John Bean Technologies Corp (JBT) Q4 2018 Earnings Conference Call Transcript

Image source: The Motley Fool.

John Bean Technologies Corp  (NYSE:JBT)Q4 2018 Earnings Conference CallFeb. 26, 2019, 10:00 a.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Good morning and welcome to JBT Corporation's Fourth Quarter 2018 Earnings Conference. My name is Tiffany and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I will now turn the call over to JBT's VP of Investor Relations, Megan Rattigan to begin today's conference.

Megan J. Rattigan -- Vice President of Investor Relations and Controller

Thank you, Tiffany. Good morning everyone and welcome to our year-end 2018 conference call. With me on the call are our Chairman, President and CEO, Tom Giacomini and our Executive Vice President and CFO, Brian Deck. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8-K filing. JBT's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the Investor Relations section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the Investor Relations section of our website. Now, I would like to turn the call over to Tom.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Thanks, Megan and thank you all for joining us this morning. I was encouraged by the results we posted in the final quarter of 2018, particularly our record margins (technical difficulty) cash flow. As I look at JBT, a company (ph) that has made meaningful operational improvements throughout 2018 and is better positioned strategically to take advantage of long-term macroeconomic tailwinds in food and aero. We remain confident in our ability to capture the benefits of our restructuring program demonstrated by delivering cost savings ahead of plan (technical difficulty) we've increased the size of our restructuring, generating additional benefits. At the same time, the first phase of our new JBT operating system which simplifies and standardizes our business processes is up and running, bringing more rigor and accountability to how we run our business.

Looking to 2019, while JBT exited 2018 with strong orders and backlog, there is still some uncertainty in the marketplace and we expect top line growth at the lower-end of our (technical difficulty). In terms of profitability, we anticipate significant margin expansion placing us solidly in our framework. Still (ph) optimistic about our ability to capitalize on the robust M&A pipeline JBT matured in the back half of 2018.

I'll turn the call over to Brian to provide more detail on the fourth quarter and full-year 2018 performance. He will also provide guidance for 2019. Afterward, I'll add color about market dynamics in our active M&A program.

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Thanks, Tom and good morning everyone. We finished 2018 on a strong note with expanding margins as well as good order rates and outstanding cash flow. For 2018, JBT revenue of $1.9 billion increased 17.4% from 2017 with gains of 6.5% organic, 3.1% from acquisitions and 7.8% from the new ASC 606 revenue recognition standard. At FoodTech, full-year revenue growth of 16% was comprised of 3% organic, 4% from acquisitions and 9% or $114 million from ASC 606 benefits. FoodTech's revenue in the fourth quarter of 2018 excluding the benefit of ASC 606 was below our expectation with about half of the shortfall due to a negative FX impact and the other half from the timing of customer projects and shipments.

On the other hand, FoodTech's excellent fourth quarter profitability reflected JBT's focus on operational (technical difficulty). Additionally, we had an improved product mix and we're able to pass through higher costs as expected. All told, FoodTech's operating margin hit 16.1% in the fourth quarter, exceeding the previous quarterly record from the year ago period by more than 200 basis points.

AeroTech revenue was ahead 21% for the year comprised of 16% organic growth, 2% from acquisitions (ph) and 3% from ASC 606. In the fourth quarter, Aero's margins hit a record 13.8%, besting last year's fourth quarter by more than 150 basis points. (technical difficulty) while we still experienced pressure from higher input costs, we benefited from a favorable equipment mix with more higher margin (ph) equipment shipments. We also leveraged our volume and created -- and captured greater than expected benefits from the restructuring.

For the year, FoodTech and AeroTech orders were ahead 10% and 24% respectively. In the fourth quarter, we posted year-over-year gains of 20% at FoodTech and 12% at AeroTech. As for free cash flow, we meaningfully exceeded our guidance (ph). Excluding pension contributions, we generated $137 million in free cash flow for the year, which represented a conversion rate of 133%. We did a great job of getting orders shipped (technical difficulty) so we can convert to cash in the period. Our folks also did a great job managing inventory, upping (ph) AR and improving the accounts payable processes. At FoodTech specific, we had a high level of advanced payments in connection with robust orders in the period.

Overall, our ability to generate cash was bolstered by our restructuring program, which goes beyond the P&L and enhances how we manage processes such as payables and receivables. Strong cash flow had a nice impact on our ending debt position. We exited the year with debt, net of cash of $345 million, representing a bank leverage ratio of about 1.6 times.

Regarding the restructuring, we recorded an expense of $47 million in 2018. We are well on track capturing savings of about $7 million in 2018, including approximately $5 million in the fourth quarter. In the process, we determined there are additional opportunities to enhance operating efficiencies. As you saw in the earnings release, we plan to take an additional restructuring charge of $10 million to $15 million in 2019. Those charges will be front-end loaded.

With the total spend now of approximately $60 million, we now expect program to capture total benefits of about $55 million versus our prior estimate of $45 million. That is comprised of the $7 million we realized in 2018 and incremental $20 million in 2019, and the remaining $28 million in 2020.

With all that, we reported diluted earnings per share from continuing operations of $3.24 in 2018 compared with $2.58 in 2017. On an adjusted basis, excluding restructuring expense and the one-time charge associated with the 2017 Tax Act, diluted earnings per share was $4.28 versus $3.10 a year ago.

In addition, 2018 earnings included the benefit of $28 million of operating income or $0.64 per share from the transition to ASC 606. This predominantly represents the rerecording of revenue previously recorded in 2017 as required by the accounting rules governing the transition to 606.

EBITDA was $201 million in 2018. Adjusted for restructuring charges, it was $248 million, which includes the $28 million benefit from the transition to ASC 606. This compares to adjusted EBITDA of $199 million in 2017. (technical difficulty), we look at EBITDA and EPS excluding both (technical difficulty) charges and ASC 606. We have provided a detailed schedule in the earnings release designed to help investors better understand 2018 results and will serve as a basis for comparison in 2019.

Looking ahead to 2019, while we ended 2018 with strong orders and backlog and enjoyed strength in our markets, we believe the lengthening of order cycles and trends we've seen (technical difficulty) and Asia may pressure FoodTech orders in the first half of the year. This will be reflected in our guidance for the year.

For full-year 2019, we forecast revenue growth to include 4% organic, 2% to 3% from completed acquisitions less about 1% from foreign exchange. The majority of the acquisition-related revenues is from the recently announced purchase of LEKTRO. Due to the $127 million of ASC 606 previously recognized revenue included in 2018, GAAP revenue is forecasted to be about flat year-over-year. We project segment operating margins of 13% to 13.5%. That breaks down into 13.25% to 14% for FoodTech and about 12.5% to 13% for AeroTech. For 2019, we expect corporate expense of about 2.6% of revenue. Interest and other non-operating expense is forecasted about $17 million (ph).

As it relates to taxes, in 2018, the effective tax rate of 19% represented a 25% rate that is approximately $7 million in discrete tax benefits associated with stock compensation accounting as well as final Tax Act adjustments. In 2019, we see a tax rate of (technical difficulty) including about $1 million (ph) of discrete tax benefits associated with stock comp.

We anticipate diluted earnings per share from continuing operations in the range of $3.90 to $4.10 in 2019. That translates to $4.20 to $4.40 on an adjusted basis excluding restructuring charges. We project adjusted EBITDA of $250 million (ph) to $270 million and about $60 million of depreciation and amortization expense. We expect CapEx of about $40 million to $50 million and a free cash flow conversion rate excluding pension contributions of about 90%.

For the first quarter of 2019, JBT anticipates meaningful improvement versus prior year with revenue of $375 million to $395 million representing 4% to 5% (ph) organic growth around the midpoint of the range. Reported revenue of $409 million in the first quarter of 2018 included $50 million benefit from ASC 606. We expect diluted earnings per share from continuing operations of $0.30 to $0.34 or an adjusted $0.44 to $0.48. Reported earnings per share (inaudible) in the year ago first quarter included a restructuring charge of $0.29 and a $0.30 benefit from ASC 606. All told, we are pleased how we exited 2018 and look forward to continued progress in 2019. With that, I'll turn the call back to Tom.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Thanks, Brian. Let's start with our markets. With respect to AeroTech, both our fixed and mobile businesses continued to enjoy strong market conditions. For fixed, airport infrastructure investments remain positive based on facility upgrades driven by continued passenger mile growth. Mobile is benefiting from increased air cargo activity driven by e-commerce and a solid replacement cycle for aging equipment.

For FoodTech, protein customer activity for 2018 was robust in the US and Europe with signs of early improvement in South America. Asia continues to lag expectations due to trade and geopolitical issues, delaying equipment orders. Encouragingly, pre-order project activity in Asia continued to improve.

Liquid Foods customer orders improved overall in the fourth quarter across all geographies, but as mentioned last quarter, we are experiencing order delays from traditional customers whose products typically reside in the center of the grocery store. While we expect this trend to continue in 2019, JBT has been actively investing resources toward the faster-growing categories you see around the perimeter of the grocery store.

This investment is reflected in acquisitions like Avure and FTNON that sell to the fresh produce juice and ready to eat categories. We're also focusing JBT's internal selling and product development activity to better target these same categories and customers.

Across FoodTech, we are experiencing strong interest from our customers in automation that removes labor, clean labels and other forms of high quality food, ready meals, and convenience all leading to meaningful project activity and investment. In addition, iOPS, our Internet of Things platform starting from very small base is an area of future value creation for our customers in JBT as we move forward. Last, our aftermarket performed well in 2018 and we continue to see opportunities to grow this business faster than the markets overall.

Let me close with a discussion of our M&A program. In 2018, we made two strategic additions to our FoodTech business with Schroder and FTNON. In February this year, we completed the acquisition of LEKTRO, which gives us a competitive advantage in the rapidly growing market for emission-free ground support equipment. As we end 2018, JBT has matured our M&A pipeline including many proprietary opportunities.

While proprietary transactions require significant relationship building and take time to develop, we believe they better position JBT to complete acquisitions that fit both our strategic and financial goals while enhancing value creation for our customers. With that, we'll open the call to your questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Allison Poliniak with Wells Fargo. Your line is open.

Allison Poliniak -- Wells Fargo -- Analyst

Hi guys, good morning.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Good morning, Allison.

Allison Poliniak -- Wells Fargo -- Analyst

I think Brian you mentioned the mix on FoodTech margin. Is there any way to I think quantify (technical difficulty).

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Well, what I would tell you, Allison, if you look at the margins in the quarter of 16% for FoodTech, I'd say about two-thirds of that impact was from the restructuring and really the remainder is from the mix benefits.

Allison Poliniak -- Wells Fargo -- Analyst

Great, that's helpful. And then on the core outlook for the year, is there any way to -- I might have missed it, but the FoodTech versus AeroTech, any color on the growth opportunities for them in '19 relative to your core expectations?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Well, Allison, as I look at it, certainly just a little clarity in terms of the trade and macroeconomic situations and the geopolitical situation would certainly help us because we see that impacting Asia as we've talked about and that would certainly be a tailwind beyond where we're at today.

Allison Poliniak -- Wells Fargo -- Analyst

Got it, thanks.

Operator

Your next question comes from the line of Larry De Maria with William Blair. Your line is open.

Lawrence De Maria -- William Blair -- Analyst

Thanks, good morning everybody. Just to start off, the 4% seems, given the constraints of the market I get it, but also seems a little bit conservative. Can you maybe dissect that from a price and volume perspective, I would think price gets you probably halfway there and then also just food versus aero in terms of the organic outlook into 2019?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Yes, Larry, as I look at it, we certainly ended the year on a strong note. If you look at the way the orders and backlog came together and I think as you sit here at the beginning of the year and you're looking across all of 2019, I think we're just trying to be appropriately balanced in our view of the year and certainly we'll continue to refine that as we go through the year. I talk about the way we are strategically positioning the business and investments we're making to do that. I have every confidence that we're putting JBT in front of these important trends that are happening in the food industry and over the mid to long-term part of our cycle, we do believe the markets grow faster than the rates we've identified in our framework and it's just about a little bit of uncertainty this year in general in the markets and if we get some of this sorted out and there's clarity, we'll certainly refine that going forward and have every hope to be able to position ourselves to see that improve through the year, but given where we're at and at this point in the journey, we think it's appropriate, our framework for the year.

Lawrence De Maria -- William Blair -- Analyst

Okay and maybe asked a different way. What would you think about for a net price expectation for 2019. And then my second question would be, given the strength and bounce back of orders we saw in the 4Q, can you just talk about how we progressed through the quarter? If it got better as the quarter went on. And you talked about labor constraints, was that a major -- is that currently a major factor in orders that folks are placing (ph) right now?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Larry, as it relates to pricing, we're always cautious I mean in terms of the way we communicate as a company and we need to be appropriately cautious about that. I would tell you that the orders were strong throughout the fourth quarter and there wasn't any real trend that you would read into the timing of the way the orders came in and as I look at it, I was encouraged to see the strength of the orders and in particular the backlog as we start the year and certainly from our perspective, that gives us a good start in 2019. If you look into the first quarter, as we look at it, it's going to be a strong performance with good organic growth and a return to operating margins that we'd like to see even though we do have kind of historically low volumes in the first quarter.

Lawrence De Maria -- William Blair -- Analyst

Okay. Thanks, I'll guess I'll jump back in. Thanks.

Operator

(Operator Instructions) Your next question comes from the line of George Godfrey with CL King. Your line is open.

George Godfrey -- CL King -- Analyst

Thank you. Good morning Brian. Tom, nice job on the quarter.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Thank you.

George Godfrey -- CL King -- Analyst

You may have said this Brian, but the lines kind of broke up. What was the organic growth rate for FoodTech and Aero in the quarter?

Brian A. Deck -- Executive Vice President and Chief Financial Officer

In the fourth quarter? (multiple speakers) Yes, so I don't think I specifically gave it, but I can tell you on AeroTech, it was quite strong and in FoodTech, it was down organically year-over-year by about 5%.

George Godfrey -- CL King -- Analyst

Got it, OK. And then looking ahead to next year, you mentioned there was some weakness in Asian orders? Is there a capacity pressure on the customers that they can only delay these orders for so long, where their customer demands and processing requirements are going to force them to come to you and start placing orders or can they work with the processing they have to delay this through all of '19?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

George, that's a little bit tough to call, but I would tell you, if you look in the long-term, we absolutely believe that the trends are very positive in Asia. If you look at the consumption proteins based on rising incomes in Asia driving that, so that's a real positive and what we believe is playing out here is really the geopolitical and trade situation causing a disruption in some of the ordinary flows between the countries and the way they trade and that affects the way the proteins move back and forth. So the customers are just being more cautioned, but I would say as we start to see that return to more relative stability, our expectation is in the mid -- even in the mid-term, that, that will improve and whether that happens in six months, 12 months or 18 months, I really can't predict that, but I know the right thing for JBT is for us to be very active and involved in that market, we see a lot of encouraging, as I mentioned in my commentary, project activity, which is the first indicator of customers planned investment, which is at the front end of that. So certainly they see an opportunity as they -- our customers do as they think a little bit through this and we would expect that to return to more normal trends as we work our way through the year assuming some of this trade stuff and just in general, the macroeconomic set (ph) are resulting from the trade be returned to normal.

George Godfrey -- CL King -- Analyst

Got it. Thank you very much, Tom. Appreciate you taking my questions.

Operator

Your next question comes from the line of Mig Dobre with RW Baird. Your line is open.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

Hey, good morning guys. A few folks before me tried to get at this. Can you provide some clarification as to how you are thinking about and Food versus Aero in terms of organic growth relative to your combined guidance, I'm not clear at all on that?

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Sure, Mig. So at this point, we're suggesting that the guidance is similar for both Food and Aero at the 4%-ish range before the impact of FX of about 1% (ph). I will say the FX impact is going to be a little bit stronger in the first half than the back half, but overall, as we sit here today, we're suggesting similar growth.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

Okay and then maybe I missed it, but I'm not entirely clear as to the fourth quarter FoodTech orders, how those progressed and how you ended up with a quarter that you had because if I'm looking at your commentary, I interpret it as being still relatively cautious as you talk about trade disruptions so on and so forth. That's certainly has been the case in the fourth quarter and you know on the third quarter call, we were talking about headwinds lasting into the fourth quarter related to trade and related to macro uncertainty and so on. So something happened in terms of orders in the fourth quarter that I think surprised you positively. I'm trying to understand exactly what that was and I'm also trying to understand why that would not carry through into 2019.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Yes, Mig, as we always talk about on the calls, there is some lumpiness to our order activity and I think if you just kind of step back and look through the year, the full-year results were consistent with -- and supportive of certainly the organic growth we're indicating for 2019 and some quarters we just happened to see a little bit of a higher closure rate than we do from quarter to quarter. So although we were encouraged by the orders we're able to realize and they position us well for next years (ph) we always caution as it relates to orders or timing of our shipments, there is a bit of lumpiness in there and it's difficult for us to predict perfectly, but as I see us, we're positioned solidly as we head into 2019, we've got a nice backlog and our focus is on delivering the growth and equally importantly, the margin expansion which puts us right solidly in that framework as we've communicated which for me is a meaningful achievement for JBT.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

Right, that's helpful. And now to talk a little bit about margin, that's a good segue. When I'm looking at your implied incremental margins excluding ASC 606 in FoodTech and the incrementals here are pretty high, by my math is something north of maybe 60% (ph), but I recognize that there are a few elements at play here in terms of (technical difficulty) over, maybe you can quantify those. And then how some of these savings (technical difficulty), the $20 million. That'd be helpful.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Right. As it relates to the savings overall, the $20 million. It is fairly evenly split based on the revenue contributions of those businesses, maybe slightly more toward FoodTech but not much. As it relates to kind of the margin progression for next year, the way we generally think about it is we did note that last year we had some things go wrong in the first quarter and a couple of things go wrong in the third quarter from a supply chain perspective.

Now all those don't go away completely next year, but overall, we're kind of thinking about $10 million of bad news going away, if you will. So you've got $10 million or so of the costs going away, you got the $20 million of restructuring benefits and then from there, you add (ph) your contribution margin from the growth and then we have a fair amount of strength in investments for things like iOPS and other growth activities, which offset some of those growth numbers in the margins.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

I see and then when (technical difficulty) $20 million of ramp for the year like front half versus back half.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

It will be a fairly continuous ramp as you go through the year, fairly even. So as a result of that, you will see margins progressively improve throughout the year as will revenue for that matter. Generally speaking, we'll see each successive quarter will be a little bit better from a revenue perspective.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

So, I'm sorry, are you talking year-over-year or sequentially?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Sequentially.

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

Sequentially? I appreciate it. Thanks.

Operator

Your next question comes from the line of Andrew Obin with Bank of America. Your line is open.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Hey guys, good morning, great quarter.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Good morning. Thank you.

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Thanks, Andrew.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Just a question if there were any sort of reversal of any accruals related to compensation in Q4, just want to confirm that.

Brian A. Deck -- Executive Vice President and Chief Financial Officer

In Q4, within our corporate expense, you'll see that the corporate numbers were fairly low, came in a little bit better than expected that it was because -- the primary reason was the variable compensation associated with where we shook out (ph) for the year.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

And how much was that?

Brian A. Deck -- Executive Vice President and Chief Financial Officer

It was a couple of million dollars.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Okay and then the second question, just regarding cash flow, very strong cash in the quarter. You did highlight advanced payments in the fourth quarter. So, looking into the next year, A, are we going to see reversals in the first half of the year. And second, what should we be thinking about free cash flow generation for the year?

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Right, generally for the year, we're thinking it's about 90%, which effectively represents about 100%, but in 2018, we had $47 million of restructuring expense, but only spent from a cash perspective about $32 million. So you effectively had a $15 million headwind and so that's what brings you from that 100%-ish range to about 90%. Obviously, that (ph) was a tailwind in 2018. In terms of -- I'm sorry, what was the first part of the question?

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

If --

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Oh the timing, all right.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Yes, the timing because there was a lot of advance payments.

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Yes, generally speaking, when you think about JBT and our growth as it improves throughout the year, you will invest -- every quarter sequentially you will start to invest more in your working capital and then be very -- and you'll deplete that working capital in the fourth quarter. So generally I expect the first half to be lower, if potentially negative in the first half and then a strong cash flow in the back half, getting to your 100% before the impact of the restructuring cash-outs.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

But effectively, other than seasonality pattern, you expect your cash next year to be fairly normal relative to your goals?

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Yes, sir.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Jason Rodgers with Great Lakes Review. Your line is open.

Jason Rodgers -- Great Lakes Review -- Analyst

Yes, good morning. Looking at your guidance for organic growth for the year on AeroTech segment, you had a very strong year obviously last year and that's quite a bit slower from what you put up in 2018. So just wondering about that AeroTech organic growth guidance, why you see it slowing for the year?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Sure. It's really in two parts. The first we had mentioned in an earlier call that we did have some mobile equipment that we had some outsized orders in that we didn't expect to repeat this year. So we had already mentioned that and then you just start to think of the size of the growth we had in 2018 and then lapping that -- you put the two years together, it's just a really solid organic growth story.

So from my perspective, that's how we arrived at the number. I would tell you that if you look at our backlog and the strength of that backlog, it's in AeroTech, it's not just about 2019, but a nice size of that is booked out in 2020. So, there's just some nice stability that as we look forward in Aero that extends beyond '19 also.

Jason Rodgers -- Great Lakes Review -- Analyst

Okay and then for the 2019 forecast (technical difficulty) tariffs in raw material costs.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

I'm sorry, you broke up on your call. Could you repeat your question please?

Jason Rodgers -- Great Lakes Review -- Analyst

Sure. Just wondering your expectations for tariffs in raw material costs that you have embedded in your 2019 forecast.

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Sure, AeroTech we do, showing some impact in the first quarters. As a result of that, the margins will be fairly similar to the first quarter of last year despite some growth. We do see that starting to go away to more normalcy by Q2 or there will be some minor impact in Q2. Then the back half will be -- I'll say clear in terms of being able to price for where we stand on tariffs.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Right and I would just say our expectations in general, we're just -- a continuation of what we saw in '18. So if there was improvement, that would be a benefit in some way, shape or form and if for some reason, the trade situation got more onerous, that would be more of a headwind in terms of the impact on the financials.

Jason Rodgers -- Great Lakes Review -- Analyst

And then debt currently is under your target range, wonder if you talk about the M&A pipeline. Do you expect the amount of deals to be roughly the same as it was last year as well as share repurchase which it looked like you stepped up a bit?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Yes, so it's a two-part answer here. On the M&A pipeline, as you know, M&A is always episodic, but I did want to communicate and was pleased with the progress of work we made in the back half of the year, the strength of the opportunities we're engaged in and our ability to translate those into M&A in '19, but as always, it takes a willing seller and the economics that makes sense, but from our perspective, we've got some great strategic opportunities we're working on our M&A pipeline. They are maturing. So, all the arrows are pointing in the right indication. As you mentioned, our balance sheet is in good spot. I'm pleased that we're able to strengthen that and that gives us capacity as we head into '19 to do some value creating M&A and continue to build our strategy around the food in particular. And as it relates to the share repurchases, I mean, obviously, our intent there is to offset dilution for management shares and we work toward that, but we're also a bit disciplined. So when we see an opportunity when the stock price makes sense to catch up on that, we try to take advantage of that.

Jason Rodgers -- Great Lakes Review -- Analyst

And could you -- would you mind repeating what the tax rate expectations for 2019 was, my line broke up.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Sure, for 2019, we expect about a 25% to 26% rate all in, which includes about $1 million discrete benefit in 2018 (ph). We had about $7 million of discrete benefits and that's largely around the stock comp accounting and when stock best (ph) relative to the stock price at that time versus the strike price. So that's why there's a big difference in the discretes next year.

Jason Rodgers -- Great Lakes Review -- Analyst

Thanks.

Operator

Your next question comes from the line of John Joyner with BMO. Your line is open.

John Joyner -- BMO Capital Markets -- Analyst

Hi. So just a quick question on the AeroTech business. I know you've discussed this many times before, but at what point in terms of sales or other financial metrics does that business need to get to, to really start thinking about it as a stand-alone entity?

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Well, certainly for JBT, we think AeroTech is doing a great job. We continue to invest in the business and from our perspective we look through -- at that through the lens of shareholder value creation and we certainly review those decisions and when the timing and what that looks like makes sense, but from our perspective, we're certainly supportive of the business, we were pleased to make the LEKTRO acquisition this year that really positions it as we mentioned for the emissions free ground support equipment and we're very much focused on maximizing the value that AeroTech can generate for JBT shareholders.

John Joyner -- BMO Capital Markets -- Analyst

Okay, thank you. And then just last, and maybe you answered this already, but the comment on FoodTech orders possibly being pressured in the first half of 2019. So how does that square I guess with the overall expected ramp beyond 1Q and then into the back half other than maybe slightly easier comparisons.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

So generally I would tell you that's just how our years typically work with our customers. I would say it's more than normal seasonal pattern than any particular extra growth in the back half, but we do see at 4%-ish or so, we think that's an appropriate balanced look into next year and then the ramp is really reflective of the seasonal activity more than anything.

John Joyner -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of George Godfrey with CL King. Your line is open.

George Godfrey -- CL King -- Analyst

Thank you. Tom, I just wanted to ask one more question on the M&A activity. Is there a particular area or geography or regional catalysts that you look for to decide which of the M&A opportunities in the pipeline you go after or is it simply price or the sellers willingness to negotiate what would you say is the one thing that really pushes you to choose which M&A deal you pursue? Thanks.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Yes, thank you for asking that George. This is a very thoughtful process at JBT. I talk about the long-term macroeconomic tailwinds we're trying to position JBT in front of as we talked about increasing protein demand, the need for automation, clean labels, positioning our business around that. So you should expect and understand that the opportunities that we're pursuing are very much in line with those thematics and it's a very disciplined approach where we understand the players out there, many of the ones we're working with today and how they fit into that picture so that as JBT pivots and as we invest in our portfolio, we're not trying to invest in the technology that might have been appropriate 10 years ago, but the ones that we think have upside as we go forward. And the benefit and leverage that joining JBT is really in a couple of parts, George, we see a food industry, our customers are going primarily from being regional players to global players and the equipment and the service of the equipment historically has been also a very regional base of players.

JBT is one of the few companies that have this true global operating footprint, which is important for equipment sale, right, I mean you would want obviously, if you're a large multinational food company, ideally you would want the same equipment and processes installed in all your plants across the geography which JBT can certainly do, but I would argue, more importantly, JBT can service that equipment, right, you make this large installation, you want that to run every day, day in and day out reliably and if you're using a let's say, you are in Latin America, but you using a supplier from Europe, getting service can be quite difficult for some of our competitors and when we have JBT being able to have those people in region, hopefully, just a couple of hours away, but usually no more than that. That's very valuable. So by bringing these technologies that are tend to be in regional companies and putting them in our global platform creates value for JBT's customers and equally creates a lot of value for JBT's shareholders because we can grow faster and we can provide that sales and service around the world. And the second part is, it's a very thoughtful and strategic process in terms of buying the technologies that position JBT for the future and put us in front of those macroeconomic tailwinds like we talked about at Technology Day.

George Godfrey -- CL King -- Analyst

Understood. Thank you, Tom.

Operator

There are no further questions in queue at this time. I will now turn the conference back over to Tom Giacomini.

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Thank you again for joining us this morning. I would also like to thank the JBT team for the strong finish to 2018.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 41 minutes

Call participants:

Megan J. Rattigan -- Vice President of Investor Relations and Controller

Thomas W. Giacomini -- Chairman, President and Chief Executive Officer

Brian A. Deck -- Executive Vice President and Chief Financial Officer

Allison Poliniak -- Wells Fargo -- Analyst

Lawrence De Maria -- William Blair -- Analyst

George Godfrey -- CL King -- Analyst

Mircea Dobre -- Robert W. Baird & Co. -- Analyst

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Jason Rodgers -- Great Lakes Review -- Analyst

John Joyner -- BMO Capital Markets -- Analyst

More JBT analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Heidrick & Struggles International Inc (HSII) Q4 2018 Earnings Conference Call Transcript

Image source: The Motley Fool.

Heidrick & Struggles International Inc  (NASDAQ:HSII)Q4 2018 Earnings Conference CallFeb. 25, 2019, 5:00 p.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Good afternoon. This is Heidrick & Struggles Fourth Quarter and 2018 Quarterly Conference Call. This call is being recorded. It may not be reproduced or retransmitted without the Company's consent. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be provided at that time.

Now I will turn the call over to Julie Creed, Vice President of Investor Relations and Real Estate. Please go ahead.

Julie Creed -- Vice President, Real Estate & Investor Relations

Good afternoon, everyone, and thank you for participating on Heidrick & Struggles fourth quarter and 2018 conference call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan and our Chief Financial Officer, Mark Harris. We posted our fourth quarter slides on the IR homepage of our website at heidrick.com, and we encourage you to print them for additional context, but we won't be referring to specific page numbers during our opening comments.

In our opening remarks and in our quarterly slides, we are referring to adjusted EBITDA and adjusted EBITDA margin. Specific to 2017 results we will also speak to adjusted operating income, adjusted operating margin, adjusted net income and adjusted EPS. These are non-GAAP financial measures that we believe better explain some of our results. A reconciliation between GAAP and non-GAAP financial measures can be found in the last schedule of our press release and in our supporting slides.

Also, in our remarks, we'll be making forward-looking statements and ask that you please refer to the Safe Harbor language contained in our news release and on Slide 1 of our presentation.

And Krishnan, now I'll turn the call over to you.

Krishnan Rajagopalan -- President and Chief Executive Officer

Julie, thank you. Good afternoon, everyone, and thank you for joining our call. On behalf of our employees around the world, I'm pleased to report Heidrick & Struggles 2018 fourth quarter and annual results. It was a year in which we achieved a number of Company records. We were front and center on the most relevant leadership issues including succession planning, culture, diversity and inclusion and data privacy. We made great progress on our transformational journey to enhance our data-driven, tech-enabled solutions and service experience.

First, let me share some of the annual financial highlights of 2018. Net revenue was a Company record in our 65-year history, $716 million, up 15% compared to last year. This was the sixth year in a row of year-over-year revenue growth. This growth was driven by our Executive Search business for which net revenue of $653 million increased 18% compared to 2017. Every region and every practice group contributed to our growth in Executive Search.

More than 5,000 confirmed searches, productivity of nearly $1.9 million per consultant and average revenue per search of more than $127,000 were also key to revenue growth. 2018 was a transformational year for Heidrick Consulting, following the integration of Leadership Consulting and Culture Shaping. We are now going -- we are now going to our clients with a single integrated line of advisory services and are focused on growth. We are seeing a meaningful increase in the number of integrated search and consulting assignments and this is reflected in a higher quality of revenue.

Turning back to our consolidated results. We reduced general and administrative expenses to under 20% of net revenue. We increased operating income to $68.9 million. We achieved operating margin of 9.6% and delivered diluted earnings per share of $2.52. All of these, the best in 11 years.

Finally, reflecting our strong cash position and confidence in the future, we are increasing our quarterly cash dividend to $0.15 per share, an increase of more than 15%. Key to having achieved these financial results was our steadfast focus on the four priorities for our business that we communicated last year. To increase the scale and impact of our two businesses, to increase cross-enterprise collaboration, to drive a premium a data driven tech-enabled service experience for our clients and to maintain a focus on streamlining our cost structure.

Some examples of these initiatives were, we continue to increase the collaboration between our Executive Search in Heidrick Consulting businesses, driving new business opportunities through our Strategic Accounts program and numerous cross training sessions. We established a larger, broader presence in the Nordic region through an acquisition in Denmark and we expanded our footprint with a new office in Dublin, Ireland.

We trained more than 900 employees on the Heidrick Way, our platform for consistently and more effectively assessing candidate, capturing data and communicating with our search clients globally. More than 4,000 searches were executed via Heidrick Connect, our proprietary client portal for sharing and delivering our data and insights to clients and adoption continues to increase. We were the first executive search firm to publicly commit to diversity in our Board of Directors searches, recognizing that diverse leadership is a business imperative.

We launched two new practice areas. The first, the Disruptive Innovators Team supports fast-growing emerging companies with their leadership strategies and talent needs. And the second, artificial intelligence is helping our clients identify executives who can drive enterprise wide transformation through AI and machine learning solutions. We are living our values, especially to win as one firm and achieving our strategic, operational and financial goals.

I'm excited about our progress and our future potential. I'm going to turn the call over to Mark to further discuss the financial results. Then I'll finish by discussing some of our key growth initiatives in 2019. Mark?

Mark Harris -- Chief Financial Officer

Thank you, Krishnan. Good afternoon to everyone on the call, and thank you for joining us today. Krishnan hit on the annual highlights of 2018, so I'll focus on the fourth quarter results. Revenue in the fourth quarter was $185.3 million, an increase of almost $16 million or 9.4% year-over-year. This was higher than our guidance as a result of strong uptick revenue in Executive Search, which is difficult to forecast due to the variability of the market.

Irrespective Search, finished the quarter up $19.6 million or 13.2% year-over-year driven by growth in the Americas region of 20.2% as a result of higher confirmations, average retainers and upticks. Without the impact of strong performance of upticks, we would have been at the high end of our guidance. Heidrick Consulting revenue declined $3.7 million or 18% in the fourth quarter, however, $1.1 million of that decline was related to the adoption of ASC 606, which impacted our revenue recognition methodology for enterprise license agreements.

Enterprise license agreements are now recognized over five years compared to one year in previous years. However, when looking at this annually, Heidrick Consulting was impacted by ASC 606 by $3.8 million. Thus, revenue annually on a pro forma basis was only marginally down 4% year-on-year. Given we have discussed numerous times that 2018 was going to be a pivot year for the business, we were pleased with their performance in 2018 and look forward to their growth strategy in 2019.

Salaries and employee benefits increased by $8.3 million or 6.6% from 2017's fourth quarter. $7.4 million of the increase was related to fixed compensation, primarily related to higher cost per consultant talent as we continue to invest into our future. The other 900,000 of the increase was related to variable compensation associated with the strong performance in search.

For the fifth consecutive quarter, general and administrative expenses declined year-over-year. G&A was $35.3 million, down 1.6% or approximately $600,000. Much of this decline was the result of lowering our external service costs, travel and entertainment cost and office occupancy cost. G&A as a percentage of revenue fell to 19% in the fourth quarter of 2018, down from the 21.2% in the same quarter last year. It's worth noting that we will have a global consultant meeting in the second quarter of 2019 in lieu of last year's regional meetings and practice meetings. As such, we only expect incremental G&A expense of approximately $500,000 for the year pertaining to these meetings.

Now, turning to operating income. Operating income in the fourth quarter of 2018 was $16.7 million and operating margin was 9%, which improved significantly from last year's adjusted fourth quarter, 2017 operating income of $8.5 million and operating margin of 5%. We're very proud of this achievement, enabled in part through the increasing adoption of our technology platform.

Finally, net income in 2018's fourth quarter up $11.2 million and diluted earnings per share of $0.58 were also far improved to last year's adjusted fourth quarter net income of $2.8 million and diluted earnings per share of $0.15.

I know I commented to just focus on the fourth quarter, but I really want to highlight what our shareholders achieved this year. Net income for the full year was $49.3 million and diluted earnings per share of $2.52 with the highest in 11 years. This growth was nearly 2.5 times over last year's adjusted earnings per share of $1.09 and demonstrates what we can achieve.

Now turning to our balance sheet. We ended the fourth quarter and 2018 with cash and cash equivalents of $279.9 million compared to $207.5 million at the end of 2017, an increase of 35%. The increase in cash balance compared to that of 2017 reflects stronger operating cash flows and lower capital expenditures, partially offset by higher bonus payments paid in 2018, payments for severance related to late 2017 restructuring and our investment in Denmark.

As most of you know, our cash position builds throughout the year as we accrue for bonuses. Earlier this quarter, we paid approximately $14 million in compensation related to the portion of consultant bonuses that are deferred each year. And in March and April this year, we will pay out approximately $202 million in variable compensation related to last year's performance.

As a result of strong operating cash flows, we don't anticipate using any leverage in the first quarter pertaining to our working capital needs different from the past two years. We would expect free cash flow to increase in 2019 assuming improved operating performance, lower capital expenditures and absent acquisitions. Based on the above and our commitment to our shareholders, Heidrick & Struggles capital allocation strategy will always be evolving, thus we will always balance our ability to adequately invest for future growth and return excess cash to our shareholders. This strategy has led us to increase our dividend by 15% to $0.15 this quarter from our long time run rate of $0.13 a quarter.

Now let me provide you the outlook in the first quarter. As a reminder, our guidance is based on the seasonality of search confirmation trends in the fourth and first quarters, the search backlog at the end of the fourth quarter, our expectations for Heidrick Consulting assignments, anticipated confirms and fees and the economic climate.

With this, we expect that 2019 first quarter net revenue will be in the range of $165 million to $175 million compared to $160.1 million in last year's first quarter.

In summary, we delivered another outstanding quarter and finished the year with many historical achievements. We intend to maintain the same discipline we showed in 2018 -- excuse me, with regards to balancing investment for future growth, continue focus on cost reduction initiatives and deliver shareholder value.

With that, I'll turn the call back over to Krishnan.

Krishnan Rajagopalan -- President and Chief Executive Officer

Mark, thank you. We've delivered another great quarter results and we continue to see a robust market across all our regions. We experienced the usual seasonal trends around the holidays with regard to search confirmations. But as you can see in Slide 16, January was the strongest it's been in four years. We are continuing to see a solid market. Our four priorities served us well in 2018. They will continue to drive our initiatives in 2019. They are to increase the scale and impact of our two businesses, increase cross-enterprise collaboration, drive a premium service experience for our clients, and maintain a focus on cost containment initiatives to further improve our cost structure.

We will continue to opportunistically hire new consultants and strategically drive expansion into markets and practices where we see good opportunities for growth. Simultaneously, we will continue to focus on internal training and development programs for our consultant support teams.

Effective January 1st, we promoted 12 women and 12 men, in total 24 individuals to Principal consultants as part of our annual consultant promotions process, almost double the number we promoted last year and a huge testament to our internal development programs. We will announce our partner promotions in March, what a fantastic start to 2019.

In Heidrick Consulting we continued to build the business that we launched last year and we expect momentum to continue. Our backlog going into 2019 is higher than it was going into 2018. As a result of the training and development initiatives in 2018, we have a much stronger collaborative relationship between search and consulting and are bringing greater value to our clients seeking holistic leadership advisory services. Our 2018 hires are starting to hit their stride and we've increased our hiring plan for partners and principals in 2019.

Recent investments in thought leadership and solutions in the areas of digital acceleration, diversity and inclusion and organizational simplicity are in strong demand in the market. Earlier this month, we launched a new book Goliath's Revenge, which looks at how established companies are battling back in the age of disruption and how they can attract the right talent and to build a culture of continuous innovation.

And our digital acceleration offerings, which are aligned with our Accelerating Performance framework are helping business leaders understand and manage the leadership, talent, culture and human capital implications that come with ongoing digital disruption. These are just a few of the drivers of the growth we are aiming for in 2019.

To increase the impact of both our businesses, we need to continuously expand our value proposition and strengthen our overall positioning as a trusted leadership advisor, who can provide a wide range of executive talent and human capital solutions.

For example, on January 15th, we announced an exclusive agreement with a premier company called Business Talent Group to offer high-impact, on-demand executive talent solutions. BTG is absolutely the best of what they do. This is yet another way we can help our clients and candidates we place be more successful by providing seamless access to BTG's high end on-demand talent solutions that can help our clients and placements fulfill their most pressing business needs.

I'm highly energized about our priority to drive a premium service experience for our clients, one that differentiates us from our competitors. This focus has led us on an exciting transformation journey at Heidrick. Last year we finished rolling out our new data driven tech enabled assessment tools and platforms to better serve our clients and help them accelerate their performance. The response internally and externally has been incredibly positive. In 2019 you will see us capitalize on our momentum because the results are getting better and more valuable with time. It's improving the efficiency of a search and providing us with deeper assessment of candidates, allowing us to capture formidable collection of leadership data points.

Again, I want to thank our employees around the globe for their hard work this year. I'd also like to thank our Board of Directors for their continued support and guidance and welcome Stacey Rauch who joined the Board at the end of January. We're looking forward to continuing momentum in 2019 and are excited about the future.

Now, we'd be happy to take your questions.

Questions and Answers:

Operator

Thank you. At this time, we will open the floor for questions. (Operator Instructions) Our first question comes from Kevin Steinke with Barrington Research.

Kevin Steinke -- Barrington Research -- Analyst

Good afternoon. So obviously you had a really nice year in 2018 in terms of driving margin expansion and streamlining your cost base. As we look forward to 2019, are there still continued opportunities to streamline the cost base and drive operating margin expansion, assuming you get a reasonable level of top line growth going forward?

Mark Harris -- Chief Financial Officer

Sure, Kevin, it's Mark Harris. I'll take the first stab at it. The answer is yes. And I think we have to look at it in kind of two different lenses. The first one on the search side, as we looked at expanding Europe, as we look at expanding it to Asia-Pacific and we grab scale within those markets, we would expect their respective margins also to expand.

The second one would be over on Heidrick Consulting where again in 2018 we made the pivot, in 2019 we're really focused on their growth strategy, organically, for the most part, bout potentially inorganically and see again some expansion on the margin on that side of it. What those will lead you to overall would be continued expansion from an enterprise point of view. I think if I was addressing the question as it pertains to G&A, I think we're doing a heck of a job at sub 20%. I don't think there's a lot more to do on that side of the fence. But as we continue to enable our technology improvements in search and consulting, we think we'll also derive some margin from that as well.

Kevin Steinke -- Barrington Research -- Analyst

Okay. (multiple speakers) go ahead.

Krishnan Rajagopalan -- President and Chief Executive Officer

Kevin, it's Krishnan here. Let me just add. Look, I think that we are -- we're still continuing to implement our technology and see the advantages of that on the search platform. So, we expect to get some additional benefits through that as well. So, the journey is midway through, and we will continue to be driving this.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Helpful. Do you anticipate any meaningful investments in 2019? I know you referenced increasing your hiring plan for this year. I mean, could you give us a sense of the scale of that increase and perhaps touch on any other investments you have planned for this year?

Krishnan Rajagopalan -- President and Chief Executive Officer

Sure. Hey, Kevin, so just from a headcount perspective on the search side, I think that look we've got a great internal development program and we're going to be continuing to promote people. As I said, we'll be promoting a new class of partners here in March. We will be doing some hiring. It will be probably less than the levels that you've seen historically, but we'll continue to add hiring into search and strategic markets and areas, but I don't think that's going to be an extraordinary level. We need to continue to grow Heidrick Consulting, so we'll be investing in hiring partners and principals into that platform while we continue to develop our internal talent pool as well, which is also terrific in that area. So, you'll see some more aggressive growth in the Heidrick Consulting and you'll probably see modest growth on the search platform.

In addition to that, we will continue to invest in becoming a more data driven business with what we see with our H Labs and we'll be putting a little bit of money toward driving that agenda head for ourselves as well.

Kevin Steinke -- Barrington Research -- Analyst

Okay, great. And following up on Heidrick Consulting, obviously you had the headwind from ASC 606 in 2018. Mark, you mentioned potentially driving some margin expansion in Heidrick Consulting in 2019. Do you think the business is at a point now where you're pretty much done with their realignment and integration, where in the pipeline is solid enough that maybe you can start to generate some organic growth in '19 in Heidrick Consulting?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, Kevin, it's Krishnan. Let me take that and then, Mark, you can jump in as well. Look, I think that's exactly where we are. 2018 was a pivot year for Heidrick Consulting. We created one team. This is all done. We've now got some new offerings as well and we're poised and ready to grow this business. The culture business is back. It's performing well. That next generation of talent is doing great and we've got a lot of good times here that this business can grow. Our backlog is better as we mentioned in the previous year. Our total contract value that we pulled in in 2018 was larger than 2017 for the business. Our new partners we hired are beginning to hit their strides. So, we're optimistic and -- to improve that pivot point to grow this business.

Mark, I don't know if you want to add.

Mark Harris -- Chief Financial Officer

No, well there isn't much more to add to it.

Kevin Steinke -- Barrington Research -- Analyst

Got it. Okay. Just a housekeeping question here. It seems -- did you change the presentation of the consultant headcount for Heidrick Consulting? You talked about a number in the 60s previously, you're kind of talking about, I think, partners only. Any in terms of the headcount.

Mark Harris -- Chief Financial Officer

Kevin, we did change and I think it was an important change we wanted to make. As you know, we used to report it that way. Now what it really demonstrates is, I think, when you just showed the partner level, the bench that we have, which is also a critical component which the principal side of it. We really felt like as search, we're doing the where we show both partners and principles all like and the consultants. We wanted to do the same thing on the consultancy side.

So, what this tells you when you seek up (ph) from 62 to, 64, 66, that continues to grow which was literally what Krishnan was speaking to in terms of the pivot and what we were trying to do. I think not only do we have a strong quality of partners on the partner range, but we also have very strong quality principals as well and we're going to continue that growth plan.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Good. So I guess lastly for me, there has been some signs of economic weakness in Europe. What are you hearing from your clients there? Any signs that things might be slowing at all in Europe or anywhere else globally in terms of the economic outlook and its impact on your business?

Mark Harris -- Chief Financial Officer

Yeah, Kevin, so -- I think we heard those conversations, but we haven't quite seen anything materialize is what I would tell you. Clearly in Europe, we've seen a little less volume in Europe but -- in the UK, but it's been more than offset by France, Germany and the rest. So, as we actually look at the data, that's what we're seeing. We read the same headlines and probably see some of the same conversation -- hear some of the same conversations that you're having, but our data is pretty solid on this right now.

Kevin Steinke -- Barrington Research -- Analyst

Okay, got it. Thank you very much.

Mark Harris -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Tobey Sommer with SunTrust.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thanks. One of the questions about the you decision with respect to diversification and future quality after revenue. What metrics would you , just drive that improvement? Thanks.

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, there was a little bit of echo on that line. I think the question was if I can reframe int here was around the comment I made on quality of revenue. Is that right?

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

That's exactly right. Sorry for the background noise.

Mark Harris -- Chief Financial Officer

Yeah, no problem. Yeah. So, when I look at the quality of the revenue, we think about it in terms of the brands that we're working with, as well as how many of them are long-term search clients now that we are beginning to work collaboratively with across search and across Heidrick Consulting, and that's what gives us optimism there is that we're seeing a nice in uptick in that, we're seeing a nice uptick in the opportunities that are coming up as a result of that. So, when we think about how we're driving that revenue, it's going in the right side and underneath that those clients are our strong Heidrick clients. So that's what I mean by the quality of the revenue.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. Sticking with the top line. Do you think that the company -- as you look at your guidance for the first quarter, are you growing in line with your end markets or how would you describe your trends and market share, understanding I guess at '18, it looks like you outgrew the market on an average (technical difficulty)?

Mark Harris -- Chief Financial Officer

I think that's absolutely right. So I think what we're able to look at from the data that we get, which is similar to yours is not only are we seeing a very good growth from the team in terms of just general revenue, but we're also seeing the fact that we're -- we made the comment, getting more than what our share was in the past and hopefully getting some increasing market share as well. We do know the engagements that we're winning and the work that we're doing, we're staying at the top, which is very important to us. We're able to grow the revenue by staying there and also I think continuing to build on our outstanding brand and reputation with our clients in terms of delivering.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

With respect to the sources of market share, can you just show (ph) where do that come from, at our larger players or it's a shift at the (technical difficulty)?

Julie Creed -- Vice President, Real Estate & Investor Relations

Tobey, this is Julie. One was the -- I mean, obviously the public press releases from Korn Ferry and Egon Zehnder and then, as the information that we see from AESC.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. What's the trend then entering this year on upticks, because a couple of quarters ago, those were going very strong and I'm just curious what the kind of more recent trend has been?

Krishnan Rajagopalan -- President and Chief Executive Officer

No, as we reported in Q4 upticks were actually very strong, stronger than we anticipated and drove us a bit of our guidance that we were looking at. And it really is kind of in this market, where you have such low employment and the fact that you have to pay people a lot more to leave their current positions to kind of come across into new roles, it really does become more of an education in the market and that is in terms of what the market really wants to or thinks they want to pay for the role versus the reality of what they need to pay for the role and that's really generating the upticks. What we have seen in terms of our average retainers et cetera is those have been moving up quite strongly for us and we're believing that the market is actually internalizing appropriately in terms of what the cost of, for example, acquiring a CFO in the market versus maybe what it would cost at the beginning of the year, and that's great, because that really limits down the uptick. And then of course, you have those that are still believing that they are on the same cycle, so to speak, and that's really where the uptick revenues kind of come from.

The upticks even though it's -- the one comment I do want to make Tobey is, even though they could be chunky, so Q2 and Q4 both were a little bit unexpected, Qs one and three, the actual annual amount is pretty consistent year-over-year between '17 and '18 between 13% and 15% in terms of our total revenue. So again, we don't see it when you look at it from a trailing 12-month basis as much as you see it quarter-to-quarter.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. (inaudible) talked about in the space for a long time and have had trouble kind of getting data to see whether or not (technical difficulty) potential facts of the retirement of baby boomers struggling on some elevated level of turnover in the C-suite and other executive levels? Do you have any really good sense for whether this is a driver of demand as you're experiencing right now?

Mark Harris -- Chief Financial Officer

Yeah. Look, I mean we certainly saw a greater number of what we might call CEO level searches this last year than in the past, somewhat due to CEO tenure, having been in the roles for a while and retirements, et cetera, things going on as well. So, we're definitely seeing some activity in those marketplaces, and I think continue to -- we forecast that we're going to continue to see that due to retirement ages, et cetera, things like that, that are happening in the industry. So, at that level we definitely see it.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. Last question for me and I will get back in queue. The pivot the Company has been on for (inaudible) short period of time here is something that we've heard out in the marketplace from others trying to -- at least larger players trying to diversify their revenue streams and become more strategic to their clients. Could you comment on that, whether it's either connectivity separately from others and what the potential is for multiple companies pivoting kind of simultaneously and what that means for the ability to make an acquisition or higher the incremental kind of consulting employees to affect that change?

Krishnan Rajagopalan -- President and Chief Executive Officer

So, Tobey, I -- we definitely are -- it's hard for me to comment on other companies that are pivoting. We think we're somewhat pivoting uniquely in that -- in the space that we're in, the assets that we've got, the IP that we've built, how that IP connects across our service offerings to allow us to pivot from one conversation to another that supports the client. So, we kind of think of that as being unique. We believe that the uniqueness of that creates an opportunity for us to attract others onto this platform as well.

So, we think that those are all positive things we continue to focus on where our brand resonates the best which is working at the top and that's what you see with our numbers, that you see with our productivity, if you look at our average search et cetera. So that's where we're focusing our advisory services offerings as well. And I think there are opportunities there, the right types of opportunities, not just to acquire, but to partner as well. BTG represented an example of a partnership opportunity we saw over there where somebody -- BTG works approximately with 41% of the Fortune 100 as well. So, they're working with the right types of companies that we work with as well and opportunities for synergies that looks like that. So, we're looking at acquisitions and partnership opportunities as well.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you very much.

Operator

Thank you. (Operator Instructions) Our next question comes from Tim McHugh with William Blair & Company.

Tim McHugh -- William Blair & Company -- Analyst

Thanks. Just want to follow up on the kind of the margin topic. So the comments about the segment margin, essentially the opportunity in Europe and Asia in search and then the consulting business makes a lot of sense based on the data you guys report. But the other side of the coin, I guess would be essentially you are telling SG&A leverage is probably not going to be the driver, so it's about the leverage of salary and benefits.

And if I look at your revenue per consultants, all-time highs and well above prior highs. So I guess the argument is that I hear you talk about I guess productivity and using technology, but in another hand your productivity is already much higher than we've ever seen. So I guess can you talk about that and how you think about that factor as you -- when we think about salary and benefits us the leverage source over the next couple of years here for margins?

Krishnan Rajagopalan -- President and Chief Executive Officer

Sure. We'll also talk about in addition to that in Europe, as an example we still have a couple of offices in different regions of duplication that we think we'll be able to eliminate, we'll be able to streamline some of those office -- offices -- excuse me, et cetera we think that will help us out. So the other thing that when we looked at the 4% margin we achieved this year versus the 0% we achieved last year is we still have some one-off accruals that were required this year, that again we're hoping won't be around next year.

The scale is what it really comes down to more than salaries and benefits. So my comment would be, we're sitting at about $145 million and if we took ourselves up to similar scale of competitors, we believe we would be generating, again, around that mid-teens margin just by that alone without really the focus on the salaries and benefits component being greatly reduced or materially reduced.

The productivity would have to be similar in terms of what we're driving, as you know, the $1.9 million is in enterprise versus the regional side of it. But we believe with the current productivity that we're having in the European region and Asia-Pacific region as we continue to maintain with scale would really get us those margins that we're trying to attain. (technical difficulty)

Tim McHugh -- William Blair & Company -- Analyst

Okay. So maybe to focus on the D&A, I guess the comment you are trying to make is there is certain leverage maybe as a percentage of revenue, just I guess you're not accepting (technical difficulty) dollar reductions in G&A. (inaudible) from here?

Mark Harris -- Chief Financial Officer

I would think about -- so we're sitting below 20% and my comment, I think, was really more about how we can maintain that. So again, if we were to increase fictitiously revenue by $100 million we'd still believe we can maintain that G&A at that 19% to 20% area. So it would grow in absolute dollars, but maintain in terms of being among the lowest we've had it which is really kind of holding G&A tight, so to speak. That additional margin as you saw in 2018 really kind of comes down to the shareholders at the bottom line, it really was a significant contributor to us expanding our operating income by 320 basis points.

Tim McHugh -- William Blair & Company -- Analyst

Okay. Thanks. And the last question maybe on BTG. Can you talk how that works? I guess, are you -- are individual search consultants going to directly be cross-selling that? I guess the nature of the partnership and how you plan to deploy that across the business?

Krishnan Rajagopalan -- President and Chief Executive Officer

Sure. Yeah, great. Thank you. Yeah, we've got a partnership with them where there is cross referrals. We've got a program that cuts across each of our regions. We're starting in the Americas first and working with them to identify opportunities. There is a nice pipeline of opportunities and there is cross referrals. They're going back and forth between their clients -- our clients, our teams and that's exactly how it works. We've got it highly targeted and focused as well in a way where we're talking to our functional teams, our large accounts and have an approach to being able to drive this partnership as well.

Tim McHugh -- William Blair & Company -- Analyst

Are these the search consultants selling or the consulting or both trying to sell it?

Krishnan Rajagopalan -- President and Chief Executive Officer

Both -- yeah, both. They are predominantly search consultants right now who are but it's intended for both.

Tim McHugh -- William Blair & Company -- Analyst

Okay. Great. Thank you.

Operator

Thank you. Our next question comes from Kevin Steinke with Barrington Research.

Kevin Steinke -- Barrington Research -- Analyst

Just a couple of follow-ups here. You noted that every industry practice contributed to growth in the fourth quarter with the exception of financial services, which was down very slightly. So, would you attribute that financial services trend to any particular region, or is there anything more to read into that as we move throughout the rest of the -- throughout 2019?

Krishnan Rajagopalan -- President and Chief Executive Officer

Yeah, Kevin, it's Krishnan. I don't really think there's much more to read into that. It was reasonably flat. Fourth quarter had some interesting vacation periods built into it as well. So, we don't read too much into that.

Kevin Steinke -- Barrington Research -- Analyst

Okay. And then lastly, tax rate, do you think this kind of 30%, low 30%s range is sustainable moving forward?

Mark Harris -- Chief Financial Officer

Absolutely. Our view is, given where everything is, obviously we're susceptible to the governments to which we operate in and to the states to which we operate in. But assuming on a constant basis, this is exactly where we'd expect it to be is in the low 30%.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Thank you.

Operator

Thank you. And we have no further questions at this time. I would now like to turn the conference back to our speakers for closing remarks.

Krishnan Rajagopalan -- President and Chief Executive Officer

Okay, thank you very much. Thank you to all my Heidrick colleagues. 2018 was a terrific year for us, our clients and our shareholders. We are transforming our business, addressing the most critical human capital and leadership issues and focused on driving results. 2019 is off to a very good start and promises to be another exciting chapter on this journey. So thank you very much and everybody have a great week.

Operator

Ladies and gentlemen, this concludes today's presentation. You may now disconnect.

Duration: 41 minutes

Call participants:

Julie Creed -- Vice President, Real Estate & Investor Relations

Krishnan Rajagopalan -- President and Chief Executive Officer

Mark Harris -- Chief Financial Officer

Kevin Steinke -- Barrington Research -- Analyst

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Tim McHugh -- William Blair & Company -- Analyst

More HSII analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Meet The Man Turning Inequality Into Opportunity For The Next Generation Of Leaders

&l;p&g;&a;nbsp;

&l;img class=&q;size-full wp-image-133&q; src=&q;http://blogs-images.forbes.com/danmurrayserter/files/2019/02/17.03.31_BRUMMELL_1821-bw-002_Close-Up-1.jpg?width=960&q; alt=&q;&q; data-height=&q;1062&q; data-width=&q;1080&q;&g; Relaxed and proud of &q;icanyoutoo&q;

&l;i&g;&l;span style=&q;font-weight: 400&q;&g;&a;ldquo;I didn&a;rsquo;t think people like me would be allowed into Canary Wharf, let alone work there!&a;rdquo; When you know that children feel this way, how do you walk away?&l;/span&g;&l;/i&g;

&l;span style=&q;font-weight: 400&q;&g;Those are the words of &l;a href=&q;http://www.twitter.com/nileshdosa&q; target=&q;_blank&q;&g;Nilesh B. Dosa&l;/a&g;, a finance professional at EY (Ernst &a;amp; Young) and founder of &s;&l;a href=&q;https://www.icanyoucantoo.co.uk/&q; target=&q;_blank&q;&g;icanyoucantoo&l;/a&g;&s;, an organisation focused on creating better future work prospects and outcomes for non-privileged youngsters, a topic which he resonates with from personal experience.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Nilesh&a;rsquo;s parents are from Tanzania and India and he grew up in a one-bedroom council flat in Newham where he did his schooling. As is often the case with immigrant children, the passion shared by his family to make the most of the potential and opportunity before them, meant Nilesh graduated with a first-class degree in finance; completed his chartered accountancy training at a Big-4 firm; worked in banking and then joined EY in 2014.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;So far, so good, and indeed it is not a hugely uncommon story compared to others who have battled against the odds of their upbringing to achieve great things. However, Nilesh was diagnosed at birth, with a neurodegenerative condition called Charcot Marie Tooth (CMT) Disease. This meant, he grew up knowing that, whilst the symptoms hadn&s;t yet permeated his everyday life, he was a ticking time bomb who needed to fulfil his meaning, purpose, and potential to impact society.&l;/span&g;

&l;b&g;Living With A Degenerative Disease &a;nbsp;(or &a;ndash; Living With CMT)&l;/b&g;

CMT is a hereditary muscle-wasting condition which currently has no cure or medication. The condition, which has worsened over time, leads to patients suffering from constant pain and also experiencing &a;lsquo;neurological fatigue&a;rsquo; &a;ndash; &q;days when getting out of bed genuinely feels impossible,&a;rdquo; Nilesh explained to me.

&l;span style=&q;font-weight: 400&q;&g;&q;Whilst I was born with it, it&a;rsquo;s only in the past three years, I&a;rsquo;ve felt a significant deterioration in my condition, with both chronic pain and fatigue a daily feature&q;, he explains. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;As a result of the deterioration in his physical health he also experienced a period of depression - &a;nbsp;where he sought counselling and psychiatric support. This was due to a &a;ldquo;multitude of reasons&a;rdquo;, he explained, centred primarily with &a;ldquo;worries about the future.&a;rdquo;&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&q;How quickly will my health deteriorate? Who will take care of my family and what legacy will I leave for them and the community? It was these big questions that, whilst not welcome at the time, caused a step change in his thinking that inevitably led to a more fulfilling path for his community.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&q;I have always been inherently dissatisfied &a;ndash; he explained. &q;I want to do as much as I can before my health begins to prevent me from making the impact that I desire! So, in January 2018, I took a 40% pay cut, went part-time at EY and created the capacity I needed to do more for the causes I love.&a;rdquo;&l;/span&g;

&l;img class=&q;size-large wp-image-130&q; src=&q;http://blogs-images.forbes.com/danmurrayserter/files/2019/02/201819-Group-1200x888.jpg?width=960&q; alt=&q;&q; data-height=&q;888&q; data-width=&q;1200&q;&g; A group of mentees benefiting from icanyoutoo

&l;b&g;I Can, You Can Too.&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Nilesh has always had an overriding passion for supporting children and young people &a;ndash; an area he has volunteered in for almost the past two decades. Before creating &s;icanyoucantoo&s; in 2016, he spent 10+ years volunteering with the global grassroots charity Swadhyay &a;ndash; empowering young people, through community-based projects, to foster social responsibility in their own lives. His aspiration had always been to facilitate social mobility and level the playing field for young people. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Having grown up in a deprived part of London himself, he understood first-hand the challenges faced by many children, young adults and their families. And so icanyoucantoo&a;trade; was &a;nbsp;born out of a frustration, a lived experience and a hunger to change things &a;ndash; because &a;ldquo;it is unacceptable as it currently stands.&a;rdquo; &l;/span&g;

&l;b&g;Every child has a dream&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;&q;I fundamentally believe that every child has a dream &a;ndash; this is their birth right&q;, Nilesh tells me. However, as he explained, for too many, these don&a;rsquo;t materialise not because of inability or inaptitude, but because of a postcode; an environment not conducive to aspiration, to achievement, to greatness.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g; &q;This is a modern-day tragedy!&q; he exclaims in a grandiose fashion that demonstrates how deeply his passion on the topic shines through. &q;These are limiting beliefs that I simply cannot accept. How do I look my own daughter, Mahi, in the eyes, knowing that this phenomenon exists on our doorstep!?&a;rdquo;&l;/span&g;

&l;b&g;Impacting Futures&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Nilesh believes that not only &l;/span&g;&l;i&g;&l;span style=&q;font-weight: 400&q;&g;what&l;/span&g;&l;/i&g; &l;span style=&q;font-weight: 400&q;&g;he is doing is different, but &l;/span&g;&l;i&g;&l;span style=&q;font-weight: 400&q;&g;how&l;/span&g;&l;/i&g;&l;span style=&q;font-weight: 400&q;&g; he is doing it. From the very beginning his intention has been to create an initiative that was different to other corporate outreach programmes. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Traditionally, many companies deliver expert presentations on how to obtain a job at a top firm delivered by very slick, very inspiring speakers, but they don&s;t take it further - and this is where the real barrier lies. Nilesh explains &a;ldquo;this programme isn&a;rsquo;t about one-off presentations and interventions &a;ndash; we work &l;/span&g;&l;i&g;&l;span style=&q;font-weight: 400&q;&g;with &l;/span&g;&l;/i&g;&l;span style=&q;font-weight: 400&q;&g;the youngsters regularly and methodically to ensure that they imbibe the skills that will serve them in the future&a;rdquo;. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&q;I am absolutely outcomes focussed&q;, he explains. The young and disenfranchised who once believed things like &a;ldquo;I will never get to work at a company in Canary Wharf&a;rdquo; are now working at EY, just like him. Others who were going to &a;ldquo;find some 9-5 job&a;rdquo; after college have gone on to university. &q;The children I work with, and their families, have become friends. I have been to their homes and shared a meal with their families and been to their place of worship and prayed with them&q;.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&l;/span&g;&l;b&g;Outcomes&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;&q;So, what about outcomes thus far?&q; I ask, to the self-confessed outcome oriented community builder. &l;/span&g;

&l;/p&g;&l;ul&g;&l;li style=&q;font-weight: 400&q;&g;&l;span style=&q;font-weight: 400&q;&g;30% of icanyoucantoo students have gained employment or secured an apprenticeship at a number of top-flight companies including EY, Deloitte, UBS and JP Morgan&l;/span&g;&l;/li&g; &l;li style=&q;font-weight: 400&q;&g;&l;span style=&q;font-weight: 400&q;&g;70% of icanyoucantoo students have gone on to further education &a;ndash; studying accountancy, finance, law, medicine or the social sciences.&l;/span&g;&l;/li&g; &l;li style=&q;font-weight: 400&q;&g;&l;span style=&q;font-weight: 400&q;&g;100% of icanyoucantoo students fed back that their involvement in this initiative contributed to helping them decide what they wanted to do next.&l;/span&g;&l;/li&g; &l;/ul&g;&l;span style=&q;font-weight: 400&q;&g;Inspiring stuff indeed, and certainly a thought-provoking example of how others can serve their communities with a view to creating impact on the future careers of those around them.&l;/span&g;

This Genius Made a Killing on the 2008 Housing Crash; Now He's All In on Cannabis

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Greg Miller

"The Big Short" refers to a now-classic play by legendary investor Danny Moses and just a few others who made an unthinkable sum of money shorting the sick, sick U.S. subprime mortgage market at a time when just about everyone else was enthusiastically buying into their financial doom.

A call like the "Big Short" takes real vision – and real guts.

So when I caught Danny on CNBC's "Fast Money," I was instantly intrigued.

He was talking about cannabis stocks… and he wasn't in the mood to do much shorting.

Quite the contrary: Danny was essentially laying out the case for a "Big Long" in our favorite sector.

He thinks there's more money to be made in marijuana than there ever was shorting housing.

Let me tell you why I'm so excited Danny Moses is in the picture; it has huge implications for our model cannabis portfolios…

Join the conversation. Click here to jump to comments…

Greg Miller

About the Author

Browse Greg's articles | View Greg's research services

Greg Miller started working on Wall Street in September, 1987, just a month before the "Black Monday" stock market crash.

During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.

After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies.  He's always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.

… Read full bio

Samsung goes all out for 10th anniversary Galaxy

When the iPhone turned 10 in 2016, Apple went all out giving the phone a massive redesign. As one might expect, with the Galaxy S line hitting the same milestone this year, Samsung similarly spared no expense. 

Samsung is introducing several new Galaxy S10 models Wednesday: a more compact, $749.99 S10e with a 5.8-inch display, an $899.99 6.1-inch S10 and a $999.99 6.4-inch S10+.

In addition to those three main S10 models, which will be available for pre-order Feb. 21 and go on sale March 8, Samsung is adding a souped-up, 6.7-inch Galaxy S10 5G.

The 5G model will launch initially as a Verizon exclusive during the first half of 2019, before rolling out later to AT&T, Sprint and T-Mobile. 

(l-r): Samsung Galaxy S10, Galaxy S10+, Galaxy S10e (Photo11: Robert Deutsch, USAT)

All four phones run Qualcomm's latest Snapdragon 855 processor and are packed with the latest specs, including a minimum of at least 6 GB of RAM and 128 GB of storage. A microSD card is available on the three non-5G models to add additional storage. 

Unlike recent iPhones and Android devices that cut out the top of the display for the front camera (also known as a "notch"), Samsung is taking a different approach on the S10, introducing what it calls an "Infinity-O" display.

This screen cuts out a hole for the front camera in the upper right corner to allow the display to maximize the entire front of the phone. 

 

The S10e has two rear cameras, an ultra wide-angle and more standard wide lens, with an improved front 10-megapixel sensor. The S10 and S10+ have an additional zoom sensor on the back. The 5G adds a depth sensor on the back, bringing the total number of lenses to four. 

The S10+ and 5G model will also each have a second depth camera on the front for improved portrait selfies, and in the case of the 5G model, improved augmented reality possibilities. 

Similar to Google's Pixel line, Samsung is also upping its software on the S10's camera. The camera can automatically switch between the lenses, swapping between the sensors depending on the shot you are looking to capture and how zoomed in you are on your subject. A new "shot suggestions" mode will guide you to make sure your phone is properly aligned and the subjects are in focus. 

Video recording will also be getting some upgrades with a "super steady mode" to keep your videos stabilized.

All phones are water resistant and pack now standard Galaxy features like Samsung Pay for making mobile payments. Stereo speakers remain on all the phones and, in a win for those who still use wired headphones, so does a traditional 3.5mm headphone jack.

Pink, black, white and blue will be the color options in the U.S. – a green option will also be offered internationally. Glass covers the back of the phones, though those who get the 512 GB or 1 TB S10+ will get an option for a more durable black or white model made out of ceramic.  

The Galaxy S10 line in various colors. (Photo11: Robert Deutsch, USAT)

Bixby, Samsung's digital assistant similar to Siri or Alexa, is also still here but for those who don't use the feature Samsung says a forthcoming software update will allow you to change the dedicated side "Bixby button" so that it summons a favorite app instead of the voice assistant.

State of the line specs

Although Samsung has dropped the iris scanning feature for unlocking the phone that has been found on recent Galaxy phones, the S10, S10+ and 5G each pack a fingerprint sensor underneath their displays to allow you to authenticate by pressing your finger on the screen. 

The fingerprint scanning icon on the Galaxy S10+. (Photo11: Robert Deutsch, USAT)

The cheaper S10e places its fingerprint sensor on the power button along the side of the device. The S10e also lacks the curved display found on its pricier siblings. 

In addition to the cutout, the S10 displays also reduce blue light exposure, which has been linked in studies to harming vision in recent studies, by 42 percent compared to previous Samsung screens. Apple, Amazon and Google have added features to limit exposure in recent software updates, but a hardware solution from Samsung is welcome.  

All S10s support the latest 4G LTE networks as well as Wi-Fi 6, the latest Wi-Fi standard. 

With beefy batteries across the line, Samsung has added a new feature called "Wireless PowerShare" to wirelessly charge other devices by placing them on to the new phone's back, so long as the S10's battery is above 30 percent.

A Galaxy S10+ charging wirelessly off of another S10. (Photo11: Robert Deutsch, USAT)

This includes the company's updated $129.99 Galaxy Buds, which are Samsung's rival to Apple's AirPods. Because the S10 uses a technical standard known as Qi (pronounced "chi"), you can even charge an iPhone or other non-Samsung brand devices off of an S10.

A powerful upgrade, but a pricey one

After spending some brief time with the phones it's clear that Samsung has made some impressive improvements to what was already a powerful phone in the Galaxy S9. The shrunken bezels allow the phones, even the larger S10+ and 5G models, to keep the overall size manageable. The cameras in some quick shots looked to live up to the high bar set by prior Galaxy's. 

While I was unable to test the new video recording features, "shot suggestions" helped straighten photos and could be useful for amateur photographers who find themselves struggling to focus, their subjects aren't properly lit or their phone is not straight. 

One area that will take some additional testing, however, is the new cutout display. While the placement of the cutout didn't bother me, and the display looked great across the three S10 models (even the S10e's slightly lower 1080p resolution), for the S10 Samsung's slightly changed display size  could lead to larger black bars around videos on YouTube or Netflix that were shot for viewing on traditional televisions (something called "letterboxing"). 

As opposed to the early days of the modern smartphone 10 years ago, consumers today "know what they want and they know what they're looking for," says Justin Denison, senior vice president of product strategy and marketing at Samsung Electronics America.

"Our strategy really is to provide the latest technology possible at every price point so that we can address the needs of as many of those consumers as possible," he said.  

While Samsung offers trade-in discounts to those looking to upgrade, including up to $550 for recent iPhones and Galaxy devices, it remains to be seen whether consumers will be as enamored with the latest Galaxy phones as they were with earlier models. Particularly at a time when carriers no longer subsidize phone prices as they did a decade ago.

At a starting price of $749.99 for the S10e, Samsung's cheapest is priced right next to Apple's 64 GB iPhone XR, with the S10 and S10+ slightly cheaper than entry-level 64GB iPhone XS and XS Max.

There is no price yet for the 5G phone, but with its larger screen and even more powerful specs it is possible this phone will be well north of the $1,000 mark. 

Follow Eli Blumenthal on Twitter @eliblumenthal