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Speaker 2: George Ferguson our next guest has definitely been my guy.
Speaker 3: I love to read his research.
Speaker 2: He is, of course Bloomberg Intelligence senior Aerospace, Defense and
Speaker 2: Airlines analysts, and he's joining us here today just to
Speaker 2: chat about what's going on right now in the aerospace
Speaker 2: and defense industry. I mean, of course we've really been
Speaker 2: talking about the defense budget and how all those things
Speaker 2: are really impacting US defense primes.
Speaker 4: Here, George, we booked him to talk about the Boeing
Speaker 4: sales fair, Hi, ge, But now getting there, Yeah, now
Speaker 4: we got the headlines on Newark.
Speaker 2: No very true, So many things going on right now.
Speaker 2: But I mean, of course, as Matt just pointed out,
Speaker 2: we have the ITEG it's ordering seventy one large jets
Speaker 2: from Boeing and Airbus to grow its network. George, what
Speaker 2: is the initial reaction to this and how are you
Speaker 2: all thinking about this in terms of peers and what
Speaker 2: it really just generally means for Boeing.
Speaker 5: First, thanks for having me on. Yeah, so you know,
Speaker 5: we've we really thought that Boeing would probably be in
Speaker 5: the middle of the Trump administration's balance of payments equalization process,
Speaker 5: let's call it, right, And I think the defense primes
Speaker 5: will be there as well. And so it wasn't surprising
Speaker 5: to us when we saw the first deal made with
Speaker 5: the UK include Boeing jets, right, and so I think
Speaker 5: they talked about ten billion dollars orth the Boeing jets.
Speaker 5: We saw a bunch of seventy seven orders today. I
Speaker 5: might quibble about whether it's really ten billion dollars worth.
Speaker 5: I think they're using list prices, so maybe we could
Speaker 5: have we could have goosed that up a little bit
Speaker 5: if we used actual pay prices. But I'd expect this
Speaker 5: is going to be a trend you're going to see
Speaker 5: around the world as the Trump administration engages countries with
Speaker 5: again balance of payment with the US that's out of whack,
Speaker 5: and they're gonna they're going to probably offer them components
Speaker 5: for aircraft from Boeing and defense products in order to
Speaker 5: balance it. So I think you could see a pretty
Speaker 5: good year for the Boeing order book. And it's it's
Speaker 5: been a little bit like recently because they haven't been
Speaker 5: executing Airbus has been and Airbus has been taking the
Speaker 5: majority of orders last couple of years. So it would
Speaker 5: be a nice talent for Boeing to have a good
Speaker 5: year of orders underneath.
Speaker 6: Well, I'm glad of that.
Speaker 4: I love the wide body planes. I hate the seven
Speaker 4: thirty sevens and the A three to twenty.
Speaker 3: So why body more space?
Speaker 4: I need more space, you know, And I guess they'll
Speaker 4: i AG is going to use these for BA.
Speaker 6: I use Iberia a lot, which i G also owns.
Speaker 4: I'm looking forward just to having more, you know, look
Speaker 4: at me. I'm a big guy guy.
Speaker 7: I like it.
Speaker 4: But I am not going to be flying out of Newark.
Speaker 4: Typically when I go to Berlin, I'm on a United
Speaker 4: flight straight out of Newark. But over the last two weeks, George,
Speaker 4: we've had two events where the radar screens go blank,
Speaker 4: and to me, although I heard from I think the
Speaker 4: CEO of United said it's still safe, that does not
Speaker 4: sound safe to me. How safe is it when the
Speaker 4: radar screen turns off?
Speaker 6: George?
Speaker 5: I think you're right. I would argue that probably isn't
Speaker 5: that safe. But I would expect the FAA and the
Speaker 5: CEO of United to say it is safe, because that's
Speaker 5: what they always say. But I'd find it very concerning.
Speaker 4: So I mean, what happens then? I mean, first of all,
Speaker 4: what happens. Does the FAA have to stop people flying
Speaker 4: out of Newark? Because if we think that all airline
Speaker 4: travel is dangerous, that is horrendous for the US economy.
Speaker 4: So isn't it the right move for officials to say, no,
Speaker 4: it's just this one airport and stop people from flying
Speaker 4: in and out of that one.
Speaker 5: I mean, I think one, there's just no way we're
Speaker 5: gonna be able to stop people coming in and out
Speaker 5: of Newark. And just to make sure we understand what,
Speaker 5: you know, what the outage is. The outage is for
Speaker 5: aircraft sort of arriving into the Newark area, not so
Speaker 5: much the air traffic control going you know, directly landing
Speaker 5: at Newark. And so is that a little bit better?
Speaker 5: I think it is. I think give more time to react. Clearly,
Speaker 5: the FAA has to get better systems in place. You know,
Speaker 5: part of the backstory here is they moved the control
Speaker 5: of this approach and departure from Newark from a control
Speaker 5: center in New York, out of Long Island to Philadelphia,
Speaker 5: because New York is pretty overworked. They've got LaGuardia, They've
Speaker 5: got Kennedy. They tried to put in systems that would
Speaker 5: essentially remote into the New York center to get the
Speaker 5: controllers all the information they needed, and they thought they
Speaker 5: had redundant systems in place, and clearly they didn't, so
Speaker 5: they have to redouble their efforts and making sure they've
Speaker 5: absolutely got a fail safe line that gets in the
Speaker 5: data they need from that New York center. And then
Speaker 5: I think, you know, part of that is that some
Speaker 5: of the employees were, you know, very stressed out about
Speaker 5: the experience, and they've gone on leave and that's put
Speaker 5: them at a shortage. So I think it's temporary. At
Speaker 5: New York is a challenging airport. As you know, in
Speaker 5: the summer when we start to get thunderstorms, we can
Speaker 5: always have backups at Newark even under normal circumstances. But
Speaker 5: if the FA wants to push through and control this
Speaker 5: out of Philadelphia, which seems to be the right move
Speaker 5: given the amount of workload in New York. They've got
Speaker 5: have to redouble their efforts on this backup, this backup
Speaker 5: you know system to make sure there's always information and
Speaker 5: they're going to have to get you know, the controllers
Speaker 5: work there in Philadelphia.
Speaker 2: Again, Hey, George, there was a time where people were
Speaker 2: really concerned about hopping on a Boeing plane. I would
Speaker 2: argue that people are still a little bit uncomfortable with
Speaker 2: getting on some Boeing planes. But as we've kind of
Speaker 2: navigated through earning season, has the focus really been about
Speaker 2: tariffs and Boeing in other A and D companies exposure.
Speaker 3: To tariffs or are people at all still.
Speaker 2: Talking a little bit about the safety aspect for passengers
Speaker 2: on flights you.
Speaker 5: Know here and there. I do still hear people tell
Speaker 5: me they won't fly a Bowing airplane to they're concerned
Speaker 5: about it. I presume not. I'd fly in any time. So,
Speaker 5: but I do think that the narrative is starting to
Speaker 5: turn to effective tariffs as well. As you know Boeing's
Speaker 5: manufacturing process, is it stable? Is quality coming through it?
Speaker 5: Which I guess sort of bleeds into that question, would
Speaker 5: you fly a Boeing airplane? And you know what we've
Speaker 5: seen in one queue. We've saw good deliveries. We saw
Speaker 5: them get ready rid of some of the inventory of
Speaker 5: airplanes they've already been built. They've been sitting on TARA
Speaker 5: costs a lot of money to keep those maintained. They're
Speaker 5: getting rid of them. That'll help the the cost at Boeing,
Speaker 5: and it helps them focus on the manufacturing line, which
Speaker 5: is you know, which is where the cash generation's got
Speaker 5: to come from. That's going to lead the turnaround. And
Speaker 5: I would say one que looked pretty good, and so
Speaker 5: I think the narrative, you know, we've got to watch
Speaker 5: tariffs closely. I do. I don't think tariffs will hurt
Speaker 5: Boeing that much. Again, I think they'll be involved in
Speaker 5: negotiations over balance of payments. I think there's other parts
Speaker 5: of the backlog where they could deliver airplanes away from
Speaker 5: tariff issues. And so it looks to us like the
Speaker 5: setup could still be pretty good for a recovery for Boeing,
Speaker 5: for a lot of deliveries this year and some good
Speaker 5: cash generation.
Speaker 4: George in general, I think people though are worried about safety,
Speaker 4: not necessarily about the seven thirty seven. I know you'll
Speaker 4: still fly at Paul Sweeney loves that plane. But you know,
Speaker 4: we've had we've had more air crashes, we have these
Speaker 4: problems now at Newark. Is it just bad timing that
Speaker 4: this happens at the same time that you know, Elon
Speaker 4: Mosk is taking a chainsaw to government jobs? Or is
Speaker 4: this because of that kind of cost cutting? And I
Speaker 4: also wonder air traffic control are they paid enough to
Speaker 4: work in the New York metro area or do we
Speaker 4: need to pay them more?
Speaker 8: So?
Speaker 5: I think a bunch of questions in there, maybe.
Speaker 6: Two separate questions, right is it is it Doge or not?
Speaker 4: And so should we pay these should we pay these
Speaker 4: guys moving ten a little bit more? So?
Speaker 5: I think that first it's not Doge in my view? Right, So,
Speaker 5: air traffic control system is something that is built over decades,
Speaker 5: and that's part of the challenge, challenge of managing it
Speaker 5: and upgrading it, is that you've got old systems working
Speaker 5: with new The air traffic control system never seems to
Speaker 5: get enough money from Congress to make it as maybe
Speaker 5: as whiz bang as we should have here in the
Speaker 5: United States. It's important to us, it's important to our economy.
Speaker 5: We have a very disparare country. Right, We've got population
Speaker 5: centers pretty far apart, no trains that link them. So
Speaker 5: to me, it's super critical to the US infrastructure. It
Speaker 5: never seems to get the money it deserves. And so
Speaker 5: this is a build up over decades of you know,
Speaker 5: putting this together with bailing wire and tape. Right. So
Speaker 5: hopefully the Trump administration does come through with a nice
Speaker 5: upgrade program for the system, because I think it would
Speaker 5: also fix some of the controller issue. I think you
Speaker 5: could bring a lot better technology to the business and
Speaker 5: not have to worry about recruiting controllers. I think we're
Speaker 5: having a challenge recruiting controllers. Are they paid enough? Probably not, right,
Speaker 5: I hear ranges from seventy to two hundred and twenty
Speaker 5: thousand dollars. You probably know, even with two hundred and
Speaker 5: twenty thousand dollars a year, it's probably a little bit
Speaker 5: hard to live on Long Island if you're starting out
Speaker 5: at seventy I don't know how you live in Long Island.
Speaker 5: I will tell you some of them get you know,
Speaker 5: over time and other things that bolster their pay and
Speaker 5: you know, so maybe they don't want, they don't want
Speaker 5: one hundred percent backfill of all the employees. But probably
Speaker 5: just a bad situation for us to be in, and
Speaker 5: so we need to do better at recruiting and we
Speaker 5: probably need to raise some day in that area.
Speaker 6: All right, George, thanks very much, George Ferguson.
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Speaker 3: Well, you know, a lot has been going on right now, Matt.
Speaker 3: I've been watching, I.
Speaker 2: Mean, what we're doing, the news, but there's so many
Speaker 2: headlines that have been coming through. And one of the
Speaker 2: things that I've been keeping an eye on is Trump
Speaker 2: saying that he is interested, he's open to right. He
Speaker 2: said he's okay if they do hiking on hiking taxes
Speaker 2: on the wealthy. Those are people who are earning two
Speaker 2: and a half million dollars or more. And it seems
Speaker 2: as though he's cautioning the GOP on it, but he
Speaker 2: says that he's okay with it.
Speaker 3: It's a lot to uncover here.
Speaker 4: A lot as He mastered the flip flop, the wishy
Speaker 4: washy statement in a way that nobody else could because
Speaker 4: he said in a truth social posting that this is
Speaker 4: what cost George Bush Senior the election, although this isn't
Speaker 4: what cost George Bush Sheenery the election. He thinks Congress
Speaker 4: could do it, although he doesn't think Congress maybe should
Speaker 4: do it. He's contradicted himself in so many ways. But
Speaker 4: it's interesting. Nonetheless, Yes, and so we're going to talk
Speaker 4: about it right now with Eric Wasson, congressional reporter out
Speaker 4: of Washington, d C.
Speaker 6: For US at Bloomberg News. Eric, it seems as.
Speaker 4: If President Trump wants to do this to pay for
Speaker 4: a lot of the other tax cuts that he's promised
Speaker 4: while he was on the campaign trail.
Speaker 6: Is that fair to say?
Speaker 9: Yeah?
Speaker 10: You know, his truth social post differs very much from
Speaker 10: what he's saying in private. He called up Speaker of
Speaker 10: Mike Johnson on Wednesday and ask for this tax rate
Speaker 10: increase on the wealthy. He also asked in that same
Speaker 10: conversation to close what's known as the carried interest loophole,
Speaker 10: to to call tax carried interest as ordinary income, something
Speaker 10: that's opposed by private equity venture capital in the real
Speaker 10: estate industry. But you know he's waffling in public. One
Speaker 10: GPA high level texted me, you know, this guy's a
Speaker 10: fortress force of nature. They're really trying to put together
Speaker 10: this very complicated bill, and his public statements and private
Speaker 10: interventions are making it even harder to get you get
Speaker 10: together on this. The big question is, you know, how
Speaker 10: how many years can they you know, suspend taxation on
Speaker 10: tips overtime and raise a standard deduction for seniors to
Speaker 10: compensate for paying tax and Social Security benefits. You know,
Speaker 10: the if they do these other pay fors as they're called,
Speaker 10: like raising decks on the ritch, you could maybe do
Speaker 10: that for ten years. If not, maybe it's just two
Speaker 10: or three or four years of that tax new tax
Speaker 10: benefit and then basically they can go to the voters say,
Speaker 10: you know, re elect Republicans in twenty twenty eight, will
Speaker 10: extend it.
Speaker 2: Eric I mean, of course, when we think about the
Speaker 2: idea of hiking taxes, especially on the wealthy, this could
Speaker 2: be said to be counter to what the Republican agenda
Speaker 2: is in Washington. If there is merit to these tweets
Speaker 2: and there is a push for this, what exactly does
Speaker 2: that look like in terms of the hurdles that it
Speaker 2: takes to make that happen, and does Trump actually have
Speaker 2: the jurisdiction to make that call.
Speaker 10: Well, well, just put it simply, I don't see this
Speaker 10: tax rate increase happening. It's opposed by congressional leadership in
Speaker 10: both the House and Senate. You know, this is opposed
Speaker 10: by the core, you know, the traditional Republicans. Now there
Speaker 10: are these New America First populists like JD. Vance or
Speaker 10: in cast others who are in favor of it, and
Speaker 10: you know what, the politics, they're probably right. Democrats are
Speaker 10: going to attack this bill as a tax cut for
Speaker 10: billionaires paid for by cuts to medicaid in food stamps,
Speaker 10: and it is a very good chance that Democrats take
Speaker 10: the House in twenty twenty six elections running against this bill.
Speaker 10: So I think Trump's political instincts are correct. But the
Speaker 10: party really doesn't want to be the party of raising taxes.
Speaker 10: It's one thing that really unites Republicans in the past,
Speaker 10: and it's going to be almost impossible. They can only
Speaker 10: lose like three votes in the House, you know, the
Speaker 10: same number in the Senate, and then you're just not
Speaker 10: going to get those votes for this, So I don't
Speaker 10: think it's really going to happen. That carried interests is
Speaker 10: a different story. Maybe that gets snuck in. Certainly lobbyists
Speaker 10: or fighting tooth and nail on that issue as we speak,
Speaker 10: but I just don't think it's going to happen. And
Speaker 10: Trump has remade the party. If his truth social posts
Speaker 10: today came out strongly in favor of this, perhaps he
Speaker 10: could move mountains. But he's so tepid in his support
Speaker 10: that I just I don't see him really being able
Speaker 10: to get this through now.
Speaker 4: The interesting thing is that he raised taxes on so
Speaker 4: many millions of middle class families in twenty seventeen with
Speaker 4: the TCJA when he capped the State and Local tax deduction,
Speaker 4: a deduction that has been in place for over a century.
Speaker 4: That really, that really, I think reflects the heart of
Speaker 4: American tax policy, that you shouldn't be taxing people twice
Speaker 4: on the same income. And that cap he promised to
Speaker 4: lift when he was campaigning here in New York on
Speaker 4: Long Island before the before the election.
Speaker 6: Do you think we're gonna see the salt cap lifted?
Speaker 10: It's going to be lifted, but the amount that's on
Speaker 10: the table now is a thirty thousand dollars cap as
Speaker 10: if the ten thousand that's there now not doubled for
Speaker 10: for for married couples. You know, that was rejected immediately
Speaker 10: by a group of Republicans from high tax states like
Speaker 10: New York and California, including Elise Stefonik, who may be
Speaker 10: running for governor, who jumped into this fray kind of
Speaker 10: at the eleventh dour. You know, I think they maybe
Speaker 10: they're gonna get the marriage penalty eliminated, maybe goes up
Speaker 10: to forties. Can't be much more. It's extremely expensive. Uh,
Speaker 10: you know, we're talking trillions if you get high I
Speaker 10: hire into the size of the cap that some people
Speaker 10: are talking aboute hundred thousand dollars, and they just don't
Speaker 10: have the running room. And then the House, the real
Speaker 10: issue is that the Conservatives want spending cuts, and if
Speaker 10: you go above four trillion dollars, they want more spending
Speaker 10: cuts that the moderates will not do to medicate. The
Speaker 10: Senate's a different story. You know, in the end of
Speaker 10: the day, the Senate has given itself a mandate of
Speaker 10: only cutting four billion dollars in spending. They're pretty much
Speaker 10: primed to put a lot of this on the nation's
Speaker 10: credit card and then increase the deficit through a budget
Speaker 10: gimmick that I won't go into now, but basically it
Speaker 10: assumes that the cost of extending the existing tax cuts
Speaker 10: is zero. You know, the Senate will probably win the
Speaker 10: end of the day, but for now, they're just trying
Speaker 10: to get this out of the House. The House has
Speaker 10: to start all tax legislation under the Constitution, and you know,
Speaker 10: they got to satisfy the conservative fiscal hawks a little
Speaker 10: bit by not just going hogwild on things like an
Speaker 10: unlimited salt cap.
Speaker 4: All right, I just you know, it feels like they
Speaker 4: didn't get tax revenue before. So if you double tax
Speaker 4: people to get more tax revenue temporarily, and then all
Speaker 4: of a sudden it turns into I guess all temporary
Speaker 4: taxes eric turn into permanent taxes, don't they.
Speaker 6: Well, I was a pay.
Speaker 10: Four in twenty seventeen. I mean, it was one of
Speaker 10: the pay fours, So they're trying to use it again
Speaker 10: to some degree. But yeah, I mean there's certainly an argument. Interestingly,
Speaker 10: business really cares about something you know, to sea salt,
Speaker 10: which is the corporate salt deduction. There's been a real
Speaker 10: effort here to limit that. That's the ability of companies
Speaker 10: to deduct state income, property and other fees from their
Speaker 10: federal taxes. And I was thought of as a pay
Speaker 10: for for this salt cap increase. We are hearing that
Speaker 10: business is probably going to be successful in beating that back.
Speaker 10: It's a top priority of places like the US Chamber
Speaker 10: of Commerce to not have this in the bill, and
Speaker 10: we can get into it. There's a host of other
Speaker 10: similar tax provisions on executive compensation, stock buybacks that lobbyists
Speaker 10: are fighting over even as we speak.
Speaker 4: It's so funny because they don't pay taxes anyway, these corporations, right,
Speaker 4: if you look at Eric, correct me if I'm wrong,
Speaker 4: But individual taxpayers contribute I think two point two trillion
Speaker 4: dollars to annual revenue, and corporations contribute less than half
Speaker 4: a trillion, something like four hundred and fifty billion.
Speaker 9: Is that right.
Speaker 10: I don't have those stats right in front of me,
Speaker 10: so I can't confirm or deny them, but I will.
Speaker 10: I will say that you know, corporations will argue that
Speaker 10: this will impinge on economic growth and their ability to
Speaker 10: hire and grow their businesses. So you know, there's probably
Speaker 10: some merit to that, especially if new corporate taxes go
Speaker 10: much higher. You know, the corporate solid tax proposal is
Speaker 10: talking about that's on the table is a one percent
Speaker 10: effective corporate tax increase from the current twenty one to
Speaker 10: twenty two percent.
Speaker 2: I mean, of course, when we think about the idea
Speaker 2: of taxing the rich, this is something that Democrats do
Speaker 2: want to hear. But I mean when we think about
Speaker 2: their Republican party, is there anybody that would be in
Speaker 2: support of this?
Speaker 3: Who else would be potentially on board with Trump?
Speaker 10: Oh? Well, you know, it's very interesting. Andy Harris is
Speaker 10: the head of the House Freedom Caucus. He's very much
Speaker 10: on board. I think I first broke that story when
Speaker 10: I talked to him in the hallway. He's out on
Speaker 10: media again today saying yes, let's do it. He would
Speaker 10: even go for millionaires, not just two point five millionaires,
Speaker 10: and to pay for some of these other agenda items.
Speaker 10: So it's interesting. There are interesting allies even among the
Speaker 10: most conservative. Josh Hawley, who's a populist of the new
Speaker 10: style close to JD. Vans in the Senate, is also
Speaker 10: in favor. So there are allies, and these are part
Speaker 10: of the people who think the Republican Party needs to
Speaker 10: cement itself as a working class party. Culturally, it's very
Speaker 10: working class, it braces very similar values, anti woke, etc.
Speaker 10: These guys say it needs to be followed up with
Speaker 10: economic benefits. But on the other hand, you know, certainly
Speaker 10: economists woul say these tariffs, some of which would go
Speaker 10: into place permanently, that Trump is talking about, are a
Speaker 10: direct you know, basically a sales tax that really hits
Speaker 10: lower and blue collar workers.
Speaker 6: Eric, great talking to you.
Speaker 4: I'll continue to send you the occasional email here and
Speaker 4: there when if you're right assault story. He's sick of me,
Speaker 4: probably shooting him a Bloomberg message. By the way, where
Speaker 4: are you It looks like you're set up in a
Speaker 4: debate hall or something.
Speaker 3: I'm so curious.
Speaker 10: I'm in the press conference studio of the House Representatives,
Speaker 10: right next next to the place where I work.
Speaker 4: Oh, that makes sense for our congressional reporter, Eric Watson
Speaker 4: definitely follow his reporting on the Bloomberg terminal or Bloomberg
Speaker 4: dot com.
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Speaker 6: Nina Trentman from the Bloomberg News Side of the Building.
Speaker 4: And Nina, you brought the CFO of a construction company,
Speaker 4: which I find particularly interesting in this environment.
Speaker 11: Yeah, like it's actually a software company. That's a lot
Speaker 11: of construction company software. But yeah, it's an interesting space
Speaker 11: to be.
Speaker 4: Howard Food joins us right now from Carpenteria, California. Did
Speaker 4: I say that right, Howard Carpenteria.
Speaker 8: Yes, the pro Core is actually based in Carpentrya, California.
Speaker 8: I'm joining you today from Washington, DC.
Speaker 5: Actually, well, I've getting.
Speaker 4: All sorts of things wrong, but I'm excited about pro Core.
Speaker 4: I actually think the software side is such a cool
Speaker 4: piece of this business. I have a family full of architects,
Speaker 4: so they all use this stuff. But as you may
Speaker 4: have heard in the teas, when it comes to construction,
Speaker 4: I'm wondering about not only the labor issue with mass deportations,
Speaker 4: but also the high price of lumber, the high price
Speaker 4: of steel. Like, isn't all of this converging to make
Speaker 4: it a difficult business for growth.
Speaker 5: Yeah.
Speaker 8: Well, first of all, thank you all for having me today.
Speaker 8: The short answer is yes. But remember construction we've always
Speaker 8: talked about as being a very resilient industry. And when
Speaker 8: you think about labor, when you think about costs, and
Speaker 8: you think about terrorists, when you think about all those
Speaker 8: different things, all of these challenges are not unique in
Speaker 8: terms of what the industry has faced, and the industry
Speaker 8: has always come back. And we're in an industry that
Speaker 8: is continuing to build and continuing to rebuild, and this
Speaker 8: is just another line of things that the industry has
Speaker 8: been used to dealing with, and I'm confident that the
Speaker 8: industry will come out of this.
Speaker 2: So tell us a bit more about what your company does,
Speaker 2: specifically from the software perspective, and of course you will
Speaker 2: work with construction industries, but what role do you really play.
Speaker 8: Yeah, construction is one of the least digitized industries in
Speaker 8: the world, and what pro Core does is to help
Speaker 8: facilitate through our customers the industry to help digitize what's
Speaker 8: traditionally been a very manual work process to how we
Speaker 8: build things in the world. So think about digitizing project
Speaker 8: management think about digitizing the financial aspect of managing a
Speaker 8: construction project. Think about digitizing how we manage the labor
Speaker 8: and the equipment and estimating all the different parts of
Speaker 8: the ecosystem and the flow for what needs to happen
Speaker 8: and the information that needs to happen and need to
Speaker 8: be verified. That's what pro coord does. And our vision
Speaker 8: and mission is to connect everyone in construction on a
Speaker 8: global platform, and our vision is to improve the lives
Speaker 8: of everyone in construction.
Speaker 11: How about jumping in here, Nina, Thanks for joining us.
Speaker 11: I'm just wondering what are you hearing from from clients
Speaker 11: at this point in time. We heard from Mark sort
Speaker 11: of a lot of uncertainty in the economy. We're expecting
Speaker 11: changes to the construction industry, and how far is that
Speaker 11: affecting your sales cycles? Are you already seeing some form
Speaker 11: of impact?
Speaker 8: Yeah, you know, in Q one we actually had really
Speaker 8: strong results and through April, which is the first month
Speaker 8: of our second quarter, we actually have not seen a
Speaker 8: material deviations from our pipeline in our demand or anything
Speaker 8: of that nature. Obviously, our customers are keeping a close
Speaker 8: tabs on what's going on in the broader economic environment,
Speaker 8: but you have to remember also, remember I said that
Speaker 8: the industry is really resilient, resilient, and they've been through
Speaker 8: things like this before. And when the industry and our
Speaker 8: customers make decisions, they're making decisions based on commitments that
Speaker 8: are going to have impacts over the next two three years,
Speaker 8: and so the industry actually doesn't shift too quickly in
Speaker 8: terms of what the flavor of the day is in
Speaker 8: terms of the news that's going on. So what we're
Speaker 8: hearing from customers is they're keeping close tabs on things.
Speaker 8: They're making sure they have the pulse on what the
Speaker 8: subcontractors are doing, what owners are doing, making sure they
Speaker 8: have a good understanding, and making sure they have an
Speaker 8: understanding of the exposure that they have across different things
Speaker 8: in there in there, in their in their supply chains
Speaker 8: and so forth. That's actually what's going on right now.
Speaker 8: And pro Core is actually seen as a part or
Speaker 8: in this because because we do digitize the industry and
Speaker 8: we do help our customers digitize, we actually help them
Speaker 8: manage and give visibility into a lot of what they
Speaker 8: need to make sure that they keep a pulse on
Speaker 8: what's going on today.
Speaker 11: So when should we then expect any changes of course,
Speaker 11: you said, sort of your clients are not showing you
Speaker 11: any any signs yet, sort of, when is a realistic
Speaker 11: point in time for us to expect changes?
Speaker 8: You know, I wish I had an answer to that.
Speaker 8: You know, we're in the same boat as our customers,
Speaker 8: and again, we are actually doubling down on our partnerships
Speaker 8: to make sure that we have an open dialogue to
Speaker 8: make sure that not only do our customers engage with us,
Speaker 8: and we engage our customers, but our customers engage each
Speaker 8: other to make sure that when things do continue to evolve,
Speaker 8: that they are able to react.
Speaker 5: In a timely matter.
Speaker 8: But it's very difficult to predict when things are going
Speaker 8: to happen, and so we're the same boat with our customers.
Speaker 11: House is from a CFO perspective, we've seen a lot
Speaker 11: of companies this earning cycle adjust their guidance, pulling guidance,
Speaker 11: adjusting guidance ranges. How are you thinking about guiding the
Speaker 11: street at this point, given that, of course, is this
Speaker 11: uncertainty potentially facing your business?
Speaker 8: Yeah, well, the first thing is we had we had
Speaker 8: a strong key one and our approach to guidance has
Speaker 8: been to take quite a conservative approach, both in terms
Speaker 8: of our full year guidance for the top line on
Speaker 8: revenue as well as our profitability, and also definitely for
Speaker 8: Q two as well. I think in this environment it's
Speaker 8: prudent to take that approach. We have run multiple scenarios
Speaker 8: internally about what would need to happen in terms of
Speaker 8: bookings for us to even come close to our guidance,
Speaker 8: and our guidance allows us to actually weather scenarios where
Speaker 8: there's a significant downturn to our demand, which actually we
Speaker 8: haven't seen yet through Q one and through April. We
Speaker 8: think it's a highly conservative We have great confidence that
Speaker 8: we're going to beat our guidance for both Q two
Speaker 8: and for the full year, but I think it's prudent
Speaker 8: to take a conservative approach given the uncertainties that are
Speaker 8: out there right now.
Speaker 7: Yeah, I'm looking.
Speaker 6: Sorry, I'm looking at your website.
Speaker 4: You have these giant customers Brookfield Ball for Gilbain, et cetera.
Speaker 4: And you just mentioned your Q one was strong, but
Speaker 4: your stock is pretty much flat over the last five years.
Speaker 6: It's just done nothing. Why do you think that is
Speaker 6: and what can you do to change it?
Speaker 8: Yeah, you have to remember over the last two years,
Speaker 8: we've kind of been in this challenging demand environment, and
Speaker 8: I think that has a lot to do. That has
Speaker 8: a big influence on the sentiment of our customers and
Speaker 8: how much they're willing to commit to in terms of
Speaker 8: the construction volume that they want to run on pro
Speaker 8: Cores platform. The key thing to note is customers still
Speaker 8: stay with pro Course, So our gross retention rate is
Speaker 8: still in the mid nineties and customers stay with us,
Speaker 8: and so when we've been in this environment for this
Speaker 8: period of time and then you start to layer in
Speaker 8: some of the additional aspects of what's going in the
Speaker 8: broader economic environment, I think this is what I was
Speaker 8: speaking to earlier, where customers are staying partner in partnership
Speaker 8: with us to make sure that we collectively manage through
Speaker 8: this environment. But ultimately, the industry is going to be
Speaker 8: resilient and we're going to be there along with our
Speaker 8: customers as we get through this. The other reason why
Speaker 8: customers stay with us and why we continue to get
Speaker 8: investor interest is because there is a tremendous opportunity in
Speaker 8: the industry and we're at the forefront of that. We
Speaker 8: are at the forefront with our customers in terms of
Speaker 8: digitizing a very underdigitized industry, and we're unfortunately just in
Speaker 8: this limbo right now where there's a tremendous amount of
Speaker 8: uncertainty right now in the broader environment.
Speaker 2: Been hearing from a lot of these major tech companies,
Speaker 2: a lot of software firms, and really the conversation has
Speaker 2: also been a focus on cap X as we think
Speaker 2: about AI and a lot of the transitions that are happening.
Speaker 2: Of course, that requires a lot of money. How are
Speaker 2: you all thinking about spending right now and what are
Speaker 2: you thinking in terms of AI developments at the company?
Speaker 8: Yeah, AI, I think is exciting for the industry, for
Speaker 8: pro Core, for general software. For us, we are thinking
Speaker 8: about AI and agents and large language models both from
Speaker 8: an extra works it's off into our product as well
Speaker 8: as internally in the ways that it could optimize the
Speaker 8: way we work as a company here at pro Core.
Speaker 8: We continue to make investments in AI. We have made
Speaker 8: investments historically in AI with some of our prior acquisitions,
Speaker 8: well before the recent push and the recent recent news
Speaker 8: and push on from a broader standpoint, it's something that
Speaker 8: we are continuing to work into our product with things
Speaker 8: like Copilot, our agents and our agents, studio, and then internally,
Speaker 8: we have been on a journey of operational excellence, of
Speaker 8: which AI is going to be a part of that.
Speaker 8: As we continue to scale our business past where we
Speaker 8: are today at the billion dollar mark, over next several
Speaker 8: billion dollars as we continue to grow, so critical to
Speaker 8: how we think about the way we operate internally as
Speaker 8: well as critical to the value that we add in
Speaker 8: our product offerings to our customers.
Speaker 11: How are you said earlier that your your guidance is
Speaker 11: conservative going into the second quarter. I'm wondering how are
Speaker 11: you're thinking about other spending, not just on AI, but
Speaker 11: also on for example, hiring. What are your plans there
Speaker 11: and then how far will you be also cautious there?
Speaker 8: But you know what we've talked about is last year
Speaker 8: and going into the first half of this year, we
Speaker 8: made a commitment to go on a number of changes
Speaker 8: in our go to market organization to set ourselves up
Speaker 8: for much better engagement, much more intimacy with our customers.
Speaker 8: We're basically moving to a general manager model, adding more
Speaker 8: technical resources that allows us to do that. Most of
Speaker 8: that hiring was already completed at the back part of
Speaker 8: Q four and N Q one. The reason that's important
Speaker 8: relative to this question is essentially, most of our expense
Speaker 8: structure is going to be around people, and most of
Speaker 8: our hiring incrementally has already been done, and so our
Speaker 8: expense profile is going to be very consistent throughout each
Speaker 8: quarter of this year, and as we continue to grow revenue,
Speaker 8: that scale will then flow through to our profitability profile
Speaker 8: as we work throughout each quarter of this year. In
Speaker 8: terms of the commitments, those are the major commitments that
Speaker 8: we got done in the beginning, and as I think
Speaker 8: about commitments going forward, making sure that we are very
Speaker 8: careful about making commitments that our too long term leave
Speaker 8: ourselves flexibility depending on what happens in the demand environment.
Speaker 8: And that's the way that I'm thinking about how to
Speaker 8: invest in the business. The other thing that we're doing
Speaker 8: is we still have two hundred million dollars left in
Speaker 8: our or astock buyback that we will continue to look
Speaker 8: for opportunities to deploy.
Speaker 4: Howard, thanks so much for joining us. Really appreciate your
Speaker 4: time today. Howard fo there, he's the chief financial officer
Speaker 4: over at pro Core and our thanks of course.
Speaker 6: Anina Trentman as well from.
Speaker 4: Bloomberg News Check out her newsletter CFO Briefing Bloomberg CFO Briefing.
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Speaker 4: We want to talk a little bit about Hollywood because
Speaker 4: President Trump has promised to tax films made in foreign countries,
Speaker 4: and there's so many questions around this. How would it
Speaker 4: happen and also would it be helpful to Hollywood, where
Speaker 4: I think it's safe to say revenue from this business
Speaker 4: has been on the decline. Chris Paul Mary joins us
Speaker 4: out of the Los Angeles Bureau, where he is Bloomberg
Speaker 4: News Entertainment Reporter extraordinaire to give us his take. And
Speaker 4: Andrew Silverman is here with us in New York City
Speaker 4: at seven thirty one Lex. He's a Bloomberg Intelligence government analyst.
Speaker 4: He's a tax guy, a tax lawyer, here in the
Speaker 4: studio to talk about this. Let's kick it off with you, though,
Speaker 4: Chris and I want to ask if people in Hollywood,
Speaker 4: if people in Los Angeles traditionally not Donald Trump's demographic
Speaker 4: or in favor probably of all of these tariffs. Were like, Ah,
Speaker 4: this one is good, this one makes sense, this one helps.
Speaker 6: Me in my own pocketbook.
Speaker 9: Kind of.
Speaker 12: So this all began with Trump's ambassador to Hollywood, one
Speaker 12: of them, John Voight, meeting last weekend with Trump and
Speaker 12: mar A Lago. They came up with a proposal his
Speaker 12: group of really based on tax incentives. These are the
Speaker 12: tax credits that studios get for making movies in various
Speaker 12: states and countries. And there was a small component of
Speaker 12: that that was about tariffs. The President grabbed the tariff
Speaker 12: concept and then you know, put that out on social media.
Speaker 12: I think the studios would love to see more of
Speaker 12: a tax incentive thing than a tariff related thing, because
Speaker 12: it's the tariff would impact their ability to still operate
Speaker 12: overseas and would cost them money.
Speaker 4: All right, So they'd rather see I guess subsidies than
Speaker 4: tariffs or tax incentives. As you say, it's interesting, I
Speaker 4: don't understand really exactly how this would work. And Andrew Silverman,
Speaker 4: maybe you have given it a little bit of thought
Speaker 4: from your vantage point, because there are a lot of
Speaker 4: films that are you know, there's scenes done in Eastern
Speaker 4: Europe or scenes filmed in China, for example, because of
Speaker 4: what a big market it's been, and then they still
Speaker 4: make the film, edit it, color it, put it together
Speaker 4: in in Hollywood. How does how does this work in
Speaker 4: a in a t tariff situation?
Speaker 7: Yeah, you're absolutely right. I mean, there are a lot
Speaker 7: of things that we don't know about about this terraff.
Speaker 7: We don't know if it only applies to US film
Speaker 7: studios making movies outside the United States. We don't know
Speaker 7: if it applies to foreign film studios making movies out
Speaker 7: of the United States. We don't know if if a
Speaker 7: foreign film companies coming into the US making movies here
Speaker 7: would have the TERRORF applying to them. But but the
Speaker 7: tariff is is is really interesting. It's actually quite like
Speaker 7: a tax. Uh well, you know, I'm a tax layer,
Speaker 7: so you know, to to to a hammer. Everything looks
Speaker 7: like an exactly right, But but it's it's a lot
Speaker 7: like either an excise tax or or a border adjustment tax.
Speaker 7: Right with regard to an XI tax. An excise tax
Speaker 7: in this in this case would be sort of a
Speaker 7: syntax right, attacks on alcohol, attacks on cigarettes. It's a
Speaker 7: it's a federal sales tax. So in that sense, this
Speaker 7: is quite like that is trying to get American studios,
Speaker 7: American film studios, and American theater goers to not see
Speaker 7: movies made outside of the United States to change their behavior.
Speaker 7: And a border adjustment tax is a tax that only
Speaker 7: applies to imports, not to exports. Same situation here, right,
Speaker 7: If you're bringing movies, presumably, if you're bringing movie making
Speaker 7: into the United States, tariff doesn't apply. If you're exporting
Speaker 7: your movie making outside the United States, teriff applies.
Speaker 2: And it seems as though there's been some positive reception
Speaker 2: at least from Hollywood. What I'm hearing anecdotally about this
Speaker 2: the idea of bringing more dollars and more things being
Speaker 2: made here in the US as it pertains to films.
Speaker 3: But I mean, of course, to your earlier.
Speaker 4: Point blow in La as well that said they're pretty
Speaker 4: happy about.
Speaker 3: That, right, So, Chris, what are you hearing?
Speaker 9: Well?
Speaker 12: I think you have to differentiate the people that want
Speaker 12: the sort of carrot portion of this whole package, the
Speaker 12: tax inteatives, as opposed to the stick portion, which is getting.
Speaker 9: Hit with the tariff.
Speaker 12: If you may be own studio space and are in
Speaker 12: the business of actually making movies. If you're an actor
Speaker 12: or screenwriter and you just want to see more work
Speaker 12: brought back to the US, then maybe you could make
Speaker 12: an argument for this whole movement, But I wouldn't say
Speaker 12: there's a broad embrace of the idea of tariffs. In fact,
Speaker 12: a couple of days after this first came out, you
Speaker 12: saw California Governor now Gavin Newsom suggests sort of his
Speaker 12: own plan, which was seven and a half billion dollars
Speaker 12: of federal tax credits, which was actually more in line
Speaker 12: with what the John Boyd group was proposing tax instead
Speaker 12: of federal tax credits to make movies in the US.
Speaker 3: Well, I mean Chris as a fall up to that.
Speaker 2: So I cover real estate stocks in one of the
Speaker 2: stocks that I cover is Hudson Pacific Properties, and they
Speaker 2: are actually an owner of a lot of these Hollywood studios.
Speaker 2: And why Bush analysts are actually saying that tariffs, this
Speaker 2: whole situation could potentially be a possible positive for the company.
Speaker 2: When we think about these Hollywood studios, can it be
Speaker 2: a perk at all for them and terms of bringing
Speaker 2: in more dollars to them, specifically at all.
Speaker 6: The tariff portion.
Speaker 12: It's a little tricky for the studios. They're going overseas
Speaker 12: because they can it's cheaper for them to do so.
Speaker 9: Okay, so if.
Speaker 12: They're forced by tariffs to come back here, it's not
Speaker 12: necessarily a win for them, it's a win for US jobs,
Speaker 12: which is definitely something President Trump wants to do, and
Speaker 12: so you could see why some workers.
Speaker 9: Would be happy about that.
Speaker 12: Calculating a tariff on a foreign foreign film, I mean,
Speaker 12: if you depends on how you define it. I mean,
Speaker 12: basically all the Star Wars films were shot in the
Speaker 12: UK or Tunisia. They were all foreign films. It's a
Speaker 12: very complicated process. The Void Group did suggest some way
Speaker 12: of doing so, only putting a tariff on the parts
Speaker 12: that are shot overseas, and then really only slapping the
Speaker 12: tariff on in the case of what they called a
Speaker 12: bad actor who could have made the movie domestically but
Speaker 12: deliberately one of It's a complicated thing.
Speaker 4: I mean, I know people in la as well who
Speaker 4: have space that studios rent, you know, who have warehouses,
Speaker 4: and they have made for years revenue on companies shooting
Speaker 4: movies in their in their in their places, and they
Speaker 4: have less revenue now because films, Uh, because studios are
Speaker 4: going overseas more. Also, I will note Australia's US envoys said,
Speaker 4: this is a tax on Bluey, which is a fantastic
Speaker 4: product completely filmed overseas or colored overseas. Andrew, I wonder
Speaker 4: about the legality of all of these taxes, and I
Speaker 4: guess it's a much bigger question, right. AIPA, which is
Speaker 4: the International Emergency Economic Powers Act, has been challenged in
Speaker 4: the past. President Trump tried to use it to uh
Speaker 4: TO to expel TikTok in his first term, and then
Speaker 4: a couple of courts told him no, can do Now.
Speaker 4: He's a huge fan of TikTok. Of course, that Chinese
Speaker 4: social media I used to spy on us. What do
Speaker 4: you think about challenges to his tariff powers? Will they
Speaker 4: Will they be successful in the courts?
Speaker 6: Any of them?
Speaker 4: Is Congress ever going to take this power back from
Speaker 4: the executive?
Speaker 7: So let me just start up by saying, I'm also
Speaker 7: a huge fan of blue Yeah.
Speaker 3: I have to see this.
Speaker 6: It's a great product, Absolutely love it.
Speaker 7: I must be late, so so so so. The reason
Speaker 7: that President Trump referenced national security when he was talking
Speaker 7: about this tariff on form produced films was because that's
Speaker 7: a key aspect of AEPA. Right, if it's it's related
Speaker 7: to national security, then the president can do it. And
Speaker 7: Congress has given that power away even though it's in
Speaker 7: the constitution. Congress said, Look, if it's national security, it's
Speaker 7: the president's business to do what he wants to do.
Speaker 7: And it has been challenged in the past. But but
Speaker 7: normally the president wins those lawsuits because courts don't question
Speaker 7: national national security.
Speaker 6: And and Hollywood feel are a matter of national security? Right?
Speaker 4: Isn't that Isn't that what we all think? Isn't that
Speaker 4: the case?
Speaker 7: Of course?
Speaker 4: Yeah, Chris, I mean the President has said that, Chris,
Speaker 4: I just want to ask for a second, because I
Speaker 4: can't let any mention of John Voight go without bringing
Speaker 4: up his christ Little baron that George Costanza bought.
Speaker 6: Does everyone know the reference that I'm making or does
Speaker 6: nobody watch? Seinfeld?
Speaker 3: I think you're alone?
Speaker 6: Am I alone?
Speaker 9: There?
Speaker 6: Chris Palmery? Do you not see that episode?
Speaker 12: You know, there's so many great John Voyd moments. I
Speaker 12: don't know where to start, but you know, look, you
Speaker 12: know the President Trump appointed him, Mel Gibson Sylvester Stallone
Speaker 12: as his ambassadors.
Speaker 9: I gotta give Void credit.
Speaker 12: He's the only guy who actually came up with some
Speaker 12: plan and he's getting everybody talking about it in Hollywood
Speaker 12: and maybe even won't get something accomplished.
Speaker 9: So it's a great episode, Cowboy.
Speaker 4: He leaves his pencil in the in the glove and
Speaker 4: then George has John Voyd's pencil. And anyway, I wonder
Speaker 4: if you think he also screened Alcatraz with the President
Speaker 4: while he was at mar A Lago, because together with
Speaker 4: the film Tariffs came the idea to reopen that prison
Speaker 4: off the coast of San Francisco. And what's the reaction
Speaker 4: been like on the West coast to that little piece
Speaker 4: of information?
Speaker 9: Similarly shock and awe.
Speaker 12: You know, you may have seen the reports that you
Speaker 12: know that was closed fifty years ago because it costs
Speaker 12: three times more than any other federal prison to operate.
Speaker 9: So I can't tell you if they screened it.
Speaker 12: I know they all watched the Kentucky Derby together and
Speaker 12: I'm almost positive that Trump did not bet on journalism.
Speaker 2: But and Chris, I know, Hollywood has really been through
Speaker 2: a lot, especially as we reflect on the fires.
Speaker 3: What's it like?
Speaker 2: I mean, of course you live there personally, what's it
Speaker 2: like and what's the recovery been like for the industry
Speaker 2: more broadly, Well, you have.
Speaker 12: To understand what's going on here. You have to step
Speaker 12: back a few years. We had this era people were
Speaker 12: calling peak TV and there were six hundred scripted TV
Speaker 12: programs were being made because everybody wanted to create the Netflix,
Speaker 12: and it didn't matter how much you were spending. You
Speaker 12: were trying to get as many subscribers. That started to
Speaker 12: change around twenty twenty two. The strikes happened, and then
Speaker 12: the studio said, look, they were already cutting back, and
Speaker 12: then they said we can get back by with a
Speaker 12: lot less. And at the same time, streamers were trying
Speaker 12: to reach a global audience. So we're now watching TV
Speaker 12: shows that were made in South Korea or France or Israel,
Speaker 12: and so this is what happened. We reported last year
Speaker 12: production in the US between twenty twenty one and twenty
Speaker 12: twenty four declined about twenty nine percent.
Speaker 9: So it's a number of factors.
Speaker 12: The cost cutting, the globalization of the entertainment industry, and
Speaker 12: the tax credits that you can get by making a
Speaker 12: film in the UK or Australia or whatever.
Speaker 9: A lot of things converging.
Speaker 6: All right, Chris, great to have you on the program.
Speaker 6: Thanks for joining us.
Speaker 4: Paul, Mary, they're out of our Los Angeles bureau covers
Speaker 4: Hollywood for US and entertainment. Andrew Silverman here from Bloomberg Intelligence,
Speaker 4: our resident tax lawyer.
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