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Furmanite Corporation (NYSE:FRM)

Q4 2013 Earnings Conference Call

March 7, 2014 10:00 am ET

Executives

Charles R. Cox - Chairman and Chief Executive Officer

Robert S. Muff - Principal Financial Officer

Joseph E. Milliron - President and Chief Operating Officer

Analysts

Matt Duncan - Stephens

Tristan Richardson - D.A. Davidson

Operator

Good morning and thank you for joining the call. Before I introduce today's speakers, allow me to explain the format of the call. For your convenience, we have a set of slides available on our website that will closely follow the speakers' presentation this morning. Following the presentation today, we will invite questions from active analysts and fund managers. At that time, I will explain the procedure for indicating that you wish to ask the question. The questions will be taken in order. In the interest of time and to allow everyone an equal opportunity, we request that you ask your primary question and limit yourself to one follow-up question.

Now, I would like to introduce Mr. Charles R. Cox, CEO of Furmanite Corporation. Mr. Cox, you may begin.

Charles R. Cox

Good morning and welcome to the call. Thank you for joining us today. Let me first direct your attention to the Safe Harbor statement in the presentation which as always applies to this call. With me today are Joe Milliron, Furmanite's President; and Bob Muff, who was recently appointed as our Chief Financial Officer. For those that may not be aware, Bob has served as our Principal Accounting Officer and Controller for the past six years.

Before we hear from Bob and Joe, I'd like to provide some perspective regarding our overall 2013 performance and then focus primarily on the USA and the first results of the FTS acquisition. Bob and Joe will cover the remaining regions and service lines in their comments. First of all, in 2013, we achieved our highest revenue ever at $427 million, and even the mechanical and inspection service portion of our revenue at $367 million also was well beyond our previous best revenue year ever. Overall, our 2013 revenue was our best ever by 31%.

With full year inclusion of our new Furmanite Technical Solutions group and continued growth of our legacy solutions, we are guiding to revenue of between $540 million and $560 million for 2014. We are also reporting solid operating income and bottom line results for 2013 of $24.8 million and $14 million respectively, but as you will note, $0.07 per share below the guidance we provided last October.

Bob and Joe will discuss several of the one-time issues we encountered during the fourth quarter which contributed to these lower than anticipated earnings, but the most significant issue was labor utilization. While some utilization imbalance is a normal part of our business, the number of rescheduled projects, forced office closures and days with unworkable conditions was well above our normal experience during these months.

The severe USA weather was a major factor causing this imbalance but some of the work rescheduling was due to customer delays for other reasons as well. Bottom line, we had a strong level of work activity in the fourth quarter, but with good margins on that work offset by enough unutilized labor to dampen the party. As you know, the extreme USA weather in December continued into January and February and also continued to impact our work. While we have been extremely busy since late February, we have set our earnings guidance for 2014 at $0.52 to $0.57 until full first quarter results are available.

Now, let me comment on our new FTS group comprised of 900 talented engineering and project service professionals who joined us through the ENGlobal asset acquisition completed last October. First of all, we are extremely pleased with this staff, and after four months firmly believe it will both provide significant synergy benefit and prove to be profitable in its own right. We recognized that this entity operated unprofitably in the past and that it has a number of marginal or unprofitable contracts which will take some time to renegotiate. We fully anticipated these realities and are confident we can address them successfully.

We also have every indication that this relationship has been positively received by both our new team members and our customers. We have remarkably lost no customers and very few employees through the transition and the growing mutual respect and rapport between these teams has been great to see, and frankly, to be a part of for all of us.

We have completed a very smooth transition and have resolved most of the normal challenges related to such a major undertaking in a very short time. Customers have responded very positively to the financial strength of Furmanite, now backing FTS, as well as to the extended range of services now offered. Many former customers have extraordinary respect for the capabilities and the attitudes of the FTS team and have already begun to award significantly greater volume of work as they gain confidence in the Furmanite relationship and support. We have also made significant progress developing a very promising potential synergy of this 600 FTS professionals who are located in 70 or more plant sites across the Gulf Coast.

On the financial side, we encountered as expected significant IT and another catch-up expenses resulting from several years of difficult financial conditions prior to the transaction as well as operating losses during the first four months of operation. Going forward, we expect both improving financial performance and growing synergy benefit both ways as the year progress.

In summary, we believe all the issues impacting our legacy services in the fourth quarter are either transitory or one-time matters and that our market conditions continue to be strong in virtually all regions and service lines. We have come a long way over the past four years, but the further we go and the more we understand both our internal improvement potential and our external market opportunities, we recognize that this remarkable old company is truly just getting started.

We are confident that our new direction, strategy, culture and structure that we have put in place over the past four years, together with the urgency, passion and commitment of the very best team in the business, will continue to drive our future growth and success. The Orange Way and the vastly improved global teamwork, work processes and mutual support enables Furmanite to confidently sell and complete the most challenging projects anywhere in the world. Joe will tell you about one of those projects in just a moment, but first, I will ask Bob to take us through the financial results. Bob?

Robert S. Muff

Thanks, Charlie, and good morning everyone. Okay, let's take a look at our financial results. On the first slide, as we've done in previous quarters, you'll note the income statements presented here differ from the presentation and our 10-K filing, as we've segregated restructuring charges from operating costs and selling, general and administrative expenses, and reflected them on a separate line in order to provide a better comparison of the current quarter and year-to-date operating results to prior year periods.

Looking at the fourth quarter results, revenues of $130.4 million were $37.2 million higher than prior year fourth quarter, including a $700,000 unfavorable foreign currency impact on current year revenues, due almost exclusively to weakening in the currencies in the Asia-Pacific region. Margin percentage of 23.4% was unfavorable to last year's fourth quarter percentage, due in part to the addition of the Engineering & Project Execution segment which operates at lower gross margins as well as the effects of the extreme weather which Charlie previously mentioned.

Other lesser impacts included the closure of the Company's pension plan to future accrual in the United Kingdom and the wind-down of operations in our Aruba location due to the refinery closures there, both of which had negative impacts to the quarter but will benefit the Company going forward.

Selling, general and administrative expense dollars increased over prior year due to the Company's growth. However, were 3.7% improved as a percentage of revenues compared to prior year with the current year being helped by increased leverage from the higher revenue levels as well as the effects of previous cost-reduction initiatives. These factors result in 3.5% operating income for the quarter versus the prior year's 7.4%.

Income tax rates for the quarter, due to the mix of pre-tax income between countries and their respective tax rates, are at 34% of pre-tax income, which is consistent with our anticipated long-term normalized effective rate and are substantially improved over the prior year tax rate which was negatively impacted by restructuring activities and the related operational effects. As a result, net income for the quarter was approximately $2.6 million or $0.07 per diluted share versus $1.1 million or $0.03 per diluted share in last year's fourth quarter.

Moving to the next slide, you'll note revenues were up year-over-year by over $100 million to $427.3 million, including a $2.5 million negative foreign currency impact due to the effects from a weakening Australian dollar, and to a lesser extent the British pound. Margin percentage year-to-date of 28.4% is slightly down versus the 12 months in 2012 due to the change in mix of services previously discussed, while selling, general and administrative costs as a percent of revenues are 3.2% improved over the same period prior year, and again primarily due to the increase in activity, the associated increased leverage on fixed costs and the cost reduction impacts.

As a result, current year operating income of $24.8 million reflects a $13.6 million improvement over 2012 results excluding prior year restructuring costs. Considering the annual 39% effective income tax rate, which was still a good 5% above the early estimates for the year we had, the net income for 2013 is $14 million or $0.37 per diluted share versus diluted per share earnings of $0.02 in the same period in 2012 which was again negatively impacted by an 87% effective tax rate for the year or $0.11 per share if we exclude the restructuring charges in 2012.

On the next slide, we've broken out revenues by region to illustrate the foreign currency impacts on revenue, specifically to highlight the Asia-Pacific region effects for the quarter and year-to-date which we discussed previously. The foreign currency impacts are insignificant at the operating income level and therefore we're not presenting them here.

On the following slide, we've separated the 2013 quarterly and annual results by business segment as with our acquisition in the late third quarter of 2013 which established our FTS division, we've modified our business segment reporting from a geographic segment presentation to service line segments including our legacy Technical Services and our new Engineering & Project Solutions segments. Note the Engineering & Project Solutions segments includes approximately $700,000 of direct integration costs in the year, $6,000 of which were incurred in the fourth quarter, as well as some short-term transitional effects that Charlie previously mentioned.

Additionally, you'll note the Company has not allocated certain corporate overhead costs for these business segments and those months remain in the corporate accounts for respective periods. As the Company had no Engineering & Project Solutions activities in 2012, all 2012 activity is associated with legacy service operations.

Moving on to the next slide, we've broken out revenues and operating income excluding the allocation of those certain corporate overhead costs to show the results by business segment for both the fourth quarter and full year. In future quarters, we'll also reflect margin percentages separately to help better understand the segment results and provide comparatives. In the Technical Services segment, the fourth quarter increased in operating income as a result of the prior restructuring charges, while the full year increase is principally related to the effects of increased revenues of over $42 million within the segment within the Americas combined with improved operating income results within the EMEA region.

Next looking at the balance sheet, you'll note the largest increase is in accounts receivable and long-term debt, primarily associated with the FTS acquisition as well as lesser increases in inventory, proper equipment, other current assets, current and other liabilities, which are attributable to a combination of the overall increase in activity levels in the current year as well as the effects of capital expenditures and other acquisitions over the past 12 months.

Finally, moving over to the cash flow statement, you'll note our cash remained flat in 2013 as our net income, non-cash items and additional borrowings on our line of credit have been equally offset by increases in working capital requirements associated with our increased activity levels and acquisitions as well as cash paid for capital expenditures, acquisitions and payments and other long-term debt. Our cash balance of $33.2 million, combined with approximately $39 million of availability under our credit facility, provides the Company with approximately $72 million of liquidity at December 31, 2013.

That concludes my remarks on the financial results. I'll now turn it over to Joe for his discussion on operations. Joe?

Joseph E. Milliron

Thank you, Bob. Good morning, ladies and gentlemen. I am pleased with the overall results for the year. I will share with you a unique job that Charlie referenced that we performed in the fourth quarter that highlights our Orange Way strategy. First though I will provide you our updated global service network in our on-line and off-line services. Let's begin with our global service network.

Beginning with the Americas, 2,036 technicians and engineers working in 45 locations generated 68% of our year-to-date revenues. 14% of the 68% came from Specialty Engineering & Project Solutions group. In EMEA, 387 technicians and engineers working in 24 locations generated 24% of our year-to-date revenue. In Asia-Pacific, 129 technicians and engineers generated 8% of our year-to-date revenue in 16 locations.

So let me speak with you about our services and how they perform. The first is on-line services. Overall, on-line services for the fourth quarter were $36 million, down $0.2 million or 0.7% compared to last year. The Americas was $19.1 million, down $1.7 million or 8.9%, while EMEA was $14.2 million, up $2 million or 16.4%, and APAC was $2.7 million, down $0.6 million or 17.5%.

Now moving over to the year-to-date December 31 on-line services, overall on-line services year-to-date December 31 was $138.7 million, up $11.8 million or 9.3% compared to the same time period last year. This growth was driven by leak sealing, line isolation and hot tapping. The Americas was $80.9 million, up $11.2 million or 16%, while EMEA was $45.4 million, up $3.1 million or 7.4%, and APAC was $12.4 million, down $2.5 million or 16.6%.

Now moving over to our off-line services, for the fourth quarter, we recorded $48.3 million of revenue, up $5.7 million or 13.4% compared to last year. This growth was driven by our NDT which is our non-destructive testing, bolting, heat treatment and valve services. The Americas was $29.7 million, up $4 million or 15.6%, while EMEA was $13.9 million, up $1.9 million or 15.6%, and APAC was $4.6 million, basically flat compared to the same period last year.

Now moving over to our year-to-date December 31 off-line services, overall off-line services year-to-date December 31 was $182.6 million, up $36.6 million or 20% compared to last year. This growth was driven by the non-destructive testing, on-site machining, heat treatment and bolting. The Americas was $123.7 million, up $40.3 million (inaudible). EMEA was $40.3 million, down $2.5 million or 5.7%, and Asia-Pacific was $18.6 million, down $1.2 million or 6%.

In the third quarter, we included our Specialty Engineering & Project Solutions in our off-line services. We had decided that going forward it would be best to break out this segment beginning with the fourth quarter. In the fourth quarter, we generated $34.4 million, all in the Americas, and for the year-to-date ended December 31 we generated $58.7 million. One other item to mention in the service line review is that our NDT, non-destructive testing, and inspection service lines achieved our goal of 10% of our mechanical and inspection revenues for 2013.

Now, I'd like to wrap-up with an example of a fourth quarter job that really defines Furmanite ideas, why we continue to grow and what our Orange Way strategy is all about. As you have heard me say before, The Orange Way is what we call our strategy of working together as one single global team. This strategy is built upon a foundation that we are boundless and without nationality when it comes to crossing industries, having one service line identify opportunities for another and delivering every service that Furmanite offers at anytime and anyplace around the world.

That concept is often made easy because of our massive global footprint with over 80 offices on six continents. However, none of those 80 plus offices are located in or near the jungles of Madagascar. In fact, our closest service delivery center was 4,018 miles away in Malaysia. The complexity in proximity never limits the operations of Furmanite and in the fourth quarter we successfully mobilized a project manager and 22 technicians from four different continents to Madagascar to initially provide heat treatment services on a very large autoclave.

The project manager recognized the need for other services and informed the client we could handle after them in addition to our initial scope. Shortly afterwards, we added non-destructive testing, on-site machining and leak sealing services to our work packages. This opportunity alone contributed $4.2 million in the fourth quarter and is representative of what is so special about the capabilities of Furmanite and the people that are our brand.

I look forward to reporting our first quarter operation results in May. Charlie, let me turn this back over to you.

Charles R. Cox

Thanks Joe. This concludes our prepared remarks, and we will now open up the line for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Matt Duncan with Stephens. Please proceed.

Matt Duncan - Stephens

First question I've got, Charlie, just with regard to the recent ENGlobal asset acquisition, can you talk about what actions you guys are taking to get that business back towards profitable and how long do you think it might reasonably take to turn that business from the $1.7 million loss you had in that segment this quarter into a profit?

Charles R. Cox

I guess our operating loss is I guess what about $1.3 million or so, representing about 1% of the revenue we expect from this unit for the year. So it will not take a major change to fairly dramatically shift the bottom line as well. We certainly have in that $1.3 million, a number of both soft and real cost in the operating results related to medical expense and some of the payroll burden issues that were a part of having to start over again with those contributions in the fourth quarter as well as obviously any startup operation.

So, whether it takes us a quarter or two quarters or three quarters to fully reverse the negative operating results remains to be seen, Matt, but we feel very good about the leverage opportunities and the commitment of the people and the reception of the customers and the progress we have made so far in gaining some improvement in the contracts. So again, four months in, hard to give you a firm target date but I can assure you that is one of our top priorities.

Matt Duncan - Stephens

Okay. Looking at the weather impact, Bob, I don't know, is there any way to sort of strip out and look at how much the weather negatively impacted your earnings in the quarter? Obviously you had technicians as you pointed to that weren't able to get to job sites and you're paying those technicians for their time but they are not earning revenues, so it basically has a duplicative negative effect, if I understand correctly, because you lose the revenue but you still have a piece of the cost. So do you look at that and try to strip out exactly how much you think weather hurt your earnings this quarter?

Robert S. Muff

We did actually look at them, and again, it's not a hard and fast or black and white number that can be put on that. Obviously you try to redeploy what you can, but we had offices – and I think as you're aware, even from Little Rock where you're at, weather that's not been seen for many, many years. So we actually had offices closed on our end, we had field locations where we were unable to perform work on, our Saraland office itself there in Alabama had periods where we were shut down and not able to get work, but to put a specific dollar amount on that, I don't believe that's, as Charlie indicated, a much higher level than we normally would have on a run rate from this normal deferrals, but I don't know that we can quantify to a specific amount what that weather would be. We do know it was a significant impact to both the fourth quarter as well as carrying into the first quarter this year with the January and February weather that continued to haunt us.

Matt Duncan - Stephens

Okay. And so I guess one of the things I'm curious about is how the impact of this winter weather influenced your guidance. Charlie, you made reference that business has picked up a good bit, it sounds like since the weather became less of an issue in your key geographies sort of later in February, and you commented that you would sort of update the guidance once you had a better look at the first quarter. Is that to imply that you try to sort of more than account for the weather impact in your first pass at guidance here? I'm just trying to understand how that impacted the guidance that you've given us for earnings for the year.

Charles R. Cox

Obviously, we're seeing the January numbers but only preliminary numbers for February, and while we know margin is going to be strong, it's really a matter of whether March can in fact make up for whatever we find in the total first quarter numbers, and I think it would be fair to say, we have not attempted to be aggressive on the guidance until we see the total quarter results.

Matt Duncan - Stephens

Okay, that's helpful. The last thing, and I'll hop back in the queue, just on your EMEA region, saw a pretty nice improvement in sales. Can you talk a little bit more about what drove that, and maybe Joe or you, do you think that this is a level of revenue you can continue to post in that region from this point forward or were there some big projects that aren't going to repeat?

Joseph E. Milliron

Matt, I could tell you, in EMEA, as we spoke about in the third quarter, we have the Americas kick-off The Orange Way really using all of these services, bundling the services and working together as one team. In the third quarter, we mentioned that we were just getting that started in EMEA and Asia-Pacific, and I'm very pleased with the results we had in the fourth quarter and I'm pleased with what I'm seeing in the first quarter and going into second quarter. So I'm being cautious here but I do believe the results we had in the fourth quarter will be results we expect to continue seeing as we move forward.

Matt Duncan - Stephens

Joe, is that reflected in the guidance or is the guidance maybe a bit more conservative than that?

Joseph E. Milliron

I'm going to tell you right now I'd say it's reflected in the guidance because we – on those pieces over there, we have a kind of a real good feel for EMEA and Asia-Pacific. The winter weather impact has really been here in the Americas on us.

Matt Duncan - Stephens

Okay, I'll hop back in queue. Thanks guys.

Operator

Our next question comes from Tristan Richardson with D.A. Davidson. Please proceed.

Tristan Richardson - D.A. Davidson

On the Engineering & Project segment, I think it's helpful that you guys are breaking that out separately, and I guess, so when you look beyond 2014 and you're sort of comfortable with you've gotten the business to an operating level where you're comfortable, I mean I guess what are the potential margins we could see out of that business longer-term, I mean is it something closer to the Technical Services business on an annual basis or is it higher or lower? I'm just trying to get a sense of after you've right-sized it, where you could see this business going?

Charles R. Cox

Sure. I think the best way to answer that question is that while the top line margins in this general business are far lower than the normal legacy service business for us, the bottom line or the operating income line really has potential to be maybe just slightly below our typical operating income for the other portions of our business. So I think maybe 1 point or 2 point below the operating income line would be a normal circumstance, which on that kind of revenue is significant leverage from where we are starting. But having been in this industry for a long time, lots of different issues but we think very meaningful profitability is certainly possible.

Tristan Richardson - D.A. Davidson

Got you. Thanks Charlie, that's helpful. And then, Joe, I'm curious you talked about demand picking up as the weather has gotten better, and we've heard from a lot of different players that everybody's pretty excited about the spring season, I'm curious if you see these weather delays in Q4 and Q1, I mean is it becoming pent-up demand that you expect to even make the spring season even stronger than maybe you were talking about in November, or is it sort of still as planned, it's just maybe a little bit later start to a strong season because of the delays?

Joseph E. Milliron

I think a little bit of both. One of the large jobs we had scheduled to begin in January, they have postponed that. It won't be in the second quarter. That actually starts to happen in July, so it's a third quarter event. So as we're getting hit – as we're in the turnaround season right now, we're seeing the turnaround season start a little later this year because of the weather but we don't really see the elimination of any of the projects right now and so the pent-up demand is just going to push into the second quarter, and as I shared with you, even into the – one project where we have gone into the third quarter.

Tristan Richardson - D.A. Davidson

Got you. And so I guess sort of what I'm getting at is, you feel like a lot of these weather delays are really just a catch-up and not that the work is going away entirely and being deferred for a future season?

Joseph E. Milliron

We don't see any other work being deferred or probably very little being deferred to future season, the fall or next spring. We see the work being – will be completed this year.

Tristan Richardson - D.A. Davidson

Okay, that's helpful. Thank you guys very much.

Operator

We have a follow-up from Matt Duncan. Please proceed.

Matt Duncan - Stephens

Joe, what are you guys seeing right now in terms of wage rate inflation and your ability to pass that through in pricing, is that starting to amp up a little bit?

Joseph E. Milliron

When we spoke to you back in the report to third quarter, Matt, we didn't have as much pressure on the wage. I think you had implied or someone on the call implied about some of the other people talking about the wage pressure. We have begun to see some of that wage pressure coming through, and as we work through that, we're working with our customers also as we renew the contracts to be pushing these cost back towards our customer. With that said, we do have some contracts in place, and because we have moved the wages up a little bit, we won't be able to make moves on those contracts until they come up for renewals.

Matt Duncan - Stephens

Okay, so maybe it's a near-term wage pressure but it sounds like you fully expect to catch up on that from this point forward as you put new contracts in place. Can you maybe quantify, Joe, what sort of wage inflation you're seeing?

Joseph E. Milliron

Historically, Matt, we would talk about anywhere from the 2% to 4% range. Right now we're seeing things being pushed up on average 5% or 6%, although we've had some situations I think we've had to deal with 8% and 10% increases.

Matt Duncan - Stephens

Okay, and how do you feel about your ability to get that pass through on price from this day forward, are you seeing your customers willing to let you do that, are they acknowledging that wage inflation exist and giving you that pass-through?

Joseph E. Milliron

They are acknowledging that that exists out there today.

Matt Duncan - Stephens

Okay. So it sounds like that's going to show up in pricing and your pricing power is going to get a little bit better from here forward?

Joseph E. Milliron

Yes, it's going to be – it won't be something that's going to happen all in the second quarter or third quarter, because as we said, we have some master service agreements that are two and three years of length. So we run through all those, we're going to have a little bit of pressure on some of those, but we're going to – as they renew, we'll take care of that with our customer.

Matt Duncan - Stephens

Okay. And I guess where the rubber meets the road, Joe, if I look at the gross margin in the legacy Furmanite business, so taking out the new segment, it came in a couple of hundred basis points sort of below where I had it modelled. Would you attribute any of that to that wage inflation or is that really more the effect of weather causing you to have expenses without revenues and then creating that margin pressure, is it predominantly that weather that's causing that or do you think maybe there's some wage inflation pressure on gross margin right now?

Joseph E. Milliron

I'd say in the fourth quarter, it is a little bit on the wages, but I would probably put it more on the weather and – you hit the nail on the head earlier, it's a double whammy when we thin k it's due to work, so we want to put a charge on that and we had technicians that we were paying without being able to get any revenue at all.

Matt Duncan - Stephens

Okay, alright. Thanks guys.

Operator

Our next question comes from Charles [indiscernible] with [indiscernible] Capital Markets. Please proceed.

Unidentified Analyst

Just wondering if you could talk a little about the mix between large and small projects in the Americas relative to last year, and then kind of how do you see 2014 shaping up in terms of project mix?

Joseph E. Milliron

Charles, I guess if you go back, in some of the earnings calls we've had in the past, we used to talk about $1 million projects or the lack of $1 million projects. We never spoke about $3 million and $5 million projects, and in 2013 we have begun to as a result of The Orange Way, the bundling of our services, instead of offering just one service on a project, we've been very successful in offering three and four and five services in project, managing those projects, and as a result we have done a number of projects that ran in the $3 million to $5 million, to $3 million to $6 million range in 2013, and I can tell you here in 2014 we have similar projects that are going to take place that we are either already on or we have purchase orders to deal with them this year.

Unidentified Analyst

That's helpful. I guess just to follow-up on the utilization issues in the quarter, again was this simply weather or was there anything else fundamental that you could determine that perhaps was driving a little bit of the delay?

Joseph E. Milliron

As Matt Duncan just asked about that, most of it is going to be attributable to the weather, the fact that we had technicians scheduled for jobs and we still paid them for that we weren't able to invoice, and also a very small amount maybe attributable to the level of wage pressures that we've seen in the fourth quarter.

Operator

We have a follow-up from Tristan Richardson. Please proceed.

Tristan Richardson - D.A. Davidson

Just a quick one for Bob, and you may have touched on this and I may have missed it, but I know you talked a little bit about the tax items in Q4. Will you talk about a little bit more about what you're seeing and what you're thinking for 2014 in terms of tax rate?

Robert S. Muff

I think the tax rate actually came down a bit in the quarter to around 34%. So that's kind of where our long-term expectations would be. For the year we still were almost 40%, 39%, so came in for the year higher than what we originally estimated as the year unfolded, just due to the mix of pre-tax between the countries that we're in and having some net operating losses with valuation allowances over in the EMEA region. But we do expect 2014 and forward to be more in the – like to be on the favorable side of 35% range, which some of the countries that we operate in, actually several of the countries we operate in including the U.K., has been on a multi-year corporate tax rate reduction plan, Sweden has also jumped into that loop, and so there's a few countries that are, New Zealand as well, that are getting into that lowering of the effective statutory rate. So we do, again going forward, we expect to be on the positive side of the 35% range is where we would estimate to end up.

Tristan Richardson - D.A. Davidson

Great. Appreciate it. Thank you, guys.

Operator

We have no further time for questions. I would now like to turn the call over to Mr. Charlie Cox for closing remarks. Please proceed.

Charles R. Cox

All right. Thank you, Denise, and we appreciate all of you joining us for the call this morning and look forward to reporting our first quarter results in May. Thank you again and goodbye.

Operator

This concludes today's conference. You may now disconnect. Have a great day.

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