would impact the margin improvement initiatives in the region?

The second question is that 1% to 2% of organic growth you just mentioned, which is tied to the channel initiative. I am just wondering whether that has to do with the initiative of growing the US repair and retrofit initiative?

At the quarterly review, we took time to assess our success on the acquisition pipeline. I'd remind you that when we created the Company, we were dormant. We're active globally and pleased with the progress and investments that we're driving. The Brio acquisition is from the Asia-Pacific region.

We see great opportunities to leverage that hardware capability globally in warm weather climates that use accordion-style doors. We see the pipeline opportunities in Asia continuing to build as we develop the relationships that are important to be successful in building a successful acquisition plan. So very pleased with that progress. Second --

And so relative to your question on the margin, the acquisition of Brio would lift the margin in that region. It hasn't closed yet; we do anticipate it to close in Q2. So you would start seeing some of that improvement hopefully in the back half of the year. There's integration cost and step-up of inventory that adds a little pressure this year. So not a significant impact but clearly, in 2016, it operates at a much higher margin; so it would weigh favorably to the overall Asia-Pacific results.

And the last one was the 1 to 2 points in the channel and new product -- channel initiatives included in that.

Two observations on channel development. Our highest priority is in the Americas, specifically the US. We see opportunities to grow organically in the light commercial R&R space. We saw traction in that in Q1, and it benefited us. But as we sharpen our channel strategies, we're leveraging that learning into the Asia-Pacific region and Europe. We think there's good opportunity to bring good channel management techniques to the Company that will unleash growth opportunities in the regions we operate.

Thank you.

Josh Pokrywinski, Buckingham Research.

Hello, good morning. I guess I have a question on Americas margins, but maybe to help frame --

Josh, get closer to the phone.

Sorry, can you hear me now?

Barely, but go ahead.

All right. We'll try this.

Perfect.

I had a question on Americas margins. But maybe to help frame, do you give the mix between more of the retrofit verses institutional on the nonresidential side in the quarter?

So not a big impact on the mix associated with that incremental volume for the quarter.

Okay. So just based on some of the investment spend, it looks like you guys converted the revenue growth -- call it about 45% in 1Q, 45% incrementals if you back out investment. It doesn't sound like you got a lot of price in the quarter -- clearly, seasonally, not a lot of volume through the business.

Is there something else that is helping drive the incrementals? Or should we think of this of where we functionally are at based on where the mix of the business is today?

I want to make sure I understand your question. You're questioning the incremental leverage at 45%, whether that's sustainable going forward?

Right, because it looks like mix could actually get better from here; it doesn't look like there was anything too crazy. And then price was pretty anemic; so presumably, there's some room for expansion there as well.

Right. So as reflected, the 45% see-through, pretty good leverage there -- would expect that to continue. As we indicated, should see more favorable pricing going forward. We do have the incremental investments that will continue to be a headwind. Comparisons get easier the back half of the year.

We are still forecasting Americas margins improvement for the full year. So as the investment headwind kind of comes down, then you see margin improvement.

The other thing, if you're looking at it just from a margin perspective, don't forget Venezuela is weighing -- I wouldn't say heavily -- but is weighing on the mix relative to the margin. And even with that headwind, we're seeing margin improvement. So if you look at it ex Venezuela, there is pretty good margin improvement of maybe 100 basis points or so.

Terrific. All right. Thanks, I'll get back in queue.

Steven Winoker, Bernstein.

This is Peter Lennox-King on for Steve.

Could you talk a little bit about how momentum progressed through Q1 on the sales in each region? And I know you don't give quarterly guidance, but maybe if you could just give an indication on how that momentum progressed into and through April -- what you are seeing so far.

I would classify momentum in the resi space. We saw good traction in growth in what we call [brook probuild], which supports new construction. We saw some softness in the repair and replacement on the resi side, and weather impacts that. I think the Southwest United States, in the resi market, continues to be hot. Predictably, from a weather standpoint, the Northeast, which is a good market for us, was frozen.

On the commercial institutional side, I would describe a generally good lift in all markets. As you think about the institutional builds, a lot of that traction gets moving in Q1 for summer activities, especially in schools, universities, that type of thing. And then you've got your normal project load. We see a step-up there, and it was reflected in our optimism. Hospitals, under pressure -- again a step-up in the institutional,. And we're seeing traction in our development of the channel expansion that we want to influence in the commercial R&R. And that's probably stronger in some targeted markets. And as we roll out that full program, expect similar results.

Great, thank you.

Charles Clarke, Credit Suisse.

Hello.

I just had a quick question. You probably can't make specific comments on it, but just the headlines this morning that the merger between Kaba and Dorma, or at least the announcement. Just didn't know how that maybe changes the industry or how that changes your M&A outlook or just anything that you could kind of talk about with respect to that.

So we certainly caught that this morning, analyzing it. We've got great respect for Kaba and Dorma. We've known them over the years. It's, I think, a strong reflection of a consolidating industry.

It remains heavily fragmented, as we've talked about in our analyst presentations. And the strength of that merger is really outside of the United States. And it's a clear indicator that, as we think about capital deployment, if there are good assets to bring into our portfolio, we're interested; and we continue to work on it. So more to come on that as we evaluate the news in the morning.

And I would just add, Charlie, it doesn't change our strategy. We'll continue to execute and you saw good traction in Q1. We have a lot of organic growth opportunities, particularly in Americas. We're continuing to get good improvement in European margins.

All that doesn't change. And we're going to continue to drive shareholder value through our organic growth initiatives -- things we can control and, as Dave said, continue to be aggressive on the capital allocation plan.

Great, thanks.

And just a quick one just on growth. You know, for the quarter, I mean 7% in Americas is a big number -- says low single digits residential, high single digits nonresidential. Is institutional growing -- institutional specifically? Was that up in the quarter?

Positive indicators, I would classify it as low- to mid-single digits. We're going to do well in any kind of recovery in that space. But again, capped by labor, the ability to install it. And I think our bigger opportunity is pursuing our channel-based strategies; that gets us a bigger share of the existing market.

As I have said in any type of recovery, we'll do extremely well in the Americas.

Thanks a lot.

Mr. Robert Barry, Susquehanna.

Thanks for taking a follow-up.

I actually did want to follow up on the pricing comment earlier. I think some of the benefit you saw in commercial was being offset by the resi as you mentioned. Is that temporary? It sounded like it might be temporary as you are clearing out inventory. And how much did that weigh on the net pricing in the quarter?

So I would say it's temporary through perhaps this quarter. Might see some softness as well, as those programs continue. How much should it weigh? Maybe 30 basis points or so?

From a business perspective, driving our style and design, which means some inventory switch-out, and we've got new products entering the market from a resi electronics standpoint, which we think is a good opportunity for us as that market converges.

Right. So the 30 bps should alleviate as a headwind?

Correct, and let me just add something here, too, maybe as a point of clarification.

When we look at pricing impact, it's similar products year over-\ year. When we're up-selling -- so with our replacement of the new electronic products -- as we've talked about it before, it comes at a higher price point, which adds revenue dollars. That's not captured in the year-over-year price improvement. So that would be captured in volume. So the replacement does have a positive impact in terms of higher price point, as well as, because the margins are similar, higher OI dollars.

Okay, perfect.

If I could also just quickly follow-up on the remaining investment spending -- $0.15 to $0.20; $0.06 in the quarter; the remaining, call it, $0.09 to $0.14. Is that going to be evenly spread over the remaining three quarters, or is that weighted in some way to second quarter?

It's more heavily weighted Q2, Q3. Q4 falls off significantly, so there's minimal impact in Q4.

Great. Thanks.

Mr. Jeff Kessler, Imperial Capital.

Thank you for taking the follow-up.

You've talked about taking your Venezuelan exchange rates to the official SIMADI rate. You obviously are aware that the black market rate, or the street rate remains quite different than anything the government has been able to say for the last -- actually, this is consistent for the last two years. But this time, we know the vision is that disparity is getting pretty big.

What do you do to monitor that, and how are you -- how can you manage against that? The fact that we've got something like -- it's more like 170 to 1 at this point, as opposed to 50 or 60 to 1?

I believe our current thinking is the business, we're up to almost 200 to 1, 192. I think second, if you look at what's left on the balance sheet, there's not a lot of risk there. We're reflecting on our long-term position in Venezuela and considering our options.

Okay.

To even add little more clarity, I think any political solution in Venezuela is going to take years. And the amount of time we spend at that just trying to explain it is a distraction with the overall impact it has on the business.

Yes, I mean I am just trying to dispose of this as something that you have to think about every quarter. And that becomes less and less meaningful, but it's still like this bug in the back of your head. Thank you very much.

Jeff Sprague, Vertical Research.

Hello, this is Brett.

Just wanted to come back on the investment spending. It sounds like you are getting a pretty quick payback there on the new products and some of the refresh. Should we think of 2015 as really kind of a one-time refresh across the portfolio? How should that play out as we think about the model into 2016? Has it become kind of a permanent fixture of the cost space, or does some of that go away?

Yes, so as we talked about during the Analyst Day, you need to think about the incremental investments for both 2014, 2015, being a step-up in the cost space; i.e, things like NPD, a lot of engineering spend associated with that will stay in the cost.

However, looking forward into 2016 beyond, the level of incremental investments comes down. I think there would still be some as we continue to find growth alternatives organically. And then you may recall, with the payback and the returns of those investments, EBITDA margin growth starts to outpace, significantly, the incremental investment spend. And so look at it as an increase in the cost space, but the level of year-over-year incremental spend coming down beginning in 2016.

Okay, great, yes, that's helpful. That's all I need.

Thank you.

I am showing no additional questions in the queue at this time. I'll turn it back over to management for closing remarks.

Again, we would like to thank everyone for participating in today's call. Feel free to contact me for any further questions. Have a safe day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.